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The role of the state in capital accumulation and class formation in Zambia
Mumeka, Lundondo, Ph.D.
The American University, 1987
Copyright ©1987 by Mumeka, Lundondo. All rights reserved.
UMI 300 N. Zeeb Rd. Ann Arbor, MI 48106
THE ROLE OF THE STATE IN CAPITAL ACCUMULATION
AND CLASS FORMATION IN ZAMBIA
by
Lundondo Mumeka
submitted to the
Faculty of the College of Arts and Sciences
of The American University
in Partial Fulfillment of
The Requirements for the Degree
of
Doctor of Philosophy
in
Sociology
Signatures of Committee:
Chairman: ^ ,
ïean of{the College
Date ^
1987
The American University Washington, D.C. 20016 tenip9\
ff>13 /u'STiIGAÎÎ UNIVERSITY LIBRARY ^ BY LUNDONDO MUMEKA 1987 ALL RIGHTS RESERVED THE ROLE OP THE STATE IN CAPITAL ACCUMULATION AND CLASS FORMATION IN ZAMBIA by Lundondo Mumeka ABSTRACT This research on the political economy of Zambia has been based on the hypothesis that in a developing economy such as Zambia, where private capital plays a negligible part in the process of capital formation, the state plays a pivotal role as a vehicle for capital accumulation. This research al-so has been based on the complementary hypothesis that in an economy in which the public sector is dominant, the economic role of the state is central to the process of class formation. Other hypotheses particularly germane to the study have guided our analysis. These are that no economic policy as a mode of state intervention can be properly analyzed without taking into account its class content, and that the state is neither a neutral instrument nor a monolithic weapon in the service of the ruling class. The purpose of this study is threefold; First, to analyze and measure the macroeconomic impact of state inter vention in the economy. This calls for analysis of the operations of the parastatal sector as a whole, and of ii individual enterprises therein with sufficient weight to exert perceptible impact on macroeconomic parameters. Second, to analyze and measure the macroeconomic effects of Zambia's integration into the international division of labor in the face of the inherent centrifugal tendencies of modern capitalism. Third, to determine the class characteristics of the Zambian State and to analyze the impact of its economic intervention on the processes of class formation. The results of the research support the hypothesized centrality of the Zambian State as a vehicle for capital accumulation and class formation. In this connection, no evidence has been found to suggest that the Zambian State is a simple instrument used by the ruling class to protect its economic interest. Instead, the Zambian State is found to have its own dynamics. Its real relationship with local and foreign class forces is largely an empirical question dic tated by historical conjunctures. Finally, the results of the research also stress the importance of exogenous factors in determining the effectiveness of state intervention in the economy as a result of Zambia's integration into the new global economy. Ill W ACKNOWLEDGMENTS To my father-in-law, the late Mr. Peter Harrison Mambwe, who always wished me great success and whose wisdom and vision continue to inspire me, I owe the greatest debt. He was my mentor and closest friend. He is greatly missed. To my father, the late Mumeka Mumeka, I wish to acknowl edge a very special indebtedness for enormous sacrifices he made under harsh political and economic conditions of the colonial rule so that one day I might walk through the gates of institutions of higher learning— a right denied Africans during the colonial rule. The values he held gave me an early awareness of the benefits of hard work and of striving for excellence in every endeavor of social life. For this I shall forever remain indebted to him. Two women whose love and encouragement gave me the strength to embark on a long journey of intellectual pursuit deserve special mention and thanks. They are my late mother, Mrs. Imbuwa Mumeka, and my mother-in-law, the late Mrs. Dalise Mambwe. They will always be missed. I owe a special debt to my wife, Cecilia, and my chil dren Imbuwa, Litia, Mundia, and Mambwe, who made untold sacrifices during my prolonged period of study leading to the completion of this dissertation. Without my family's ability to endure hardships this accomplishment would have remained a IV IF dream unfulfilled. My wife, Cecilia, must especially be thanked for her vital companionship and extraordinary under standing during the trying times of my graduate work. She is a woman of unique qualities and determination. My success is largely attributed to her rare qualities as a wife and mother. To my wife and daughter Imbuwa I am especially indebted for their immense help in typing, proofreading, and providing all-round assistance in completing this disserta tion. I gratefully acknowledge the invaluable support I received from His Excellency Mr. Nalumino Mundia, Zambia's Ambassador to the United States and former member of the Central Committee and Prime Minister of the Republic of Zambia; His Excellency Mr. Bitwell Kuwani, Zambia's Ambassa dor to Belgium and former governor of the Bank of Zambia; and Dr. Robert Nelsen, former executive secretary of the Chris tian Church (Disciples of Christ) of Indianapolis, Indiana. Their support and encouragement gave me hope when none was in sight. To these men of compassion and good judgment I express my deepest gratitude. Many other debts were incurred in the course of working on this dissertation. I would especially like to thank professors J. K. Siegenthaler and S. K. Farsoun, my disser tation directors, for exceptional care and attention they gave me during my years at the American University. They were my lead professors. They taught me the research methods used in this dissertation and introduced me to many of the sources utilized in connection with it. I am especially grateful to Professor Siegenthaler for accepting the respon sibility of committee chairman at short notice to replace Professor Farsoun, who was leaving for sabbatical at the School of African and Asian Studies of the University of London. I would also like to thank Dr. Gary N. Howe and Profes sor John Weeks for serving on my dissertation committee and for their enriching guidance in the early stages of the dissertation work. Thanks are also due to Dr. Robert David and Dr. Ken Kusterer for being so kind as to agree to serve on my disser tation committee at short notice to replace Dr. Howe and Professor Weeks, who left the country for research work in Europe. Finally, my profound gratitude is due to the Christian Church (Disciples of Christ) of Indianapolis, Indiana, and the Hall of Nations Foundation of the American University for generous tuition grants, which enabled me to complete my doctoral studies. The Sociology Department and faculty at the American University assisted me in various ways. For all this I am truly grateful. VI TABLE OF CONTENTS ABSTRACT ...... ii ACKNOWLEDGMENTS ...... iv LIST OF TABLES ...... xi LIST OF ILLUSTRATIONS ...... xix Chapter I. INTRODUCTION AND STATEMENT OF THE PROBLEM . . . 1 Significance of the Study ...... 4 H y p o t h e s e s ...... 11 Hypothesis 1 ...... 12 Hypothesis 2 ...... 12 Hypothesis 3 ...... 12 Hypothesis 4 ...... 13 Hypothesis 5 ...... 13 Hypothesis 6 ...... 13 Hypothesis 7 ...... 14 Structure of the S t u d y ...... 14 II. THEORETICAL PERSPECTIVE ...... 20 Introduction ...... 20 Marxist Theories of the S t at e ...... 22 The Postcolonial S t a t e ...... 31 The Debate over State Autonomy and the Postcolonial State ...... 38 Dependency Theory ...... 48 C o n c l u s i o n ...... - . 53 III. RESEARCH METHODOLOGY ...... 58 Introduction ...... 58 Definition of Major Terms ...... 60 Capital accumulation ...... 60 Class formation ...... 61 Relations of production . . 63 Mode of production ...... 63 Productive forces ...... 64 Capitalist mode of production ...... 64 Social formation ...... 65 ^Units of Analysis ...... 65 Sources of D a t a ...... 66 Published primary sources ...... 66 V l l Secondary sources on Zambia and comparative material ...... 67 Data Analysis ...... 67 Socioeconomic and Political Indicators . . . 70 Social indicators ...... 71 Economic indicators ...... 73 Political indicators ...... 79 C o n c l u s i o n ...... 84 IV. HISTORICAL BACKGROUND, 1890-1963 ...... 88 Introduction ...... 88 Zambia under the British South Africa Company Rule, 1889-1924 ...... 89 Imposition of native t a x e s ...... 97 The British South Africa Company and mining capital ...... 109 Capital Accumulation and Class Formation under British Colonial Rule, 1924-53 . . . 112 The colonial state, mining capital, and wage-earning classes ...... 114 Colonial structure of accumulation and class struggle ...... 121 Public economic policy and development of local business ...... 129 Zambia under the Federation of Rhodesia and Nyasaland, 1953-63 138 The federal state and the structure of capital accumulation ...... 142 Public investment and capital accumulation 145 Consolidation of capitalist mode of production and class relations ..... 163 C o n c l u s i o n ...... 194 V. THE POSTCOLONIAL STATE AND THE NEW STRUCTURE OF CAPITAL ACCUMULATION; THE ASCENDANCY OF THE PARASTATAL SECTOR, 1964-82 200 Introduction ...... 200 Indigenization of the Economy ...... 212 The Mulungushi Declaration ...... 212 Creation of state monopoly corporations; INDECO ...... 240 The Matero Declaration and nationalization of the m i n e s ...... 266 The Zambia Industrial and Mining Corpora tion and state control of the economy . . 289 C o n c l u s i o n ...... 299 Vlll VI. THE POSTCOLONIAL STATE AND THE NEW STRUCTURE OF CAPITAL ACCUMULATION; THE SIGNIFICANCE OF THE COPPER INDUSTRY, 1964-82 ...... 301 The Special Place of the Copper Industry in the Zambian Ec onom y ...... 301 Share of copper industry in the Zambian economy ...... 301 Contribution of the copper industry to international trade ...... 318 C o n c l u s i o n ...... 338 VII. THE POSTCOLONIAL STATE, INDIGENOUS CAPITAL ACCUMULATION, CLASS FORMATION, AND REPRODUCTION OF CAPITALIST RELATIONS ...... 343 Introduction ...... 343 State Control of the Economy and Development of Indigenous Bourgeoisie ...... 345 State intervention and expansion of capitalist relations of production in a g r i c u l t u r e ...... 351 Reorientation and establishment of financial institutions to support indigenous accumulation ...... 367 Zambianization, access to state resources, and the growth of the national bourgeoisie ...... 393 Indigenous private accumulation and contra dictions of state capitalism ...... 405 C o n c l u s i o n ...... 417 VIII. THE POSTCOLONIAL STATE AND INTEGRATION OF ZAMBIA INTO THE NEW INTERNATIONAL DIVISION OF LABOR; 1970-82 ...... 424 Introduction and Theoretical Perspective . . 424 Foreign Industrial Capital ...... 431 Sources of foreign industrial capital and the new patterns of foreign investment . 432 Growth of foreign-owned issued capital and capital accumulation in the parastatal joint-venture enterprises ...... 449 Foreign Finance Capital ...... 455 Sources and terms of foreign financing . . 456 External factors and accumulation of c a p i t a l ...... 528 Conclusion ...... 564 IX IX. SUMMARY OF THE STUDY, CONCLUSIONS, AND SUGGESTIONS FOR FURTHER RESEARCH ...... 573 Introduction ...... 573 Conclusions and Suggestions for Further Research ...... 583 Conclusions ...... 583 Suggestions for further research ...... 601 BIBLIOGRAPHY ...... 605 X LIST OF TABLES 1. Northern Rhodesia; Population by Race, 1911-51 . 92 2. Northern Rhodesia; Land Apportionment, 1947 . . 98 3. British South Africa Company; Revenue and Expenditure, 1911-24 , ...... 100 4. British South Africa Company; Revenue and Native Tax Revenue, 1916-24 ...... 102 5. Persons Convicted for Offenses against Native Tax Laws and Other Offenses, 1921-35 103 6 . Northern Rhodesia African Adult Males Working Outside the Territory, 1930-62 105 7. Income Tax Assessments in Northern Rhodesia with Income Tax Assessments on the Mining Companies as Percentage of the Total Income Assessments for Each Year, 1944-50 . . . 119 8 . Interest, Profits, and Royalties Remitted Abroad as Percentages of Gross National Income, 1945-49 120 9. Deployment of African Labor Force in Employment, 1 9 5 1 ...... 125 10. Composition of the Northern Rhodesia Legislative Council, 1924-48 131 11. Planned Expenditures under First (1947) Version of Ten-Year Development Plan, 1947-57 ...... 133 12. 1953 Version of Ten-Year (1947-57) Development Plan for Northern Rhodesia ...... 134 13. Federation of Rhodesia and Nyasaland Population in 1960 141 14. Rhodesia Railways; Capital Investment under the 1957-61 Development P l a n ...... 150 15. Expenditures on New Works since Federation, 1954-63, from Loan and Revenue V o t e s ...... 152 XI 16. Long- and Short-term Loans Granted to Farmers by Land and Agricultural Bank of Northern Rhodesia, 1955-61 ...... 157 17. Long- and Short-term Loans Granted to Farmers by the Southern Rhodesia and Northern Rhodesia Land and Agricultural Banks, 1953-59 158 18. Investment of a Permanent Nature of Statutory Marketing Organization in Southern and Northern Rhodesia in 1963 ...... 160 19. Government Expenditures in Respect to Marketing Facilities Provided by Agricultural Statutory Boards, 1957-61 ...... 161 20. Depreciation Allowance and Gross National Product, 1954-61 169 21. Capital Formation and Gross National Product, 1954-62 171 22. New Companies Registered and Increases in Nominal Capital of Existing Companies, 1953-56 .... 173 23. Value of Total Exports and Imports and Balance of Trade, 1954-62 ...... 177 24. Domestic Savings and Net Inflow of Capital from Abroad, 1956-63 180 25. Net Income Paid Abroad and Gross National Product, 1954-61 ...... 181 26. Commercial Bank Credit, 1954-59 ...... 187 27. Governmental External and Internal Borrowing, 1954-61 188 28. Wages and Salaries in the Federation According to Race, 1954-62 ...... 192 29. Net Contribution of Manufacturing Industry to Gross Domestic Product in Northern Rhodesia and Southern Rhodesia, 1954-61 215 30. The Trend in the Use of Profits by One Large Foreign-owned Company over Eight Years, 1960-67 218 31. Gross National Product and Net Interest, Dividends, and Profits Remitted Abroad, 1945-54 ...... 219 Xll W 32. Gross National Product and Net Interest, Dividends, and Profits Remitted Abroad, 1956-64 ...... 220 33. Gross National Product and Net Interest, Dividends, and Profits Remitted Abroad, 1965-69 ...... 221 34. Commercial Bank Credit to the Public Sector, 1966-69 ...... 230 35. Commercial Banks' Liquid Assets and Liabilities to the Public, 1965-70 ...... ; ...... 232 36. Commercial Banks' Deposits Expansion, 1966-69 . . 233 37. Financial Indicators of INDECO, 1964-70 ...... 246 38. Industrial Development Corporation: Total Assets, 1969-82 ...... 251 39. Major Subsidiary Companies of the Industrial Development Corporation and Equity Ownership as of March 31, 1982 252 40. Industrial Development Corporation: Total Value of Issued and Fully Paid Share Capital of Ordinary Shares of Par Value of K2 Each, 1970-82 ...... 254 41. Industrial Development Corporation: Long-term Indebtedness and Total Assets, 1973-82 .... 256 42. Industrial Development Corporation: Total Assets and Net Profit, 1970-82 257 43. Industrial Development Corporation: Turnover and Net Profit, 1970-82 258 44. Industrial Development Corporation: Depreciation Allowance and Total Assets, 1970-82 ...... 260 45. Industrial Development Corporation; Contribution to Government Revenue, 1970-82 263 46. Employment in Zambia's Manufacturing Industry and INDECO Manufacturing Companies, 1973-82 . . 265 47. Gross Fixed Capital Formation in the Mining Industry, 1954-64 . . 272 48. Gross Fixed Capital Formation in the Mining Industry, 1965-69 ...... 2 73 Xlll 49. Zambia's World Trade, and Exports and Imports to and from Industrial Countries, 1965-82 . . 281 50. State Ownership and Control of the Means of Production in the Mining and Mining- related Industries, 1982 ...... 284 51. Metal Marketing Corporation of Zambia (MEMACO) Limited: Total Sales, Turnover, Gross Profits, Taxation, and Net Profits, 1978-82 ...... 286 52, Zambia Consolidated Copper Mines Limited: Distribution of Issued and Fully Paid "A" and "B" Ordinary Shares for the Year Ended March 31, 1982 ...... 288 53. Zambia Industrial and Mining Corporation: Sub holding Companies and Percentage of ZIMCO Equity Shareholding as of March 31, 1983 . . 292 54. Contribution of Copper to the Total Value of Mineral Production, 1965-82 ...... 305 55. Contribution of Copper Industry to Government Revenue, 1964-82 . . . 307 56. Government Current Revenue and Expenditure, 1976-82 . . . 309 57. Contribution of Copper Industry to the Gross National Product at Market Prices, 1964-82 313 58. Employment in the Copper Industry and Employment in the Mining Industry, 1969-82 ...... 316 59. Employment in the Copper Industry as Percentage of Zambia's Total Employment, 1969-82 .... 317 60. Contribution of Zambia's Copper Production to World Copper Production, 1964-80 ...... 320 61. Contribution of Copper to Domestic Export Trade, 1970-82 ...... 322 62. Transport; Average Cost per Metric Ton of Copper, 1964-80 ..... 325 63. Index of Zambia's Import Prices, 1970-80 . . . 330 64, London Metal Exchange Average of Monthly Prices for Copper Electrolytic Wirebars, 1971-82 . . 332 XIV 65. World Copper Trade: Yearly Average Price Trends, 1950-81 ...... 333 6 6 . Relative Decline in Zambia's Foreign Exchange, 1970-82 ...... 335 67. Expenditure on Agriculture as Percentage of Total Central Government Expenditure, 1972-82 .... 354 6 8 . Sectoral Distribution of Gross Fixed Capital Formation during the First and Second National Development Plan Periods: 1966-70 and 1972-76 ...... 357 69. Values and Value Relatives of Food Imports, 1964-81 ...... 359 70. Wage-Labor in Agriculture as Percentage of Total Wage-Labor in All Industries, 1970-82 ...... 365 71. Commercial Banks' Loans and Advances as Percen tage of Total Assets/Liabilities, 1970-82 . . . 371 72. Commercial Banks' Total Loans and Advances as Percentage of Total Deposits, 1971-81 ...... 373 73. Commercial Banks: Balances Held in Banks Abroad as Percentage of Total Assets/Liabilities, 1965-82 ...... 375 74. Commercial Banks: Amounts Owed to Banks Abroad as Percentage of Balances Held in the Banks Abroad, 1965-82 376 75. Operating Ratios of Commercial Banks, 1970-82 . . 377 76. Treasury Bills and Government Securities as Percentage of Total Commercial Bank Loans and Advances to the Private Sector, 1970-82 . . 380 77. Portfolio Investments by Foreign Companies in the Development Bank of Zambia as of March 31, 1982 387 78. Development Bank of Zambia; Loans/Equity Sanctioned by Sector, 1974-82 ...... 390 79. Development Bank of Zambia: Foreign Currency Financing and Total Amount of Loans Sanctioned, 1977-82 ...... 392 80. Zambia National Building Society Loans as Per centage of Assets and Liabilities, 1970-80 . . 394 XV r 81. Companies Formed in Zambia in 1975 by Sector and Ownership ...... 404 82. Commercial Bank Loans and Advances to the Parastatal Companies and Statutory Enterprises, 1971-82 408 83. Foreign Ownership of Medium- and Large-Scale Companies in the Parastatal Sector as of December 31, 1982 ...... 438 84. Direct Foreign Investment in Joint-Venture Manufacturing Firms by Leading Capitalist Countries of the OECD, 1979 and 1982 446 85. Foreign Ownership and Growth of Companies in the Parastatal Sector, 1971-82 451 8 6 . Distribution of Profits in Joint-Venture Enter prises in the Manufacturing Sector, 1970-82 . . 452 87. Distribution of Profits in Jointly Owned Mining Companies, 1975-82 ...... 454 8 8 . Zambia; Balance of Payments on Current , Account, 1970-82 459 89. Outflow of Capital through Private Unrequited Transfers, 1964-82 ...... 461 90. Foreign Debt of the Government of Zambia by Lender as of December 31, 1 9 8 2 ...... 466 91. Total External Debt Outstanding, Including Undis bursed, and Total Value of Exports, 1970-82 . . 470 92. Total External Debt Outstanding (Disbursed Only) and Total Value of Exports, 1970-82 ...... 472 93. Total Net Disbursement of External Debt and Grants (Bilateral) by the OECD Development Assistance Committee Countries, 1970-82 .... 474 94. Net External Debt Disbursement by OECD Develop ment Assistance Committee Countries, EEC Members, and Multilateral Agencies, and Percentages of Disbursement, 1970-82 475 95. Total External Debt (Disbursed) Owed to the Member Countries of the OECD Development Committee, 1976-82 477 XVI 96. External Debt Service Paid to OECD Development Assistance Committee Countries, 1976-82 .... 479 97. Total External Debt Outstanding, Including Undisbursed, from Official and Private Sources, 1972-82 480 98. Official Debt and Private Debt as Proportions of External Debt Outstanding (Disbursed Only), 1972-82 ...... 481 99. Net Borrowing from the International Monetary Fund (Use of IMF Credit) as Percentage of Exports, 1972-82 ...... 486 100. Average Loan Terms for Public and Publicly Guaranteed External Borrowing; All Creditors, 1972-82 500 101. Average Loan Terms for Public and Publicly Guaranteed External Borrowing; Official and Private Creditors, 1972-82 501 102. Total External Debt as Percentage of Gross National Product, 1972-82 ...... 503 103. Total Debt Service as Percentage of GNP, 1972-82 505 104. Total External Debt Outstanding (Disbursed Only) and Total Debt Service as Percentage of Outstanding Debt, 1972-82 ...... 511 105. Total Disbursements, Total Debt Service, and Total Debt Service as a Percentage of Disbursements, 1972-82 512 106. Total Debt Disbursements and Net Capital Transfers, 1972-82 515 107. Total Debt as Percentage of Exports, 1970-82 . . 517 108. International Reserves and External Debt Outstanding; Disbursed, 1970-82 520 109. Ratio of International Reserves to Imports of Goods and Services, 1972-82 523 110. Debt Service as Percentage of Imports, 1972-82 . 524 111. Projected Debt Service for Public and Publicly Guaranteed External Debt, 1983-91 ...... 527 X V I 1 112. Advanced Capitalist Countries; Balance of Payments on Current Account, 1973-82 531 113. Advanced Capitalist Countries; Summary of Payment Balances on Current Accounts, 1973-82 ...... 532 114. Export and Import Trade, 1970-82 536 115. Purchasing Power of Primary Commodities (Metals and Minerals) Exported by Developing Countries in Terms of Imported Manufactures, 1970-82 (Constant U.S. Dollars, 1977-79 = 100) .... 547 116. Price Indices; Manufacturing Unit Value Index, 1970-82 (1980 = 1 0 0 ) ...... 550 X V I 11 LIST OF ILLUSTRATIONS 1. Control in the Parastatal S e c t o r ...... 296 2. Government Current Revenue and Expenditure, 1976-82 311 3. Zambia's Contribution to World Copper Production, 1964-80 ...... 321 4. Code of Leadership ...... 399 5. Total External Debt Outstanding (Including Undisbursed) as Percentage of Total Value of Exports, 1970-82 ...... 471 6 . Official and Private Debt as Percentage of Disbursed Debt, 1972-82 ...... 483 7. Total External Debt (Disbursed Only): Debt Service and GNP, 1972-82 ...... 507 8 . Total External Debt as Percentage of GDP, 1970-80 ...... 508 9. Total Debt Service as Percentage of Total Debt Disbursements, 1972-80 ...... 514 10. Debt Service as Percentage of Exports, 1970-82 518 11. Ratio of International Reserves to Disbursed Debt, 1970-82 ...... 521 12. Zambia's Balance of Trade, 1970-82 537 13. United States: Prime Lending Rate, 1974-80 . . 543 14. Purchasing Power of Primary Commodities (Metals and Minerals) Exported by Developing Countries in Terms of Imported Manufactures, 1970-82 . 548 15. Price Indices, 1970-82: Manufacturing Unit Value Index ...... 551 16. Zambia's Oil Import Bills, 1973-82 559 17. Model of the Circuit of Capital as a Whole . . 575 XXX CHAPTER I INTRODUCTION AND STATEMENT OF THE PROBLEM This dissertation is a study of the political economy of Zambia.1 The main purpose of the study is to examine the role of the state in capital accumulation and class formation in Zambia during the postcolonial period. In this connec tion, our principal thesis is that the state is above all a social relation— a material condensation of relations of classes, and riddled with class contractions. Thus, it is acknowledged from the outset that an exercise in the economic role of the state is essentially an exercise in class analysis. The dissertation addresses two related problems. The first to be addressed is the nature and characteristics of the postcolonial state as a vehicle of capital accumulation, and how, in this process, it has affected social relations and relations of production in Zambia. The first problem, then, is to determine the relation between the state and social classes as it engages in capital accumulation. This ^Zambia, formerly Northern Rhodesia (named after Cecil John Rhodes, the chairman of the British South Africa Company Board of Directors), with an area of 290,000 square miles and a population of 5.7 million, ended its colonial status as a British protectorate on October 24, 1964, and— under the name of the Republic of Zambia— began its history as an indepen dent nation with a president as head of state. is a class analysis because the state does not exist outside class relations. The second problem concerns the process of class formation in Zambia, and the strategies or types of class alliances adopted by the postcolonial state for capital accumulation. We believe that the type of class alliance on which the state rests and the strategy for capital accumula tion directly affect the distribution of income and the pattern of exploitative relations. The critical problem for analysis is the examination of the conditions under which the process of capital accumula tion takes place and its impact on the class structure. Class relations are viewed as a point of departure within which to locate the problem of capital accumulation. In our class analysis, the word class is used as an abstraction whose purpose is to enable us to identify or classify the major social groupings in the Zambian social formation. The primary aim of class analysis in this study is to enable us to understand the social configurations within Zambia. The study investigates the following general aspects. 1. Examine the socioeconomic and political effects of the role of the state as a vehicle of capital accumulation in postcolonial Zambia. We intend to examine how the require ments of capital accumulation, together with class struggle, shape public economic policies. 2. Study and analyze the class characteristics of the postcolonial state in Zambia and the extent to which it acts as an agent of class formation while performing economic functions. 3. Identify contradictions generated by broad and specific government economic policies and their bearing on the relations between labor and capital, as the basis for analyzing the social relations of production. 4. Investigate the nature of foreign capital investment and how it depends on domestic class forces for its own penetration of the Zambian economy through joint ventures and other direct investment projects. More specifically, the dissertation addresses the following questions. 1. In what respects does the interventionist nature of the Zambian postcolonial state differ from that of the pred ecessor colonial states (Northern Rhodesia Government and the Government of the Federation of Rhodesia and Nyasaland)? 2. What is the process of indigenous capital accumula tion by the state? To what extent has the indigenous bourgeoisie transcended its essentially petty-bourgeois character? 3. To what extent do postcolonial economic policies facilitate the reproduction of capitalist production and capitalist relations of production? 4. What class relations exist between the owners of foreign capital and the owners of local capital, both state and private? What economic benefits does the state and national bourgeoisie derive from the presence of foreign capital? Is there any overall compatibility between the interests of foreign investors and the interests of the state and local bourgeoisie despite inevitable contradictions? Implicit in these questions is the assumption that the state (as the organizer of Zambia's economy), local capital, and foreign capital derive mutual benefits from surplus value created by labor in Zambia. Significance of the Study The significance of this study derives from the fact that it sets out to analyze the role of the state in capital accumulation and class formation, paying particular attention to class analysis and the internal dynamics of Zambia's social formation. By working from the perspective of the class theory of the state, our study takes a different theo retical path. None of the preceding studies has rigorously analyzed the role of the Zambian state from this perspective. Visibly lacking in these studies is the analysis of the state in the economy and its posture toward various classes. Consequently, they are lacking in providing a sustained class theory and analysis. The main focus of these studies is the nation-state. They assume the existence of some undifferen tiated "national interest" or national perspective. Thus, Harvey argues the case for Zambia's economic dependence by focusing on the dominance of copper, the shortage of educated Zambians, dependence on one international route— the railway that runs through Rhodesia (now Zimbabwe), and dependence on Rhodesia and South Africa for some 60 percent of im p o rts.^ Timothy Shaw, who attempts class analysis in his study of Zambia's dependence and underdevelopment, sees the "new ruling class" as being in the service of external interests. He writes of the political economy of Zambia; The dominant structure of the contemporary political economy of Zambia is a linkage between internal and international hierarchies. The new ruling class main tains its position by association with external inter ests. Although the relationship between Zambia and the world is characterized by unequal exchange, the Zambian elite is able to attract sufficient capital and patron age to perpetuate its national control. Shaw imputes the role of the state to the Zambian elite. His is, at best, one-class analysis. This approach, as we shall argue in this study, masks rather than clarifies what is actually happening in contemporary Zambia. For Shaw, like Harvey, economic interests of Zambia are defined by the ruling class without references to other classes. Concrete analysis is necessary. The central concern of our study is that in analyzing the political economy of Zambia, and of any nation, for that matter, we must begin with the specification of the state and classes. With respect to the state, our study attempts to ^C. Harvey, "International Corporations and Economic Independence; A View from Zambia," in Economic Independence in Africa, ed. Dharam Ghai (Nairobi; East African Literature Bureau, 1973), pp. 176-77. ^Timothy B. Shaw, Dependence and Underdevelopment; The Development of Foreign Policies of Zambia, Papers in Interna tional Studies, Africa Series No. 28 (Ohio; Ohio University Center for International Studies, 1976), pp. 3-4. clearly delimit the complex of institutions that go to make the Zambian state. We will attempt, as far as possible, to demonstrate concretely the linkages between the state and system of class inequality, particularly its ties to the dominant social class. And the study will attempt to specify the functions of the Zambian state under the capitalist mode of production in relation to the noncapitalist mode of production. This approach enables us to refrain from conceptualizing the state in the simple instrumentalist perspective. The state is not treated entirely in terms of its accumulation function. Moreover, the state is not simply an executive committee for managing the affairs of the capitalist class; it is also an object of class struggle in itself. Studies that precede this study subscribe to dependency theory. They argue that Zambia's economy is in a relation ship of dependency. Their problematic is one of the domina tion of a weaker economy by stronger ones. Theirs is a problem of unequal exchange. If this domination could be removed, so would be the economic backwardness that charac terizes Zambia. That is, these studies see Zambia's economic problems as a direct function of the position it occupies on the international market. One of their basic assumptions is that the existing international economic system is structured in such a way that most of the "social surplus" produced in Zambia is siphoned off through numerous mechanisms such as the international banking system, various international lending institutions, and transnational corporations with headquarters, in metropolitan centers. The rest accrues to a narrow stratum of the population, a stratum whose primary function is to act as local representatives of international capital and facilitate the penetration and continued exploi tation of Zambia. The major weakness of these arguments (among others) is that they fail to take into account the internal class and productive forces. Consequently, external market forces are presented as the determinant forces of what happens in Zambia. The logic of this analysis subordinates class structure and class struggle within Zambia to the position that Zambia occupies on the international market. We contend that the struggle between labor and management in Zambia's copper industry cannot be adequately comprehended in terms of the price of copper on the London Metal Exchange. It is important that we also understand the politics of copper production in Zambia. On these grounds, we question the theoretical position that asserts that in the relationship exterior/interior the forces in the exterior are determinant over the forces in the interior. Importantly, we argue that such a theoretical stance does not enable us to understand either the evolution of capitalism or the establishment of "socialism/humanism" in Zambia. Our theoretical position is that international or external interests alone cannot adequately explain Zambia's economic problems. The probable value of this study also lies in the fact that it does not take as given the dominance of the metro politan bourgeoisie as is the case in most of the "radical" interpretation of Zambia's political economy. This approach avoids theoretical defects of using loose formulations to explain the relationship between foreign capital and the domestic bourgeoisie. It is hoped that this study will make a contribution to learning in that it not only recognizes that one of the main current features of postcolonial societies is the increasing role that the state plays in the process of capital valoriza tion and accumulation, but tries to fill the gap by attempt ing a serious theoretical conceptualization of this phenome non of state capitalism. While the phenomenon of state capitalism (dominance of state-owned companies) as it relates to Zambia has been the subject of keen study, mostly descriptive, by some authors/* the works of these authors, who work from dependency perspective, have the effect of misrepresenting the true nature of state capitalism, namely its class content. We are in agreement with Ben Turok, who writes: The Zambian state is highly interventionist, which does not mean that its activities are in the interests of the people as a whole. To bring out the effects of this ^Among these authors, see Ann Seidman, "Problems of Industrialization in Africa: Testimony before the Sub committee on Africa, U.S. House of Representatives, 15 September 1977," Issue 7 (1977): 23-25. intervention it is necessary to go beyond mere institua tional considerations which is unfortunately the more common focus of conventional political science. What the state does must be seen as a dynamic component of the system as a whole, having important effects on the mode of production and reproduction of classes and class struggle.5 Contrary to these authors, we argue that state capital ism has a defined class character. This characterization enables us to view state capitalism as a specific form of capitalist relations. In this way, the illusion that state capitalism represents an attempt by the neutral state to overcome postcolonial problems of the accumulation process or the beginning of a transitional process can be dispelled. Additionally, this characterization forces us to specify this form of capital and, hence, to deepen the understanding of this phenomenon as a necessity in order to know how to struggle against capital under its form of state capitalism. In recognizing the centrality of the role of the post colonial state as an instrument of capital accumulation and class formation, we do not accept the view mostly championed by radical students of Zambian neocolonialism, whose concep tion of the postcolonial state in Zambia is that of the servant or agent of an economic class located abroad. Our position is that the present system of state capitalism represents a distinct departure from the colonial system.^ ^Ben Turok, "Zambia's System of State Capitalism," Development and Change 11 (July 1980):459-78. Gpor a similar rejection of this view in respect to the growth of indigenous capitalism enterprise in Kenya, see Nicola Swainson, "The Rise of a National Bourgeoisie in 10 In this respect, a question considered fundamental may be posed. What class or classes are behind state capitalism in Zambia, and why do they prefer this route to private accumu lation? Implied in this question is yet another question: Which is the ruling class? It is believed that the theoret ical approach adopted in this study will help improve the overall terms in which the debate on the study of Zambia's political economy has been cast. In order to transcend the problematic of the underdevelopment theorists on the Zambian scene, this study maintains that it is only in terms of the general requirements of capital accumulation that the relation of the state to underlying class forces can be adequately understood. In respect to the above argument, we seek to examine certain fundamental issues that are not addressed by other Zambian studies. It is of theoretical importance to ask if an independent Zambian capitalism is possible. This question is especially fundamental in postcolonial societies such as Zambia where the state or public sector dominates in the economy. If an independent capitalism is possible, it is still important to discover whether such indigenous capital ism is private or public. In relation to this point, we hope to offer a correction of the oversimplified view that sees all exploitation as foreign based. Kenya," Review of African Political Economy 8 (January-April 1977):39-55. 11 The other probable value of our study is that it seeks to determine the nature of emerging local capitalism— that is, whether these are not just traders but businessmen and women engaged in productive investment. In this respect, we expect to show that such local capitalists have the ability to maintain accumulation independently from foreign capital, but not from the state. In relation to these issues, the study also expects to show that while a local group of capi talists (both private and public) is capable of maintaining accumulation independently from foreign capital, it does not necessarily mean that an independent capitalist class, in control of an independent industrial base, is developing. This may seem paradoxical, especially in the parastatal sector, which comprises fast-growing and powerful local industrial capital. However, our reasoning is that as local industrial capital moves into fields of production that are more technologically complex a different pattern of relations between capitals is likely to emerge where large foreign capital (especially multinational capital) dominates through monopolizing the much needed technology rather than through direct ownership. Hypotheses In relation to our principal thesis, namely that the state is above all a social relation, a material condensation of relations of classes, and riddled with class contradic tions, we can derive some hypotheses from our conceptual 12 scheme. If our general conceptualization of the state is correct, we would expect the seven hypotheses presented below to be supported. These hypotheses are the principal basis for examining the key relationships between increased economic activities of the Zambian postcolonial state and capital accumulation on one hand, and class formation on the other. Hypothesis 1 The role of the state as a major vehicle for capital accumulation in Zambia is not independent of class interests. This is to hypothesize that state capitalism is a phenomenon that has a defined class content or character. Specifically, the dominant economic function of the state gives rise to a sector of the ruling class that does not originate in the class of private owners of the means of production. Hypothesis 2 While the state has the ability to maintain accumulation independently from foreign capital holdings, such ability will vary with the country's external financial linkages. These linkages will tend to influence Zambia's specific economic policies and political actions. Hypothesis 3 The fundamental issues of capitalist property relations are not resolved by transfer of the means of production from foreign to state ownership; as the largest single owner of 13 property and employer of labor in Zambia, the state facili tates the reproduction of capitalist relations of production. It is our contention in this study that state capitalism tends to generate the same relations of production as does private capitalism. Hypothesis 4 The process of indigenous capital accumulation and the extent to which the indigenous bourgeoisie transcends its essentially petty-bourgeois character depend upon the state's ability to act as an instrument of capital accumulation and for increased indigenous control over foreign capital. Hypothesis 5 Since independence, there has been an increase in the use of state powers by Zambians to accumulate capital; conse quently, an independent indigenous bourgeois class that has the ability to maintain accumulation independently from foreign capital, but not independent of the state, has developed. Hypothesis 6 Private capital can only expand in a capitalist economy. If hypothesis 6 is correct, we would expect parastatal companies to function as mechanisms for transforming the noncapitalist economy to capitalist, thereby establishing linkages that provide possibilities for private capital accumulation. 14 Hypothesis 7 Our last hypothesis is that there are contradictions between class interests of indigenous and foreign capital on the one hand, and between class interests of the indigenous bourgeoisie, the parastatal companies, and the party on the other hand. Structure of the Study The dissertation comprises nine chapters. The present chapter, which serves as an introduction, also sets out the problems to be addressed and discusses the significance and ~ the hypotheses of the study. Chapter II discusses pertinent theories and approaches relating to our study, namely Marxist theories of the state; the theory of the postcolonial state; dependency theory; the world systems theory; unequal-exchange theory; and accumula tion on a world-scale approach, which is a variation of the unequal-exchange theory. The accumulation on a world-scale approach directs its energy to ground unequal-exchange in a labor theory of value. Chapter III addresses the methodology used in the study. In this regard, it discusses our research design, pointing out the advantages and limitations inherent in this type of research design. Chapter IV is devoted to a general survey of the history of Zambia. The periods covered are the period of the British South Africa Company (often referred to as the Charter 15 period) from 1890 to 1924; the period of British colonial rule, 1924 to 1953; and the Federation period, between 1953 and 1963, when Zambia was under the colonial rule of the white settler Government of Rhodesia and Nyasaland. The roles played by these three regimes with respect to capital accumulation in Zambia and their implications for class formation are discussed. This chapter is intended to provide the necessary background information concerning the behavior of the postcolonial state in Zambia with regard to capital accumulation and its bearing on class formation. Chapter V introduces the study of Zambia's postcolonial state, which is our primary unit of analysis. In this regard, it discusses the nature and character of the post colonial state in Zambia and its general role in Zambia's economy and its effect on processes of class formation. This chapter also discusses the measures taken by the postcolonial state between 1964 and 1982 to indigenize the economy and develop the new and expanded structure of capital accumula tion. The chapter also examines the efforts made by the state to develop and expand the forces of production as part of the overall strategy for accumulating capital and foster ing economic independence. The analysis of the role of the postcolonial state in capital accumulation also addresses the question of how an embryonic Zambian bourgeoisie began to emerge as a result of major economic reforms, and the estab lishment of the Development Bank of Zambia and the Zambia 16 State Finance Company to effect Zambianization of the economy. This analysis is continued in chapter VII. Chapter VI continues to examine the effects of the new structure of capital accumulation on the overall process of accumulation. For this reason, the whole chapter is devoted to the discussion and analysis of the special place the copper industry occupies in the Zambian economy as the major mechanism that links the Zambian economy to the world economy. Chapter VII discusses the specific measures taken by the state to facilitate indigenous private capital accumulation, which led to the emergence of a Zambian property-owning class recruited from preindependence classes of petty-bourgeoisie, and a class of "new bourgeoisie," most of whom are "state functionaries.The discussion includes the steps taken by the state to protect newly formed Zambian businesses from competition by foreign-owned and -controlled firms. The chapter also discusses various state economic activities that serve as the major sources for accumulation of capital, and for the reproduction of capitalist relations of production. Finally, the chapter examines the extent to which Zambians have used state powers to support their accumulation efforts. Contradictions inherent in state economic policies that have ^The term "state functionaries" as used in this study refers to government ministers, highly placed civil servants such as permanent secretaries, general managers and managers of parastatal corporations who have used their strategic locations in the economy to accumulate large amounts of money that is turned into capital. 17 brought about state and private ownership of property are examined in the context of their effect on class relations and relations of production. Chapter VIII discusses the effects of Zambia's integra tion into the international division of labor, and their impact on both the process of capital accumulation and the role of the Zambian state as the main vehicle for investment funds. In this respect, the chapter examines the place of foreign industrial capital and international finance capital (public and private) in Zambia's economy and their implica tions for class relations in postcolonial Zambia between 1964 and 1982. The study of the accumulation of industrial capital is most fundamental, notwithstanding the role played by finance capital in Zambia's economy. The core of our discussion in this chapter revolves around the interrelation ship of foreign capital, local capital, and the state in fostering industrial development. This chapter is divided into two sections. The first section examines forms of foreign direct investment in Zambia in light of state regula tions that restrict foreign investment to certain types of businesses. In this respect, foreign firms are classified according to the type of ownership, that is, whether owner ship is 100 percent foreign or a joint venture, and percent age of shareholding in such joint venture companies. Foreign-owned companies are also classified according to the type of investment; chemical and processing, trading and 18 manufacturing, construction and.mining. Then, the source of foreign capital and their policy implications are examined. The second section discusses the role played by international finance capital in Zambia's economy, and the sources of such finance capital: foreign banks and other financial institu tions, international institutions, and foreign aid. It is intended to examine how foreign banks and financial institu tions function to lubricate the flow of finance capital into Zambia's productive enterprises. In this chapter we also examine how external debts incurred by the state either directly or vicariously (government-guaranteed loans) affect the country's economic policy from time to time, and their bearing on foreign exchange control policy. Problems of balance-of-payments are also discussed, and the extent to which they affect the state's role as the nation's agent for capital accumulation and its ability as the dominant sponsor for industrialization in Zambia. Generally, chapter VIII examines the nature and extent of the penetration of foreign capital into Zambia and its effect on class relations. In this connection, as far as available data permits, we analyze the bases for conflict and cooperation among representatives of foreign capital, indige nous capitalists, and the top echelons of the state-owned conglomerates and general managers of their subsidiary companies. This approach enables us to examine the internal structure of the Zambian elite (and social formation) so as to produce a picture of collaboration and competition among 19 its different social classes. The relative autonomy of the state to intervene in the economy is also analyzed in rela tion to the penetration of foreign capital, especially with regard to the impact of external debt and the threat to the country's creditworthiness. Chapter IX summarizes the study, pointing to its theoretical implications. It draws conclusions and offers suggestions for further research. CHAPTER II THEORETICAL PERSPECTIVE Introduction In this chapter we examine pertinent Marxist theories of the state and social classes. We also discuss the dependency theory, which significantly influenced previous studies of Zambia's political economy. Review of related literature is intended to serve as a guide as we operationalize key concepts, and as a guide to our analysis. As we turn to the discussion of the theory of the state it is necessary that we state our position regarding the theory of the state. We are against the idea of a general theory of the state. By this we mean that one cannot develop a fully determinate theory of the state. A single theory cannot comprehend the totality of the state's determination without resorting to reductionism of one kind or another. For this reason, it is our theoretical stance that there cannot be a state in general. By the same token, in this study we refrain from generalizing some characteristics of any one of the states to the other two states, apart from our general position that the state is a class instrument, because given its insertion in the capitalist mode of produc tion it cannot be anything else. All states share this common characteristic. As we have argued, the state is not a 20 21 neutral instrument or umpire, the servant of society as a whole or of the general interest. The state machine is manifestly not neutral. But notwithstanding these commonly shared characteristics, each state is historically deter mined. This study analyzes the role of each state in the context of its historical specificities. By rejecting a general theory of the state we are enabled to engage in an analysis of the many determinations that are combined in a concrete conjuncture. This position helps to avoid errors in theoretical analysis, and produces the theoretical tools with which particular conjunctures can be examined. It is also our theoretical posture that while our theo retical approach emphasizes the analysis of relations of production, their various conditions of existence, and their effects on other social relations, we stress the need for being aware that the state is located on the terrain of the social formation that comprises more than economic relations and their conditions of existence. In this regard, we believe that an analysis of the state, its various conditions of existence, and its effects on other social relations must include more than the issue of economic relations and class forces. For this reason our analysis of the Zambian state attributes a central role in the process of capital accumula tion to interaction among class forces and aims at estab lishing the relations between the political and economic 22 features of Zambia without reducing one to the other or treating them as totally independent and autonomous. It is also our theoretical position that although the state should be seen as a subject capable of exercising power, it does have unequal and asymmetrical effects on the ability of different classes to realize their interests through political action. This is what we mean when we say that the state is not and cannot be a neutral instrument. However, we do not deny that the state can be used— this, after all, is the very rationale behind the struggle for state power. The point being emphasized is that the struc tures of political representation and state intervention involve differential access to the state apparatuses and differential opportunities to realize specific effects in the course of state intervention. This theoretical stance makes it possible to avoid treating the state as a simple passive instrument readily manipulated by the dominant class. Marxist Theories of the State The commonly quoted formulation of the Marxist view of the state is found in the Communist Manifesto; "The execu tive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.Although we subscribe to this theory, which perceives the state as an instrument of class rule, we recognize that this formulation ^Cited in Robert C. Tucker, The Marx-Engels Reader (New York: W. W. Norton, 1978), p. 475. 23 is not without problems. The state is not simply an execu tive committee of the capitalist class; it is also an object of class struggle in itself. Also, as Miliband^ argues, this formulation presents many problems that need careful probing. Inherent in this formulation is the likelihood of assuming that class power is automatically translated into state power. What is important is to realize that the relation of the ruling class to the state is always and in all circum stances bound to be problematic. Realizing this problem, Block^ proposes two elements of an alternative Marxist theory of the state. The first element comprises a different way of conceptualizing the ruling class and its relationship to the state. He contends that this reconceptualization makes possible the second element— the elaboration of a structural framework that specifies the concrete mechanisms that make the state a capitalist state— claiming that other structural theories have tended to analyze structures in an abstract and mystifying way. Block suggests that the capacity of capital ism to rationalize itself is the outcome of a conflict among three sets of agents— the capitalist class, the managers of the state apparatus, and the working class. According to Block, rationalization occurs not as a function of the consciousness of one particular group. ^Ralph Miliband, Marxism and Politics (Oxford: Oxford University Press, 1977), p. 67. 3pred Block, "The Ruling Class Does Not Rule," Socialist Revolution 7 (May-June 1977) :7. r 24 Costello,* like other theorists of the structuralist variety, accuses the classic theory of the state of abandon ing the concrete analysis of historically specific capitalist states for the endless repetition of abstract phrases about the state in general, and that the state is conceived as a simple, or complex, machine or tool, the instrument wielded by the dominant class against the others. Costello further argues that instrumentalism fails to see the state and the bourgeoisie as social processes that are constantly united and divided by class struggle. He contends that this perspective cannot grasp the complexity of the contradictions within the state itself, nor those between the state and the dominant class. He adds that by seeing the state as nothing but an instrument used by the ruling class, the state is not a site of class struggle, rent with contradictions, but a thing above class struggle, a monolithic weapon in the hands of the ruling class. This, obviously, is not the position taken by Marx and Engels as we shall show. As we have stated earlier, we share the view that it is a theoretical error to conceive of the state as a simple instrument in the service of the dominant class. This is not a repudiation of our overall theoretical position, which acknowledges that with the development of modes of production based on antagonistic social classes, the state takes on specifically class-related functions. This position of the *Paul Costello, "Capitalism, the State and Crises," Theoretical Review 20 (January-February 1981);3-10. 25 state was described by Engels, showing that the state is the product of society in a determined state of its development— it is the confession that society is caught up in an insol uble contradiction with itself: In order that these antagonisms, classes with conflict ing economic interests, might not consume themselves and society in fruitless struggle, it becomes necessary to have a power seemingly standing above society that would alleviate the conflict and keep it within the bounds of "order," and this power, arisen out of society but placing itself above it and alienating itself more and more from it, is the state. . . . Because the state arose from the need to hold class antagonisms in check, but because it arose at the same time in the midst of the conflict of these classes it is, as a rule, the state of the most powerful, economi cally dominant class which, through the medium of the state, becomes also the politically dominant class, and thus holding down and exploiting the oppressed class.^ While the original functions remain, they have become secondary to that of protecting the dominant mode of produc tion and existing class relations. Thus, class struggle has implications for the form and nature of the state. Our position avoids economic reductionism, which assumes that the economic base determines the balance of political forces in the struggle for state power as well as the institutional form of the state as an instrument over whose control politi cal struggle is waged. As an example, when capital accumula tion is beset by crises that are intensified by the growing Friedrich Engels, The Origins of the Family, Private Property and the State (Moscow: Progress Publishers, 1948), pp. 186-88. Engels here is dealing with the origins of the first state and in general, but it has to be added that conquest states, including colonial states, arise primarily (not entirely) from the class conflicts of societies origi nally external to the conquered territory. 26 strength of the working class struggle, it becomes increas ingly impossible to confine the effects of these crises to economic reproduction as the working class seeks the politi cal rights and the exercise of political power to defend and advance its economic interests. This has often led to direct confrontation between the state and workers. Our analysis seeks to penetrate beneath the level of appearance and, as such, cannot isolate politics from the fundamental relations of exploitation. Also, while it is true that a specific dominant class controls the state apparatus and uses this control to maintain its economic and political domination, it is important to realize that the dominant class is made up of different (potentially or actually) conflicting elements. Also, since the Manifesto refers to common affairs, implic itly there are particular ones as well. Therefore, Marx and Engels recognized that the state has essentially to perform the function of mediation and reconciliation. In defense of Marx and Engels, it can be argued that they did not "just" regard the state as a simple instrument to be used by the dominant class, for if the state is to perform a mediating and reconciling function for what are, in effect, different elements or fractions of the bourgeoisie, which have differ ent and conflicting interests, it clearly must have a certain degree of autonomy in relation to the ruling class. Suffice it also to point out that insofar as the ruling class is not monolithic it cannot act as a principal to an agent and, for this reason, it cannot use the state "simply" as its 27 instrument. Marx and Engels discuss the concept of a separate state interest. They show that under certain conditions limited state autonomy becomes possible; "The state has become a separate entity, besides and outside civil society; but it is nothing more than the form of organization which the bour geoisie necessarily adopt for both internal and external purposes, for the mutual guarantee of their property and interest. In addition to the case of Germany in the middle of the nineteenth century, Marx discusses the emergence of the Bonapartist regime in France due to deliberate abdication of power by a bourgeoisie unwilling to exercise it.^ These cases are important guides for analyzing concrete social formations as they demonstrate that while the exis tence of a relation between the state and the dominant class is central to Marxist theory of the state, the nature of this relation is not to be taken for granted since it is contin gent upon historical and structural conditions. These cases suggest that especially in periods of transition, when no one mode of production is predominant or none of the contending classes is able to assert its hegemony, that the state. ^Karl Marx and Friedrich Engels, The German Ideology, ed. C. J. Arthur (New York: International Publishers, 1970), p. 80. ^Karl Marx, "The Eighteenth Brumaire of Louis Bonaparte," in Karl Marx and Friedrich Engels, Selected ■Works, vol. 1 (Moscow: Progress Publishers, 1962). 28 sometimes referred to as the Bonapartist or Caesarist state, may act with relative autonomy in determining the future structure of the social formation. What is important here, as we shall again argue, is that the instrumentalist perspec tive provides us with analytical tools that should make it possible for us to address the problem of "demystifying" the appearance of state autonomy and neutrality and indicate the circumstances in which the state may indeed act with relative autonomy. Miliband® addresses the problem of demystifying the appearance of state autonomy. He challenges the prevailing pluralist thesis of state power, that of the state as an arena in which different groups, interests, and coalitions struggle over different issues within a general framework of agreement over norms and procedures. Theoretical positions taken by both the instrumentalist and structuralist perspectives may be summarized by present ing some of the views that characterized the debate between Ralph Miliband (for the instrumentalist perspective) and Nicos Poulantzas (for the structuralist perspective). Briefly, these are the contending positions: The instrumen talist thesis suggests that the state is an instrument of the dominant class, which intervenes directly or indirectly in ®Ralph Miliband, The State in Capitalist Society (New York: Basic Books, 1969). E" 29 its functioning. Poulantzas^ argues that the state is constrained by its position within a given social formation; intervention by the dominant class is not necessary and may in fact be detrimental to this process. The autonomy of the state, with respect to the direct intervention by the domi nant class, enables it to operate more effectively in repro ducing the dominant class structure and in organizing the hegemony of the dominant class (or the power bloc). Both perspectives generally share these underlying complementary questions: "Why does the state serve the interests of the capitalist class?" and "How does the state function to maintain and expand the capitalist system?" Both perspectives have formulated these questions at different levels of abstraction and with different methodological principles. Miliband and Poulantzas agree that a certain level of state autonomy may be necessary for the survival of an estab lished class system. In the debate for the instrumentalist perspective, Miliband argues as follows: "In the Marxist scheme the 'ruling class' of capitalist society is that class which owns and controls the means of production and which is able, by virtue of the economic power thus conferred upon it, to use the state as its instrument for the domination of ^Nicos Poulantzas, "The Problems of the Capitalist State," New Left Review 58 (November-December 1969):239-50; and "The Capitalist State: A Reply to Miliband and LaClau," New Left Review 95 (January-February 1976):71-82. 30 society."^® The structuralist analysis of the state, on the other hand, categorically rejects the notion that the state can be understood as a simple "instrument" in the hands of a ruling class. Nicos Poulantzas states the structuralist position in his critique of Miliband's work this way: The direct participation of members of the capitalist class in the state apparatus and in the government, even where it exists, is not the important side of the matter. The relation between the bourgeoisie class and the state is an objective relation. This means that if the function of the state in a determinate social forma tion and the interests of the dominant class in this formation coincide, it is by reason of the system itself: the direct participation of members of the ruling class in the state apparatus is not the cause but the effect, and moreover, a chance and contingent one of this objective coincidence.^^ In this debate, we find the theoretical position taken by the instrumentalist perspective plausible. It has contributed to piercing the veil of legitimacy that hangs over many of the specific institutions that systematically link the capitalist class to the state. This perspective's approach also can bring to light the conflicts that exist within the capitalist class. On the other hand, we find the structuralist perspective of less utility for our study. Its fundamental thesis is that the functions of the state are broadly determined by the structures of the society rather than by the people who l^Miliband, The State in Capitalist Society, p. 22. Upoulantzas, "The Problem of the Capitalist State," p. 245. 31 occupy positions of state power. Stemming from this reason ing, the starting point of the structuralist analysis is generally an examination of the class structure in the society, particularly the contradictions rooted in the economy. Their task is to analyze how the state attempts to neutralize or displace these contradictions.^^ The Postcolonial State The postcolonial state has been variously theorized, and the nature and significance of its role have been the subject of analysis in recent years. The results of these efforts show that theories of postcolonial state are not only unsatisfactory but problematic. However, there is general agreement regarding the centrality of the state's role in postcolonial societies. The role of the postcolonial state is acknowledged as crucial both in meshing differing modes of production and in regulating economic opportunities to promote indigenous capitalism. Hamza Alavi's^^ seminal essay on the postcolonial state, which premised its argument on the historical specificity of postcolonial societies, has generated what may be termed postcolonial state debate. In relation to the centrality of the role of the postcolonial state, Alavi notes that colonial ^2por a more elaborate structuralist-Marxist model of the state, see Nicos Poulantzas, Political Power and Social Classes (London; New Left Books, 1973). l^Hamza Alavi, "The State in Post-Colonial Societies: Pakistan and Bangladesh," New Left Review 74 (July-August 1972);59-61. 32 rule by the metropolitan bourgeoisie did not merely require replicating the superstructure of the state that had been established in the metropolitan country itself; it had to create a state apparatus through which it exercised dominion over all the indigenous social classes in the colony. From this he argues that the "superstructure" in the colony is "overdeveloped" in relation to the "structure" in the colony, for its basis lies in the metropolitan structure itself, from which it is later separated at the time of independence. Further, Alavi posits that the colonial state is equipped with a powerful bureaucratic-military apparatus and mecha nisms of government, which enable them through its routine operations to subordinate the native social classes. He concludes by arguing that the postcolonial society inherits this overdeveloped apparatus of the state and its institu tionalized practices through which the operations of indige nous social classes are regulated and controlled. John Saul^^ supports Alavi's general conclusion that the colonial state apparatus was overdeveloped. However, using East Africa, he argues that historically the colonial state in East Africa became overdeveloped not so much in response to the need to "subordinate the native social classes" as the need to subordinate precapitalist, generally nonfeudal. 14john S. Saul, "The State in Post-Colonial Societies: Tanzania," in The Socialist Register, ed. Ralph Miliband and John Saville (London: Merlin Press, 1974), p. 353. Also see his "The Unsteady State: Obote and General Amin," Review of African Political Economy 5 (January-April 1976):12-38. ET 33 social formations to the imperatives of colonial capitalism. These analysts work under constant assumption that the local bourgeoisie is little more than an intermediary for foreign interests. Joining the debate on postcolonial states in Africa, Von Freyhold has attempted to define the role of local leaders by drawing a distinction between governing and ruling class; "Unless the governing class actually deter mines the process of economic reproduction in the country, it cannot be called a ruling class, however large its formal powers might be."^^ With respect to this view, Swainson^^ argues that this analysis leads the argument back along the same circuit: that the real ruling class of the postcolonial state is the metropolitan bourgeoisie, represented by its agents, the multinational corporations and international aid agencies. She adds that these formulations, which take the dominance of the metropolitan bourgeoisie as given, are not particularly helpful when it comes to analyzing a concrete social formation. The theoretical position taken by Alavi and other analysts^^ regarding characteristics of state institutions in ^^Michaela Von Freyhold, "The Post-Colonial State and Its Tanzanian Version, " Review of African Political Economy 8 (January-April 1977);75-89. ^^Nicola Swainson, "State and Economy in Post-Colonial Kenya, 1963-1978," Canadian Journal of African Studies 12 (no. 3, 1978):357-81. 17por example, see R. Murray, "Second Thoughts on Ghana," New Left Review 42 (1967). 34 postcolonial societies may be summarized as follows: (a) the postcolonial state is overdeveloped because of its colonial role of dominating all indigenous social forces; (b) this postcolonial state is now controlled by an indigenous social force; and (c) the particular ideological perspectives of the regimes that result are indeterminate because of the tradi tional ambiguity of petty-bourgeois elements toward the process of capital accumulation. In a lengthy review, Colin Leys^® dismisses the "over developed" thesis as empty, both in terms of administrative apparatus and financial resources. He argues that if the bureaucracies of postcolonial states are extensive, this is largely a result of postcolonial expansion, not a matter of historical inheritance. In addition. Leys points out that the origins of the new African bureaucrats and politicians cannot in themselves establish that petty-bourgeois elements now control the postcolonial state. Arguing in the tradition of Poulantzas,he notes that it is a mistake to think that the class origins, class ties, or class ambitions of the l^Colin Leys, "The Overdeveloped Post-Colonial State: A Re-evaluation," Review of African Political Economy 5 (January-April 1976):39-48. l^in this respect, see Nicos Poulantzas, Classes in Contemporary Capitalism (London: New Left Books, 1975). For Leys's theoretical reorientation from "underdevelopment theory" since his main work Underdevelopment in Kenya; The Political Economy of Neo-Colonialism (London: Heinemann, 1975), see his "Capital Accumulation, Class Formation and Dependency: The Significance of the Kenyan Case," in The Socialist Register, ed. Ralph Miliband and John Saville (London: Merlin Press, 1978), pp. 24-66. 35 individuals who compose the apparatus of the state need be the same as those of the dominant class. Leys adds that this reality is illustrated by the African context, where there can be little doubt that the dominant class is still the foreign bourgeoisie. Continuing his argument. Leys stresses that petty-bourgeois elements may indeed compose the bureau cracy, but the state qua state— in its institutional actions — may still be dominated by foreign capital. We are in agreement with Leys regarding his criticism of the idea of the overdeveloped state. The Zambian case illus trates how the bureaucracy (both in the public and parastatal sectors) has expanded since independence as the state increasingly assumed a predominant economic role. Conse quently, there has grown a mosaic of institutions covering all fields of Zambia's economic life. This expansion of the bureaucracy is not a matter of historical inheritance, but a consequence of postcolonial expansion. Since independence in 1964 the state has become the principal source of investment. State-owned and -controlled enterprises (for joint-venture major enterprises the state owns a majority of the equity, mostly 51 percent) have played, and continue to play, a crucial role in breaking through crucial bottlenecks in heavily capitalized industries such as mining and petrochem icals where commonly neither private local capital nor foreign capital are able or willing to invest. As a result, a particularly wide range of state functions (with 36 proportionate expansion of the bureaucracy) is exercised. This points to the "centrality" of the state in the postcolonial economy of Zambia. Lamb^O argues this point in his analysis. He stresses the complexities associated with meshing together different modes of production in periphery economies. He concludes that the state takes on the central role of managing and representing the myriad encounters and struggles between classes and agents of the different modes. Adding that the state provides economic and political services for capitalist penetration, orchestrates the destructuring and restructuring of elements of the precapitalist mode. We may add that the role of the state with regard to managing the meshing of capitalist and precapitalist modes of production in post colonial societies is crucial for any sustained economic development in these societies. This makes the postcolonial state more central in the direct process of surplus appro priation and capital accumulation than the state in advanced capitalist economies. However, we do not support the view that holds that the real ruling class of the postcolonial state is the metropol itan bourgeoisie. This view has the effect of taking the dominance of the metropolitan bourgeoisie as given in most interpretations of the political economy of postcolonial societies in the Third World. ^^Geoff Lamb, "Marxism, Access and the State," Develop ment and Change 6 (1975). 37 We expect to show that the Zambian postcolonial state possesses wider powers and initiatives to intervene in the economy than the colonial states that preceded it. It has intervened in the process of class formation to ensure that certain economic concessions have been made available to Zambian nationals only and, above all, it has intervened to ensure that it acquires controlling shares of all major means of production. The postcolonial state has the capacity to accumulate capital independently of foreign capital. We do not accept Leys's assertion that the postcolonial state is still the organ of the metropolitan bourgeoisie. To be sure, some of the metropolitan bourgeoisie may have influence in the area of advanced technology, but such influence will vary accord ing to the nature and intensity of internal class struggle, including the state's power to control foreign capital. Importantly also, the question of the amount of influence exerted by the metropolitan bourgeoisie on any postcolonial state is an empirical one that is contingent upon historical specificities. These specificities include the extent to which the national bourgeoisie has developed and its ability to use the state, its power, and its resources to the bour geoisie's own advantage, even to the point of getting it to curb foreign competition. However, this will greatly depend upon the capacity of the state and the domestic private sector to generate local sources for investment funds to meet 38 the state's investment goals, so that it does not depend on external borrowing or on direct foreign investment. On these grounds, we cannot subscribe to Von Freyhold's thesis, based on the Tanzanian case, that the metropolitan bourgeoisie is the only ruling class and does not share power with indige nous classes. This may be the case for Tanzania at a certain historical conjuncture in its economic development, but cannot be generalized to other postcolonial social formations. Langdon and Godfrey^^ have advanced another theoretical view, which centers on the presence of what they termed a "symbiotic relationship" between the foreign bourgeoisie and local elements. The Debate Over State Autonomy and the Postcolonial State In the preceding discussion we argued that the postco lonial state is not the organ of the metropolitan bourgeoi sie. By this we implied some element of autonomy. We have also argued that the postcolonial state has the capacity to accumulate capital independently of foreign capital. By this we mean that the postcolonial state is not subservient to the interests of the neocolonial (imperial) bourgeoisie. The ^^Steven Langdon and M. Godfrey, "Patterns in Under development; The Transnationalization Thesis in a Kenyan Context," Journal of Commonwealth and Comparative Politics 14 (1976);42-63. For Langdon's analysis and critique of Leys's theoretical position on the state in postcolonial societies, see his "The State and Capitalism in Kenya," Review of African Political Economy 8 (January-April 1977):90-98. 39 fundamental question of theoretical importance is whether this can be said about the interests of the indigenous bour geoisie. Put another way, can the state act independently of the interests of both the foreign capital and local capital? Miliband makes the point by suggesting that a distinction has to be made between the state's autonomously acting on behalf of the ruling class and its acting at the behest of this class. Miliband argues that the latter notion constitutes a "vulgar deformation of the thought of Marx and Engels. Miliband rejects the crude (but popular) view of the state as a mere "instrument" of the ruling class obediently acting at its dictation. Miliband's position suggests the notion of "relative autonomy" of the state. He argues that for the state to act as a committee for managing the common affairs of the whole bourgeoisie it must enjoy a certain degree of autonomy— stressing that the notion of autonomy is embedded in the definition itself, that is, an intrinsic part of it. Admitting that the notion of relative autonomy of the state may be taken as the starting point of Marxist political theory, Miliband asks what we consider to be cardinal ques tions in the debate, namely how relative is relative? In Z^Ralph Miliband, "Poulantzas and the Capitalist State," New Left Review 82 (November-December 1973);85, n. 4. Also see his "Marx and the State," The Socialist. Register, ed. Ralph Miliband and John Saul (London; Merlin Press, 1965), p. 283. For a useful discussion of what Marx and Engels said on the subject of the autonomy of the state, and the extent to which it occupied their political thinking and writing, see Hal Draper, Karl Marx's Theory of Revolution, vol. 1; State and Bureaucracy (New York; Monthly Review Press, 1977), ch. 14-23. 40 what circumstances is it more so, or less? What form does the autonomy assume? Again, as we have emphasized with regard to the question of the extent to which the postcolo nial state can act independently of foreign capital and local capital, these are empirical questions whose answers depend on historical conjectures. Miliband^^ has since answered these questions by observing that the degree of autonomy that the state enjoys for most purposes in relation to social forces in capitalist society depends above all on the extent to which class struggle and pressure from below challenge the hegemony of the class that is dominant in such a society. Miliband argues (and we agree) that where a dominant class is truly hegemonic in economic, social, political, and cultural terms, and therefore free from any major and effective chal lenge from below, the chances are that the state itself will also be subject to its hegemony, and that it will be greatly constrained by the various forms of class power that the dominant class has at its disposal. By the same token, it can be argued that where, on the other hand, the hegemony of a dominant class is persistently and strongly challenged, the autonomy of the state is likely to be substantial. This statement suggests the notion of relative auton omy— depending on the nature and extent of class struggle. The concept of relative autonomy was first proposed by ^^Ralph Miliband, "State Power and Class Interests," New Left Review 138 (March-April 1983) :57-68. 41, Althusser, but it is to Poulantzas that belongs the credit for the most thorough exploration of the concept. It was Poulantzas who coined the formulation of the "relative autonomy of the state," which has remained the basis for most discussion of the subject. In essence, the view that this formulation encapsulated was that the state might indeed have a substantial degree of autonomy, but that nevertheless it remained for all practical purposes the state of the ruling class. Poulantzas24 provided an enlightening, but contro versial, analysis of the autonomy of the capitalist state. He argued that the capitalist state apparatus must be seen as a complex whole whose main defining characteristics are "unity proper" to institutionalized political power as well as a "specific internal cohesion." Poulantzas warns against a functionalist "parcelization" of the institutionalized power of the state, as well as a pluralist conception of power centers of a politico-economic kind. Thus, in using the concept of relative autonomy of the state as formulated by Poulantzas, one point of theoretical interest stands out, namely that the state, while situated within a specific conjunction of modes or combination of modes of production, is not reducible to a faithful reflection of the mode or modes of production, but can and does articulate multiple determinations stemming both from its role in expanded repro duction of the social formation as well as its own internal 24poulantzas, Political Power and Social Classes, pp. 255-56. 42 logic. According to this formulation, there is no exact correspondence between the base (the economic) and the super structure (the sociopolitical). However, beyond the differences that were expressed in the debaters on the subject, it is generally agreed that the state is decisively constrained by forces external to it. The constraints originate in the national and international capitalist context in which it operates. In this respect, it is acknowledged that the state might be constrained by the imperative requirement of capital for its reproduction and accumulation, or by the pressure from organizations and agencies at the service of capital (or fractions of capital) or by combined impact of these and international forces such as other capitalist states such as international finance organizations, such as the World Bank or the International Monetary Fund. This Marxist view of the state, like the liberal or "democratic pluralist" view of the state, which attributes the main constraints upon the state to various pressures exercised upon a basically democratic state by a plurality of competing groups and interests in society, is problematic. According to these views, the state does not initiate action but merely responds to external forces. 25on this view see Miliband, Marxism and Politics, p. 87; and Poulantzas, "The Capitalist State; A Reply to Mili band and Laclau," p. 75. Also, for comments on certain theoretical problems of Poulantzas's formulations, see Bob Jessop, "The Capitalist State and Political Practice," Economy and Society 9 (no. 1, 1980):108-27. 43 This theoretical perspective has been criticized as being naive. Skocpol^^ argues that the view that holds that the function of the state— by definition— is to contain class conflict and to undertake other policies in support of the dominance of the surplus-appropriating and property-owning class fails to treat the state as an autonomous structure— a structure with a logic and interests of its own not neces sarily equivalent to, or fused with, the interests of the dominant class in society or the full set of member groups in the polity. Skocpol importantly argues that the Marxist perspective makes it virtually impossible even to raise the possibility that fundamental conflicts of interest might arise between the existing dominant class or set of groups, on the one hand, and the state rulers on the other. This proposition is a much stronger version of the autonomy of the state as it assumes that the state may have interests that are "fundamentally" opposed to those of all forces and interests in society. Block^^ critically speaks of the relative autonomy thesis as a cosmetic modification of Marxism's tendency to reduce state power to class power. ^^Theda Skocpol, States and Revolutions; A Comparative Analysis of France, Russia and China (Cambridge; Cambridge University Press, 1979), p. 27. 2?Fred Block, "Beyond Relative Autonomy," in The Social ist Register, ed. Ralph Miliband and John Saville (London; Merlin Press, 1980), p. 229. 44 The essence of these arguments is that the dynamics of state action cannot be adequately understood or explained by exclusively focusing on the imperative requirements of capi tal or the inexorable pressure of capitalists, important as they are. It is also necessary to take into account pres sures generated from within the state by people who are in charge of the decision-making power. These pressures are not synonymous with purposes of dominant classes. The concept of relative autonomy of the state has been applied to the postcolonial state by Alavi.For Alavi, the postcolonial state is relatively autonomous because of the mediatory role it must play between three fractions of capi tal, namely the metropolitan bourgeoisie, the indigenous bourgeoisie, and the landed classes. The major theoretical weakness of this formulation is that it situates the state's relative autonomy in the mediatory role it is expected to play between fractions of capital within a determinant and dominant capitalist mode of production. One of the theoretical problems with Alavi's formulation is that he seems to view relative autonomy in a functional ist/structuralist fashion without recognizing that the rela tive autonomy of the state cannot be reduced to simply its role in mediating fractional conflicts within capital. The state assumes an expanded role in the social formation not because of the need to mediate between various fractions of Z^Alavi, "The State in Post-Colonial Societies," p. 62. 45 capital/ but rather because of the need to control class struggles. We do not deny an increase in the activity of the postcolonial state, nor do we deny attempts by bureaucratic/ coercive apparatus. The point is that this does not suggest a relative autonomy born of the need to mediate between various fractions of capital, but rather a need to increase its efficacy in terms of controlling the struggles and guaranteeing the expanded reproduction of the social forma tion. John Saules follows Alavi's arguments concerning the application of the concept of the relative autonomy of the state to the postcolonial state. However, he questions the state's relative autonomy based on a need to mediate between fractions of capital. On the other hand, he contends that some measure of relative autonomy still remains to the state, an autonomy "rooted in the 'centrality' of the state . . . in the economic process." While we do not question the theoret ical utility of the concept of centrality in describing a defining characteristic of the postcolonial state, to base the state's relative autonomy in its centrality to the economic process is to dissolve the role of the state into a rather crude economism. While Von Freyhold^® does not use the concept of rela tive autonomy in relation to the postcolonial state in ^9John Saul, "The State in Post-Colonial Societies; Tanzania," p. 353. ^®Von Freyhold, "The Post-Colonial State and Its Tanzanian Version." 46 Tanzania, she speaks of a relative "independence" of the postcolonial state born of its function within the interna tional capitalist system to guarantee the perpetuation of the exploitative imperialist relationship. According to Von Freyhold, this invariably involves the disorganization of the "direct producers who have begun to assert their class interest." This means that in order to guarantee the expanded reproduction of the social formation, the state needs to expand its bureaucratic-coercive apparatus to contain the class struggle. We would therefore like to state our position regarding the concept of relative autonomy of the postcolonial state (and this applies to any capitalist state) in the following manner. We do not deny the significance of the concept of relative autonomy. What we deny is the idea that this rela tive autonomy is in any way significantly different from what is to be expected within a social formation dominated by the capitalist mode of production. Thus, while we accept a certain relative autonomy of the postcolonial state in the spheres of class struggle and reproduction of the social formation, we contend that Alavi's conceptualization of the relative autonomy of the postcolonial state (what he sees as the basis of its relative autonomy) does not adequately portray the class nature of the postcolonial state. The state's major role vis-à-vis social classes does not simply consist in mediating between fractions of capital, but rather in controlling the class antagonisms between capital and 47 labor and thereby reproducing the social formation of the continuance of capitalist exploitation. We believe that the attainment of this objective does not require greater rela tive autonomy but greater efficacy. In this respect, we are inclined to agree with Ziemann and Lanzendorfer, who argue that "what appears in Alavi's presentation to be a special feature is actually an integral part of the 'classical' Marxist view of the state, namely its relative autonomy vis- à-vis fractions of capital and the relatively autonomous economic role of the state. Our concluding remarks on the question of he concept of relative autonomy as applied to the postcolonial state are a reiteration of our theoretical position, namely that the starting point for any Marxist analysis of the nature and role of the state is not the state's material structure or apparatus but the class struggle. We derive this formulation from the fact that the state is above all a condensation of social relationships, a relation of power between struggling classes. The point to be emphasized is that the state exists not to reconcile, but to moderate or contain the very antago nistic contradictions of which it is a product so as to maintain social cohesion. As a force for order, the state upholds the interests of he dominant class or classes by 3^W. Ziemann and M. Lanzendorfer, "The State in Periph eral Societies," in The Socialist Register, ed. Ralph Miliband and John Saville (London; Merlin Press, 1977), pp. 148-49. 48 virtue of this role of regulator. The state is therefore central as a cohesive force in all class societies. We stress the importance of historical conjectures in the study of the place of the state in postcolonial societies. This means that a position occupied by each postcolonial state in the processes of capital accumulation is an empirical ques tion that cannot be generalized to other postcolonial states. Dependency Theory The country that is more developed industrially only shows, to the less developed, the image of its own future.32 The export of capital greatly affects and accelerates the development of capitalism in those countries to which it is exported. While, therefore, the export of capital may tend to a certain extent to arrest develop ment in the countries exporting capital, it can only do so by expanding and deepening the further development of capitalism throughout the world.33 In analyzing Zambia's postcolonial social formation we set the problematic in the context of current debates on the impact of foreign capital on the "peripheral" countries. We have chosen to examine theoretical implications of dependency 32Rarl Marx, Capital, vol. 1; A Critique of Political Economy (New York: International Publishers, 1967), pp. 8-9. 33y. I. Lenin, Imperialism: The Highest Stage of Capitalism (New York: International Publishers, 1939), p. 65. Both Marx and Lenin were essentially optimistic with regard to capitalist economic development— development of productive forces. Thus Marx was able to dissociate moral indignation and social critique from a historical judgment. However, this was not negation of the fundamental Marxian thesis, namely that despite capitalism's prodigious capacity to advance a society's ability to produce goods and services, it is systematically incapable of allowing the creation of a satisfactory social order. El 49 theory in the analysis of Zambia's social formation (the term that is not properly conceptualized by this perspective) because the present treatment of Zambia's political economy has been strongly influenced by Andre Gunder Pranked via studies of East African political e c o n o m y . 35 To understand dependency theory it is important that we understand the history of underdevelopment theory. The source of underdevelopment theory can be traced back to the Economic Commission for Latin America (ECLA), which in the 1940s and 1950s began to articulate a nationalist attack on the negative effects of foreign investment into import- substitution industries inside the peripheral countries. When the commission failed to produce the desired results, dependency perspective emerged with the mission of explaining the same reality.36 The main assumptions of the dependency perspective are that the development of a national or regional unit can be understood only in connection with its historical insertion 3^Andre Gunder Frank, Capitalism and Underdevelopment in Latin America (New York: Monthly Review Press, 1969). Also see Paul A. Baran, The Political Economy of Growth (New York: Modern Reader, 1968) . 35por East African studies see especially E. A. Brett, Colonialism and Underdevelopment in East Africa; The Politics of Economic Change, 1919-1939 (New York: NOK Publishers, 1973); and Colin Leys, Underdevelopment in Kenya. 36There is no single unified body of thought that can properly be called dependency theory, and any common ground between those who share the terminology of dependency tends to dissolve as the importance of the difference between them become greater. This perspective also suffers from eclecti cism. 50 into the worldwide political-economic systems that emerged with the wave of European colonizations of the world. This global system is thought to be characterized by the unequal but combined development of its different components, some of which constitute its "center" and others its "periphery." The center is viewed as capable of dynamic development responsive to internal needs, and as the main beneficiary of the global links. On the other hand, the periphery is seen as having a reflex type of development, one that is both constrained by its incorporation into the global system and that results from its adaptation to the requirements of the expansion of the center. Dependency theorists conceptualize dependency as a situation in which a certain number of countries have their economy conditioned by the development and expansion of another, placing the dependent countries in a backward posi tion exploited by the dominant countries. Frank is the best known exponent of the left wing of the "structural dependency school," which has widely articulated these assumptions. He attempted, in reaction to modernization theory, to reformu late colonial history in such a way as to conform to reality. These are some of his major theses: 1. Underdevelopment is the necessary product of four centuries of capitalist development. 2. Capitalist contradictions and the historical development of the capitalist system have generated 51 underdevelopment in the peripheral satellites. 3. Capitalism as a system is characterized by these contradictions, among others: (a) expropriation of the economic surplus produced by peripheral countries and appro priated by center countries; (b) polarization of the world into métropole and satellite, a relation that exists not only in the international sphere but that permeates the socioeco nomic structure at every level; and (c) development in the métropole is the cause of underdevelopment in the satellite and the architect of dependence.3? The major flaw in dependency theorists' interpretation of underdevelopment lies in their conceptualization of capi talism. For these theorists, the world market was capitalist from its very inception. Their works completely lack period ization of capital. The colonial world is assumed to be capitalist from the sixteenth century with the Spanish conquests of Latin America. In the dependency theorists' theoretical scheme the dynamics of accumulation are assumed to operate through the imperatives of exchange (market) rather than production. In this respect, the external rela tions of peripheral societies have been a primary focus of dependency theorists. In explaining inequality in level of development between core and periphery countries, dependency theorists argue that "surplus" is extracted from backward countries and is 37prank, Capitalism and Underdevelopment in Latin America, pp. 1-9. 52 appropriated and subsequently used in the advanced countries. The extraction of surplus takes place in the sphere of circulation. This is a serious violation of Marxist theory. Weeks and Dore are critical of this explanatory thesis. Thus they argue. This emphasis placed on the extraction and appropriation of surplus product as the cause of backwardness, and as crucial to accumulation in the advanced countries, demonstrates a misunderstanding of (a) the nature of exploitation (and, thus, of surplus appropriation), (b) the origins of capitalism, and, therefore, (c) the nature of capital itself as a social relation. . . . What in essence is being suggested is that capitalism does not develop primarily on the basis of exploitation of the proletariat, but upon the basis of the exploita tion of countries, a basic revision of Marx's method.^* We agree with Weeks and Dore that to analyze appropria tion in the context of countries is to ignore the process of production and to obscure the class nature of societies. It is in this respect that the critics of the dependency perspective have accused it of completely lacking class analysis. Surplus product arises in the sphere of produc tion, which involves classes, whereby free labor is commodi fied and bought by the capitalist who uses it in the sphere of production for his reproduction and for that of his family. It is in this respect that the capitalist extracts surplus value from the country as Frank would have us believe. Because Frank does not understand the genesis of capitalism he equates capitalism with trade-based division of 38john Weeks and Elizabeth Dore, "International Exchange and the Causes of Backwardness," Latin American Perspective 6 (Spring 1979):62-67. 53 labor. This mode of analysis obscures reality. Because dependency theorists fail to see that surplus product arises in production, their analysis is conducted at the level of appearance of reality, and cannot get to reality itself. It is in this respect that dependency theory has been attacked by several scholars. Conclusion The primary objective of this chapter has been to eval uate the utility or usefulness of each of the competing theories of the state and social classes as tools for analyz ing the political and economic behavior of the colonial states and the postcolonial state in Zambia. The same evaluation is also intended to guide our analysis of the economic policies of the capitalist states of advanced industrial countries with respect to their direct and indirect impact on accumulation of capital and class relations in Zambia. The correct theory of the capitalist state is especially important with the increased integration 39por further analyses and critiques of the dependency approach, see Philip O'Brien, "Dependency: The New National ism?" Latin American Review of Books 1 (Spring 1973); Bill Warren, "Imperialism and Capitalist Industrialization," New Left Review 81 (September-October 1973):3-49; Ronald Chilcote, "A Critical Synthesis of the Dependency Litera ture," Latin American Perspectives 1 (Spring 1974); Timothy F. Harding, "Dependency, Nationalism and the State in Latin America," Latin American Perspectives 3 (Fall 1976); John Weeks, "Backwardness, Foreign Capital, and Accumulation in the Manufacturing Sector of Peru, 1954-1975," Latin American Perspectives 4 (Summer 1977); Elizabeth Dore and John Weeks, "Class Alliances and Class Struggle in Peru," Latin American Perspectives 4 (Summer 1977). 54 of Zambia into the international division of labor through such mechanisms as international trade and inflow (from various international sources) and outflow of capital. Thus, it is recognized that in analyzing Zambia's post colonial social formation and the state's ability to function as the main source of investment capital, it is important to set the problematic in the context of current debate on the impact of foreign capital on the peripheral countries. In this respect, we carefully reviewed the dependency theory and other allies theories or perspectives (currently most vocal theories of underdevelopment) so as to appraise their appro priateness and utility as tools for analyzing Zambia's political economy. It is obvious from the review of these dependency theories that their use as tools of analysis would have obfuscating consequences. The reason for this is that the main assumptions of these theories are that the economic development of a national or regional unit can only be under stood in connection with its historical insertion into worldwide political-economic systems that emerged with the wave of European colonizations of the world. Under this analytical scheme, advanced industrial countries exploit less developed countries. "Surplus" is extracted from backward countries, and is appropriated and subsequently used in the advanced countries. Thus, the extraction of "surplus value" takes place in the sphere of circulation (at the market 55 level, not production level). We find this theoretical perspective to be misleading as an analytical tool because of the abstraction involved, which treats less developed countries as undifferentiated homoge neous entities capable of being exploited by advanced indus trial countries. Although the dependency perspective uses the notion of exploitation to describe relations between advanced industrial countries and less developed countries, and while the concept of exploitation can have a rigorous and explicit meaning in defining class relations, it becomes a vague, descriptive term in the characterization of relations between countries. The approach we have chosen to adopt in this study treats the concept of exploitation as expressing a production relation, that is, production of surplus labor and expropria tion of this by a dominant social class or alliance of domi nant classes. Thus, as used in this study, the concept of exploitation necessarily relates to class relations (impor tantly, a relation between "countries" is not and cannot be a relation between classes). In our scheme of analysis each country is thought of as constituting a social formation with a specific structure (internal dynamics), in particular because of the existence of social classes with contradictory interests (taking into account historical specificities). It is this structure that determines the way in which each social formation (which includes state intervention in the economy) fits into the 56 international division of labor^® or international production relations— the point being that the complexity of relations between countries cannot be properly comprehended without taking full account of relations of production. It is the relations of production that determine what, how, and why products are produced and exchanged. Regarding the choice of the theory of the state, we avoid the so-called general theory of the state. For this reason, we have argued that a single theory cannot comprehend the totality of the state's determination without resorting to reductionism of one kind or another. In this connection, we argued against the notion of a state in general. We have also contended that some characteristics of one state cannot be generalized to other states. This is despite our general position that the state is a class instrument due to its insertion in the capitalist mode of production. All states share this common characteristic, except that we refrain from conceptualizing the state as a simple passive instrument ^International division of labor as used in this study is understood to represent an advanced stage of the sociali zation of production. To this is added the circuit of capi tal M > C > M', which is no longer an exclusive subject of domestic economic policy. This understanding is important in order to understand the process of internationalization of capital, and how this process has come to affect domestic relations of production, especially with regard to state intervention in relations of production (public management of labor-power) for the purpose of reproduction of labor-power, which is something needed by capital but not guaranteed by capital itself. Thus, state intervention can no longer be properly understood by exclusively focusing attention on the domestic requirements of the valorization of capital. 57 readily manipulated by the dominant class. The position we take in this study is that class power cannot be automatically translated into state power. This is to argue that the state must not simply be conceptualized as a monolithic weapon in the hands of the ruling class. This theoretical position acknowledges the complexity of the contradictions within the state itself, and the complexity of the contradictions between the state and the dominant class. The utility inherent in this approach as a means for analyzing concrete social formations and the role of the state as the vehicle for accumulating capital lies in the fact that it acknowledges as an empirical fact that while the existence of a relation between the state and the dominant class is central to our analysis, the nature of this relation is not to be taken for granted, since it is contingent upon historical and structural conditions (that is, also taking into account the full complexity of the relationships between all the different modes of production). It is in the framework of these theoretical perspectives that we set out to analyze the intervention of the state in the Zambian economy. This approach calls for concrete analysis of historical specificities that variously affect the interventionist character (including its relative auton omy) of the postcolonial state in Zambia. CHAPTER III RESEARCH METHODOLOGY Introduction In this case study the basic research design utilized is that of an analytic description (descriptive research) of the role of Zambia's postcolonial state as a vehicle of capital accumulation and its effect on class formation. This research is primarily concerned with an empirical application and modification of the Marxist theory of the state rather than a test of this theory.^ The use of descriptive statis tical tools is intended to describe the extent to which the state is involved in capital accumulation in Zambia and its bearing on class formation. To accomplish this objective, we utilize available national and international public records and independent studies and reports by experts and institu tions. Some of the sources of these materials are discussed in this chapter. ^The hypothesis-testing approach is extremely ineffi cient for this type of research, since it requires that in each test there be only one hypothesis tested against a well- specified alternative. For this reason, we do not strictly follow the steps taught in standard methodology courses: formulate' the problem, specify a simplified theoretical model capable of empirical implementation to represent the relevant interactions, fit the model statistically, and accept or reject the hypothesis underlying the specification of the model. 58 59 The extent to which Zambia's postcolonial state has been involved in the nation's economy and its bearing on class formation is compared with the roles played by the two pre ceding colonial states as agents of capital accumulation and class formation between 1924 and 1964. Due to the sporadic nature of the available data relating to the role of the British colonial state in the economy of Northern Rhodesia between 1924 and 1945, it will not be possible to provide as detailed an analysis of the role of the state during that period. Detailed analysis covers the data relating to the following time periods: 1. British colonial state, 1945-63 2. Federal Settler colonial state, 1953-63 3. Postcolonial state, 1964-82 In this study, we employ a political economy mode of analysis that incorporates both historical and dialectical approaches. This analysis gives primacy to material condi tions in the explanation of social life. We begin our study from the basic premise that the world is in a state of constant motion, change, and development. In this respect, our research is inclusive, in the sense that it takes into account both exogenous and endogenous factors in the analysis of the economic role of the state.^ ^The factors that are critical in explaining patterns of Zambia's political economic policies interact in some complex fashion. This makes the measurement of variables used in this approach more difficult. 60 We incorporate historical analysis because the role of the state can only be understood in a historical context as a consequence of definite historical conjectures. Definition of Major Terms In order to avoid ambiguity and lack of clarity, it is necessary that we define key terms and other equally impor tant related concepts used in the study, except for the concepts of state and postcolonial state that are discussed in chapter II. The definition of each key concept is intended to serve as an articulation of how that concept is formed. These definitions are also intended to serve as means for operationalizing the variables used in the study. Capital Accumulation In this study, our definition of capital accumulation follows Marx's model of capital accumulation, which he incorporated into his economic system. The rate of economic growth in the Marxian system is determined by the magnitude and disposition of economic surplus. Since the surplus in the Marxian model constitutes the property of the capitalist class (in the case of Zambia, largely the state), economic growth depends primarily upon the capitalists' behavior in relation to the disposal of this surplus. The assumptions Marx makes concerning such behavior are therefore salient to our understanding of the mechanisms of capital accumulation in Zambia. Marx defines accumulation as conversion of surplus into capital. He thus describes the process; 61 The conversion of a sum of money into means of produc tion and labor-power is the first step taken by the quantum of value that is going to function as capital. This conversion takes place in the market, within the sphere of circulation. The second step, the process of production, is complete as soon as the means of produc tion have been converted into commodities whose value exceeds.that of their component parts, and, therefore, contains the capital originally advanced, plus a surplus-value.^ Adopting Marx's definition of capital accumulation, we mean by it the process of employing surplus-value as capital, and reconverting it into capital. This definition of capital accumulation makes it possible for us to measure the role of the Zambian state in capital accumulation as it engages in production and selling of commodities through a network of state-owned companies, then seen as the process of value expansion and formation. Value originates in production, where it is created by concrete labor directly engaged in production.4 Class Formation The concept of class formation is understood to mean the process through which classes come into existence. By this definition we understand that classes do not come into exis tence full-fledged. They have to go through a process of evolution. ^Marx, Capital, vol. 1, p. 564. ^For discussion of the theory of surplus-value and its relation to productive and unproductive labor, see Karl Marx, Theories of Surplus Value, vol. 2 (Moscow, Progress Publish ers, 1966); and I. Gough, "Marx's Theory of Productive and Unproductive Labor," New Left Review 76 (1972) . 62 Our study of class formation in Zambia, during both the colonial and postcolonial periods, is a historical study of how classes came to exist. This is a study of how social production also came to be social appropriation, because the beginning of social appropriation is at the same time the beginning of class formation. Our analysis of class forma tion examines two related factors that are considered deci sive, the appropriation of labor and the participation in the labor process. In Zambia, like in other young postcolonial societies, classes cannot acquire a permanent character because condi tions are fluid. Through increased state involvement in the economy, and its broad policy of indigenization of the econ omy, social groups have possibilities of continually changing their nature, making it possible for individuals to shift from one status to another. The concept of class formation cannot be properly understood in the absence of a definition of classes. Classes are in this respect defined by their relationships to one another in the context of differing modes production, not primarily by market relations. These relationships are historically specific and mutable. In studying class formation in Zambia, we examine the developing indigenous capitalist class and its relationship to the local class configuration. Class rather than nation is regarded as the correct unit of analysis. In this connection, the concept of class formation is to define patterns of class 63 relationships. Our purpose is to examine (as far as data are available) how each type of class relations affects the pattern of capital accumulation, and how the pattern of accumulation that emerges leads to changing relations among different classes. Relations of Production The concept of relations of production as used in this study refers to the relations within which production is carried on. Relations of production are of different kinds, depending on concrete situations in which they take place. However, all relations of production involve production forces along with persons. The process of production always, and necessarily, involves persons in some relations with each other and the means of production. "In order to produce men enter into definite connections and relations with one another and only within these social connections and social relations does production take place. Mode of Production Mode of production is defined as being a mode or manner of appropriation of an economic surplus (surplus-value) determined by the specific articulation of relations and forces of production, in which the relations of production are dominant over the forces of production. ^Karl Marx and Friedrich Engels, Selected Works, vol. 1 (Moscow; Progress Publishers, 1969), p. 159. 64 Productive Forces Productive forces are those elements that are both basic and essential to the production process. By forces of pro duction we mean the form of the labor process in which raw materials are transformed into useful products. This refers to the way in which nature is appropriated. The productive forces or forces or production are best understood as being constituted by the elements (means of production and labor- power) of production. Capitalist Mode of Production Capitalist mode of production is characterized by the fact that the production of commodities is the dominant form of production, and the aim of production is the appropriation of surplus-value by the owners of capital (the capitalists) from the direct producers. We stress the production of surplus-value, not simply commodity-value, as being the determinant factor in the capitalist system of production. This is an important dis tinction. The production of surplus-value is possible only when (a) the direct producers are separated from both the ownership and the control of the means of production, and (b) their labor-power is transformed into a commodity. By impli cation, the transformation of the labor-power contains both a use-value and exchange-value component. 65 Social Formation The capitalist mode of production is always articulated in a specific social formation (such as Zambia) or "society." A social formation, in this study, refers to the specific articulation of social relations (economic, political, and ideological relations) under the dominance of a specific mode of production. This means that a social formation combines within its structures different modes of production under the dominance of one mode. Thus, a social formation comprises several modes— and also forms— of production. In every social formation we find the dominance of one mode of produc tion, which produces complex effects of dissolution and conservation of the other modes of production, which gives these societies their overall character (feudal, capitalist, etc.) .® Units of Analysis In this study, our primary units of analysis are the Zambian postcolonial state and social classes. Secondary units of analysis are defined by the theories of the state and class formation as applied to this study, and by the key research questions we wish to investigate. The data to be used are macroscopic in character. Our conclusions will only relate to the states under study, not to the functionaries who have occupied the respective state apparatuses. Another point of primary importance is that our generalizations will Gpoulantzas, Classes in Contemporary Capitalism, p. 22. 66 be limited due to the historical specificities of the vari ables to be studied. That is to say, the findings of our research cannot be generalized to other postcolonial socie ties without taking into account different historical condi tions of such societies that affect the role of their states in capital accumulation and class formation. Sources of Data Published Primary Sources These primary source publications are reports and docu ments of the Government of Zambia, annual reports and other official reports of Zambia's statutory corporations, annual reports and other official reports of companies fully owned and controlled by the Zambian government (parastatal compa nies) , reports and documents of the ruling party (United National Independence Party), reports of commissions of inquiry, parliamentary reports, reports of documents of international organizations on Zambia's social and develop ment. In using government and other official reports, we compare the data extracted from them with the data obtained from independent publications and newspaper accounts. It is hoped that this research strategy will be helpful in assess ing degrees of reliability of these official reports and documents. Such independent sources as United Nations reports and country studies, and similar reports and studies of other international organizations, and such publications 67 as Africa Confidential (London), Africa Contemporary Record (London), Barclays Bank Economic Surveys on Zambia (London), Economist Intelligence (London), and Facts on File (New York) will also greatly aid our analysis by independently revealing the trends of the phenomena we are studying. Secondary Sources on Zambia and Comparative Material These sources are mainly composed of works by scholars with interest in the political economy of Third World socie ties in general and of Zambia in particular. Most of the works selected for this study specifically discuss the role of postcolonial states in the economies of these societies. The works on East Africa are of special interest to us because of the influence they have had on recent studies of the political economy of Zambia. Data Analysis The use of available data has been preferred for this study on economic grounds. It frees us from the time and great expense involved in collecting and coding original data. On the other hand, we recognize the disadvantages of using available data, namely that they were collected by other people for some other purposes. This means that we have little control over the nature of the data and the data collection p r o c e s s . ^ However, these disadvantages ^For a detailed discussion of these points, see Claire Selltitz, Research Methods in Social Relations (New York; Holt, Rinehart & Winston, 1976), pp. 372-81. 68 notwithstanding, we have decided to use available data in this study because we have found that the benefits outweigh the disadvantages. We are able to address our research questions although, the data were not originally collected with this research in mind. This will often require approxi mating measurement of our main concepts and variables by judicious selection of key or combined indicators that serve as "proxy variables." By measurement, we mean the process of linking abstract concepts used in this study to empirical indicants.8 However, a major barrier to the quantitative investigation of interactions between economic and noneco nomic influences in capital accumulation is the lack of adequate indicators of institutional traits. In order to include measures of these traits in our statistical analysis of capital accumulation we are obliged to devise experimental indicators of qualitative characteristics. The indicators used in this study are discussed in the next section. The majority of quantitative data to be used constitute series of values over periods of time. Recorded annually wherever possible, they will show the changes taking place in various sectors of the economy and social development as a result of state intervention. Statistical data are intended to measure the impact of state intervention in the economy ®For instructive treatment of measurement in the social sciences, see Richard A. Zeller and Edward G. Carmines, Measurement in the Social Sciences (Cambridge: Cambridge University Press, 1980), pp. 1-101. 69 and its bearing on class formation. Other research questions are studied by means of comparing a number of secular tends. The growth rate of real gross domestic product is one major comparison trend. The main data analysis technique to be used in this study is trend analysis by inspection. Through these techniques it will be possible to measure the impact of state control of the major means of produc t i o n , ^ and changes in volumes of production by sector or industry, and changes in the relative contribution of selected industries to the gross domestic product, export and import trade. By using these research techniques the study will also be able to determine the effects of foreign private direct investments,^^ balance-of-payments deficits, and foreign indebtedness in relation to accumulation of capital. Rates of employment and unemployment, together with the rates of population change between rural and urban areas (as the effects of changes in the modes of production), are included in the study as part of class analysis. ^On August 11, 1969, the Zambian government, through a Presidential Decree, nationalized the copper mines by acquir ing 51 percent of the shares in all copper mining companies, which constituted the largest private sector of all. The state had a monopoly or majority interest in a formidable share of the economy following the Presidential Degree of April 1968: airways, railways, electric power, coal, agri cultural marketing, brewing, transportation, building sup plies, large-scale consumer retailing and wholesaling, oil pipelines, farm machinery, fertilizers, hotels, publishing, maize milling, tobacco marketing, and copper fabrication. lOprivate direct investments are distinguished from foreign portfolio investments, which are discussed under foreign finance capital. 70 To measure the impact of state intervention in Zambia's economy as it relates to the parastatal sector, we compute the value of government investment, defined as share capital of state-owned and -controlled corporations, reserves, and loans and capital contributions from the government. The second method of measuring the impact of the state in the economy will be to compute the monetary value of government expenditure in infrastructure and total labor force employed in both the public sector and the parastatal sector as percentages of total labor force employed in the economy. Socioeconomic and Political Indicators Our study uses socioeconomic indicators employed by the United Nations, the International Labor Organization, and the International Band for Reconstruction and Development (IBRD, World Bank) to measure the impact of state intervention in the Zambian economy. An attempt is made to operationalize the selected indicators in a manner that taps the phenomena of capital accumulation and class formation. However, a major barrier to the quantitative investigation of interac tions between economic and noneconomic influence in capital accumulation is the lack of adequate (quantifiable) indica tors for some institutional characteristics of the state. Such characteristics are therefore introduced wherever neces sary for a complete interpretation of the trend comparisons. Thus, our choice of variables is made with this limitation in mind. These variables are listed below, and for ease of 71 exposition only capsule definitions and explanations are given. Social Indicators Size of Noncapitalist Agricultural Sector The importance of capital accumulation in expanding agricultural output lies partly in the need to provide increased food supplies to growing urban areas. Also, an additional market for domestic output is created by increases in agricultural cash incomes. This indicator is intended to measure the proportion of the Zambian population engaged in subsistence agriculture as a potential source of wage-labor in the capitalist sector. Extent of Urbanization Urbanization is positively associated with industriali zation and capitalist mode of production. Urban centers have population concentrations (especially on industrial reserve army) from which industrial labor may be drawn. Even more important, perhaps, urbanization promotes possibilities for organization of classes into labor unions and political parties. Urbanization is here operationalized in terms of numbers of settlements containing 15,000 to 20,000 or more inhabitants. Urban population is also measured as number of residents in these settlements as a percentage of total population. Our indicator of the extent of urbanization is intended to measure the growth of the population that is dependent upon the capitalist mode of production. 72 Educational Enrollment This variable refers to the gross educational enrollment in public schools, secondary schools, vocational and techni cal training schools, universities, and other institutions of higher education as a percentage of total population. The intention of this indicator is to measure government efforts for developing the necessary manpower for indigenizing the economy. Education Budget Public education expenditure as a proportion of total public expenditures forms an indicator intended to tap the government's commitment to public education programs. It is based on budget figures. Figures for this indicator include both current and capital expenditures, and reflect reported government expenditures rather than commitments. Total Population/Rate of Population Growth Both the size of a country's population and the rate of population growth will affect its pattern of capital accumu lation. This is especially true when these variables are used (as we do in this study) as proxies for the potential size of the country's internal markets. The availability of a wider market enhances possibilities for capturing both internal economies of scale and external economies associated with expanding markets. 73 Economie Indicators Gross Domestic Product (GDP)at Current Prices for Specified Years This indicator is intended to measure Zambia's economic performance. Government Finance This indicator is divided into two parts, revenue and expenditure. The part on revenue includes sources of govern ment revenue, while expenditures are divided into recurrent and capital. The indicator of government finance is intended to tap the state's financial activities and their economic effect. Gross Investment Rate This indicator, which concerns the supply of capital or capital formation, is intended to measure the size of the total investment fund as a proportion of gross national product. Gross investment rates per industry are also computed. U l n this study, the GDP is operationalized as the monetary value of all the goods and services produced in a nation during some stated period of time, typically a year. Thus we define the GDP as a measure of the total flow of goods and services produced by the Zambian economy, expressed in units such as U.S. dollars per year, British sterling per year, or Zambian Kwacha per year. For the purpose of this study, the GDP will be measured by adding up (excluding purchases of intermediate goods and services) all incomes earned (corrected for inflation) in production of goods and services in the Zambian economy per year. r 74 Gross Private Investment The purpose of this indicator is to measure all nongov ernmental spending for new buildings, machinery, vehicles, and inventories. Investments by parastatal companies are excluded. These investments are treated separately as a percentage of total investment in the economy. The intention of this approach is to measure the impact of the parastatal companies in the economy, which also serves as a means of measuring the extent of state involvement in the economy. Direct Private Investment^^ This indicator measures the book value of private direct investment of foreign firms as a proportion of gross domestic product for specified years. The intention of this indicator is to measure the magnitude of foreign capital per industry in Zambia. The figures used in this respect represent esti mated book values of private direct investment stocks rather than inflows of new investments for one or more years. Structure of Foreign Trade^^ The contribution of international trade to capital accumulation is a subject of considerable interest to our study because of the importance of the foreign trade sector 12private direct investment is distinguished from port folio investment, which refers to all the stocks, bonds, or other securities held by an individual or corporation for investment purposes. Portfolio investment serves as a conduit for the transmission of foreign finance capital. indicator of structure of foreign trade includes both export and import trade. 75 as the means of earning foreign exchange. Our indicator of the structure of foreign trade of Zambia is a composite measure of (a) the extent to which Zambia shifted from the exporting of primary products and raw materials to the increased exporting of processed and manu factured commodities, and (b) the extent to which Zambia has diversified her exports. In this respects, the indicator measures the contribution of state and private sectors to international trade. It also helps indicate the effect of imports on capital accumulation. International Reserves Holding This indicator serves as a measure of the degree to which the state's ability to function as a source for internal capital accumulation is affected by the level of international currency reserves holdings. The intention of this indicator is, therefore, to measure the extent to which reserves holdings are available to Zambia. Limited resources are hypothesized to limit a less developed country's (LDC) "ability to ride out international trade fluctuations or interruptions of foreign capital" and to reduce "the room for manoeuvre open to the state in the external economic policy field.International reserves are measured at the end of 14por example, see Reginald H. Green, "Political Inde pendence and the National Economy: An Essay on the Political Economy of Decolonialisation," in African Perspectives : Papers in the History, Politics and Economics of Africa 76 selected years as a proportion of imports in the preceding years. External Debt Service/Debt Trend The focus of the indicator of debt service on past loans is to act as a measure of reduction in the amount of avail able resources for capital accumulation. In varying propor tions debt service on past loans has the effect of limiting the ability of the state to maintain accumulation indepen dently from external influence. The reason for focusing on debt service rather than total debt outstanding is to distinguish among loans according to terms and duration. The data cover public and publicly guaranteed loans. The debt trends serve to show the direction of foreign debt over specified years. Both indicators are measured as proportions of export earnings for selected years. Economic Assistance This indicator measures the extent to which the state is enabled to engage in capital accumulation as a result of transfer of resources without direct reciprocation. The total monetary value of economic assistance is measured as a percentage of gross domestic product for selected periods. Presented to Thomas Hodgkin, ed. Christopher Allen and R. W. Johnson (Cambridge: Cambridge University Press, 1970), p. 290. For an analysis of monetary ties from a dependency perspective, see S. R. Dixon-Fyle, "Monetary Dependence in Africa: The Case of Sierra Leone," Journal of Modern African Studies 16 (1978):273-94. 77 Modernization of Industry/ Industrialization The indicator of modernization of industry is intended to tap the extent of capital accumulation through concentra tion of industrial capital prior to economic reforms (1964- 68) and after the reforms (1968-82). This indicator is composed of two principal elements; (a) a rough quantitative estimate of the relative importance of indigenous, modern, power-driven industrial activities— using data on installed capacity of electrical energy per capita, i.e., kilowatt- hours per capita; and (b) the diversity and range of goods produced in the modern industrial sector. Our indicator of the overall change in the degree of industrialization for specified periods is a composite of three statistical elements: (a) the average (percentage) annual rate of change in constant prices^^ in industrial output (mining, manufacturing, electricity, and water) for specified periods; (b) the change for specified periods in the proportion of gross domestic product originating in industry for selected years; and (c) the change for specified periods in the proportion of the total labor force employed ^^Average exchange rates for the Zambia Kwacha to be applied in this study are as follows: 1978, 1 K = U.S. $1.23; 1979, 1 K = U.S. $1.26; 1980, 1 K = U.S. $1.27; 1981, 1 K = U.S. 1.14. Since March 17, 1978, the middle rate for the Kwacha has been fixed at 1 K = SDR 0.976311. Zambia avails itself of margins of 2.5 percent around that fixed relationship. The U.S. dollar is the intervention currency, and the rates of the Bank of Zambia (the central bank) for the U.S. dollar are based on the daily calculation of the U.S. dollar-SDR rate. 78 in industry (here we measure the average percentage increase in the total absolute size of the industrial sector). Modernization of Techniques in Agriculture This indicator includes improvement in agricultural productivity for specified periods. Agricultural productiv ity is an important concomitant to successful industrializa tion, particularly in Zambia, where the country's economy has largely depended on the mining industry. The agricultural sector serves as a source of supply of both labor and food to growing urban industrial areas. Our indicator of the level of modernization of tech niques in agriculture is a composite variable based upon (a) the extent of mechanical power, fertilizer, and other modern techniques in agriculture, cross-checked by quantitative data on the use of tractors and fertilizers; and (b) quantitative information regarding credit facilities, and information and research services. Physical Overhead Capital This is a composite indicator comprising transportation and power networks— measured by the size of investment (monetary value) in roads, railways, waterways, airways, and power installations. Effectiveness of Financial Institutions A fundamental aspect of capital accumulation in Zambia is its success in increasing the proportion of total domestic 79 resources available for investment, and whether the available internal savings are effectively channeled into productive investment. In both these respects, financial institutions (the Bank of Zambia, the Development Bank of Zambia, commer cial banks. State Finance Corporation, and other financial institutions) can play an important role. The purpose of this indicator is to measure the flow of capital from the banking system into medium- and long-term investment in industry, commerce, and agriculture. Labor Force Our indicator of labor force covers all members of the working-age population who are either employed or seeking or awaiting employment. The labor force is first measured as a proportion of the total population, then in terms of employed persons by economic sector. Zambianization The indicator of Zambianization is intended to measure the extent to which the state has managed to indigenize the Zambian economy, in both the public and private sectors. In this respect, the total number of employed Zambian citizens is measured as a percentage of the total working population. Political Indicators The importance of the interaction of political influence and processes of capital accumulation has led us to the inclusion of political indicators in this study. These 80 indicators are intended to tap the effects of political decisions on accumulation of capital, and consequently on class formation. The choice of these political variables is an attempt to represent what we believe to become of the important spheres of political life in Zambia. Degree of National Integration and Sense of National Unity Since independence, the national government and the ruling party have been the main instruments for economic and social development. This has meant transference of social and political loyalties from traditional communally based sociopolitical organizations to the more aggregated political structure. The variable that represents the process of national integration is a qualitative one. It is a combina tion of two qualitative elements into a single index: the intensity of the political and economic nationalization of Zambia's leadership and the pervasiveness among Zambians of a sense of national unity. The principal sources of qualitative information for this indicator are country studies and our observation of Zambia's political processes. Extent of Political Participation Since independence, the leadership of the ruling partylG— United National Independence Party (UNIP)— has l^zambia is a one-party state. On December 13, 1972, Zambia formally proclaimed a presidential one-party system of government with the United National Independence Party as the 81 widened political participation to include broad segments of the population through the party, labor unions, work councils, development committees, and cooperative unions. The state sees wider participation as one of the important mechanisms for indigenizing the processes of capital accumu lation. Political participation is measured on the basis of representative institutions formed for the purpose of enlisting participation. Strength of the Labor Movement The importance of labor unions in Zambia derives from their key role as channels for increased participation by workers in the political process. Labor unions serve as instruments for raising the class consciousness of workers— the role they played effectively during the colonial era. The indicator of strength of the labor movement is a primary qualitative composite of several aspects of labor union strength: extent of political power, freedom from political restrictions, independence from government influ ence, and extent of popular support. The variable of strength of the labor movement is measured on the basis of these qualitative criteria. Degree of Administrative Efficiency The Zambian bureaucracy plays a crucial role in the supreme institution of the state (widely referred to simply as the Party), thereby ending the eight-year existence of Zambia's First Republic. 82 economic development of Zambia. Rationally organized admin istrative services have been extensively used by the state to establish and strengthen the legal and public service facili ties necessary for capital accumulation. They have been used to create financial institutions and tax instruments, includ ing exchange control regulations favorable to the expansion of state-owned corporations, and controlled companies. The civil service has been responsible for initiating and imple menting development plans and projects. Our indicator of administrative efficiency is a quali tative one based on our knowledge of Zambian public adminis tration.^^ Another source of information is recent country studies. This variable is measured by the degree of perma nence and training of administration and the extent to which instability of policy at higher levels of administration promotes inefficiency. Extent of Leadership Commitment to Economic Development The extent to which the postcolonial state in Zambia has been successful in capital accumulation, and as a source of capital accumulation by indigenous enterprises is attributed to President Kaunda's commitment to social equity and locali zation of the economy. author worked in the Zambian civil service for seventeen years, during which period he served in various positions. E" 83 For the purpose of measurement, the variable of extent of leadership commitment to economic development is concep tualized on the basis of "central guidance" (specifically intended to promote accumulation of capital) by heads of government and parastatal agencies who participate in the central decisions that guide the economy. In this respect, we consider whether or not the heads of government and para statal agencies involved in central guidance of the economy make concerted efforts to promote the economic growth of Zambia; whether or not planning efforts include purposive attempts to alter institutional arrangements what clearly block the achievement of development goals; and whether or not there is a national plan, and a planning body, function ing within the government that is charged full-time with executing the plan. Extent of Direct Government Economic Activity The postcolonial state in Zambia plays a major, direct role in promoting economic growth. In this respect, we interpret government economic activity broadly to include expenditures on development of human resources. These expenditures are measured as proportions of GDP for specified time periods. Our study uses two types of data to measure extent of direct government economic activity. One type of data is qualitative information on the extent to which the state intervenes in the economy through regulations, price control. 84 licensing, exchange control, and other purposive measures. Second, we use both judgmental and statistical data on the relative importance in the economy of direct government economic activities such as the building of infrastructure, direct engagement in industrial enterprises, and other economic projects aimed at accumulating capital. Extent of Political Stability The importance of political stability to sustained economic growth cannot be overstressed. Since independence, the Zambian state has been extensively engaged in the expan sion of the industrial sector and physical infrastructure. These activities rely heavily upon fixed capital formation, returns on which may involve considerable time lags. For this reason, reasonable assurance regarding the stability of the general political framework is necessary to attract investments in these spheres. Sufficient foreseeability of the impact of changes on legislation, administration, and political procedures is necessary to attract long-term commitment of resources, especially external financing. Two elements are considered in deriving our overall stability index: the extent of internal security throughout the country and the extent of continuity in form of government. Conclusion In the introduction to this chapter it was stated that the basic research design utilized in this study of the 85 economic role of the postcolonial state in Zambia is that of an analytic description of the role of the state as a vehicle of capital accumulation and the effect of the processes of accumulation on class formation. Thus, essentially this is a descriptive research using the case study method. The primary concern of the study is to describe the extent to which state action (through policy change or initiative, or intervention) effects change in Zambia's patterns of accumulation of capital and class formation. Because this study is based on data collected from historical observational policy, economic and business records rather than from controlled experiments, its task is not to deter mine the "cause and effect" relationship between state intervention (independent variable) and patterns of capital accumulation and class formation (dependent variables).^® l^In causal analysis the basic purpose of research design is to observe or control covariation between the independent and dependent variables in a context such that these variables are not confounded with other uncontrolled or extraneous influences. The key elements in this kind of research aimed at developing and testing explanations is controlled comparison. This type of research design is not only impossible but unrealistic to contemplate in the present study. Basic to the problem of data analysis in this study (as in almost every analysis of socioeconomic and political problems) is the fact that although we will need to make comparisons of variations in rates of capital accumulation and patterns of class formation between periods of state intervention, we shall need to be very careful in attributing variations in rates only to the presence or absence of state intervention in the economy. We expect confounding factors to enter into our analysis, and thereby work against getting a clean test of the relationship between state intervention and capital accumulation and patterns of class formation. Our findings will mainly be based on the assumption of "other things being equal." For this reason, the generalizability of the results of this research will be extremely limited. 86 Our interest in this study is to show associations or relationships between these variables. That is to say we are only interested in studying associations, and have no causal mechanisms in mind. The scheme of data analysis proposed for this study also does not include computation of the correla tion coefficient, although it gives a most useful tool for describing the strength of association between two variables. For this reason, and due to the nature and objective of this research, we have emphasized that the purpose of the study is not to test the theory of the state and other theories pertaining to the accumulation of capital and class formation in the form of hypothesis testing, and by following the proper procedure used by statisticians to provide proof (although not in the manner in which a mathematician "proves" a statement) that something is true: 1. Stating the null hypothesis and the alternative hypothesis. 2. Stating the level of significance or the level of risk that the researcher is prepared to tolerate. The commonly selected level of significance for social science studies is 0.05 (meaning that there is a 5 percent chance of rejecting a null hypothesis when it is actually true). 3. Selecting the appropriate test statistic (the summary description, such as the mean income, of a given variable in a survey sample). Then using the value (it may be the z statistic, or the t statistic, or the chi-square statistic) of the test statistic to test the null hypothesis. 87 4. Formulating a decision rule (a statement of the conditions under which the null hypothesis is accepted or rejected) involving identification of the sampling distribu tion. 5. Making a decision (based on sample information) to accept or reject the null hypothesis. Realizing the above data analysis limitations, the main data analysis technique to be used in this study is trend analysis by inspection. This method of data analysis will make it possible for us to follow the trends of accumulation of capital and the patterns of class formation before and after state intervention. Another method of data analysis to be used is cross-section analysis, which will make it pos sible for us to compare at a given time the magnitudes or rates of capital accumulation and indigenization of the economy during the colonial and postcolonial periods. In this connection, extensive use of tables and graphs, and ratios and index numbers as aids to data analysis will be made. CHAPTER IV HISTORICAL BACKGROUND, 1890-1963 Introduction The basic premise of this chapter is that an understand ing of a nation's history is fundamental to the analysis of its political economy. As a research tool, historical analysis enables us to understand the processes of class formation and the attendant class contradictions in each system of social production. Each system of social produc tion is itself historically determined. The same goes for understanding the nature of the state in a given social formation. In this connection, the role of the state in any sphere of human activity, whether economic, political, or social, can be better understood in its historical context. This view is especially pertinent to this study since the state in postcolonial Zambia was not established by an ascendant indigenous bourgeoisie, but a foreign imperialist bourgeoisie.1 Historical analysis is also helpful for the purpose of periodizing capital and the state in Zambia. The significance of history was emphasized by Lenin in his description of social classes, which he characterized as large groups of people differing from each other by the place ^This point is argued by Alavi in "The State in Post- Colonial Societies: Pakistan and Bangladesh." 88 89 they occupy in the historically determined system of social production.2 Zambia under the British South Africa Company Rule, 1889-1924 The British people have themselves done very well. They have a new territory and a clause that will give them the trade for it forever. [Cecil Rhodes in an 1898 report to shareholders of the British South Africa Company.]^ The territory now comprising Zambia was vaguely included in the British South Africa Company's charter before 1899. The charter mainly dealt with Southern Rhodesia (now Zim babwe) and did not specify a northern boundary. However, the Barotseland-North Western Rhodesia Order-in-Council of 1899 and the North Eastern Rhodesia Order-in-Council of 1900 bestowed administrative powers upon the British South Africa Company (B.S.A. Co.) to administer North Western Rhodesia and North Eastern Rhodesia,^ expanding the company administrative jurisdiction north of the Zambezi River. In the application for the Royal Charter, the British ^V. I. Lenin, Collected Works, vol. 3 (Moscow; Progress Publishers, 1966), p. 248. ^The British South Africa Company was a chartered company incorporated by Royal Charter of October 29, 1889. This marked the genesis of capitalism in Zambia. For a detailed discussion of capitalist development in Zambia during the Company's rule, see L. H. Gann, A History of Northern Rhodesia; Early Days to 1953 (New York: Humanities Press, 1969), pp. 204-7. ^The two territories were amalgamated in 1911 under the designation of Northern Rhodesia. 90 government was assured that adequate capital (£700,000^) had been privately subscribed for the construction of the rail way, for the extension of the telegraph system from Mafeking in British Bechuanaland (now Botswana), and for opening up and colonizing the territories to the north— later to be named Northern and Southern Rhodesia (Zambia and Zimbabwe, respectively)Other objectives of the chartered company included amalgamation of all British capitalist interests under one common control of a powerful organization, and to develop and work minerals and other concessions. To realize these objectives, the company needed the protection of the British State. In this respect, the company asked for, and received, an assurance from the British government that the rights and interests it acquired in the above territories shall be recognized and receive the government's sanction and moral support. This was imperialism^ in action— trade ^The symbol £ will be used here to indicate British pound sterling. Ggee British South Africa Company, Report on the Company's Proceedings and the Condition of the Territories within the Sphere of Its Operation, 1889-1892. Presented to the Shareholders at the Second Annual General Meeting, 29th November, 1892 (London; British South Africa Company, 1892), p. 2. ^In this study the term imperialism is understood to mean the domination of one country by another in order to economically exploit the dominated country. On this account, the concept of imperialism, then, has two components: first, domination— military (direct or indirect), economic, or ideological; and second, exploitation— through trade, invest ment (leading to the control of the means of production), or plunder. By exploitation is simply meant the appropriation of economic surplus (both surplus-value and surplus-labor). 91 followed the British flag. The British South Africa Company was financed by private shareholders who numbered 40,000 in 1911. The original capital of the company was 61,000,000; 1893 was increased to £2,000,000; in 1895 to £2,500,000; in 1896 to £3,500,000; in 1898 to £5,000,000. The amount of capital issued was £4,375,500; debentures amounted to £1,250,000. In 1904, the company's capital was increased to £6,000,000, the whole of which was issued while debentures were £1,250,000; and in 1908 the capital amount issued and paid up in 1911 was £8,056,365.8 The company was furnished with defined political and administrative powers; it shouldered the risks and expense of colonization, without asking the British general taxpayer to furnish the necessary funds. This was the essence of the imperialism of free trade. The company's shareholders included such noblemen as the Duke of Westminster, Lord Winterton, and Lord Wolverton, who invested in Kenyan and Northern Rhodesian estates, gambling on a future rise in land values. The Association of Northern Rhodesia Farmers Resi dent in England was formed by estate owner, turning a handful (see table 1) of Northern Rhodesian whites into one of the best represented communities in the British Empire. The company's board of directors consisted of gentlemen who were entitled to a seat in the House of Lords and connected to ®The Statesman's Year-Book, 1913 (London: MacMillan, 1913) , p. 197. 92 TABLE 1 NORTHERN RHODESIA: POPULATION BY RACE, 1911-51 Year European Colored/Asian African (est.) 1911 1,497 39 820,000 1921 3,634 201 980,000 1931 13,846 601 1,330,000 1946 21,9076 1,921 1,660,000 1951 37,079 3,636 1,890,000 SOURCE; Ian Henderson, "The Limits of Colonial Power: Race and Labor Problems in Colonial Zambia, 1900-53," Journal of Imperial and Commonwealth History 2 (May 1974):298. 93 families that owned the means of production in England. Despite the imperial rhetoric of its most influential direc tor, Cecil John Rhodes, the British South Africa Company was principally an economic enterprise and not a government. Its main purpose was not to conquer and administer but rather to generate profits and to pay good dividends to its stockhold ers. Thus, Northern Rhodesia was managed as a business enterprise in the interest of British capitalists and their local representatives. The first government in the colony of Northern Rhodesia was therefore a private corporation whose main preoccupation was to formulate public policies and strategies aimed at maximizing its profits. The history of colonial rule in Zambia started with Zambia as a client state. Britain exerted her influence in the country through missionaries, who had been the forerun ners if not the first agents of colonization,^ then directly through chiefs. The second expedient was to encourage and support the chartered British South Africa Company, which negotiated commercial and mining concessions with chiefs. ^Scottish missionaries played a major part in shaping a new imperial philosophy, manifested in Scotland's (especially ship-building Glasgow's) material interest in expanding African commerce and encouraging migration. The new form of imperialism was unlike the older form of imperialism, which hinged on mercantile and missionary expansion. The greatest representative of Scottish missionary imperialism in Northern Rhodesia was David Livingstone, a missionary medical doctor. Also, see Robert I. Rotberg, Christian Missionaries and the Creation of Northern Rhodesia, 1880-1924 (Princeton, NJ; Princeton University Press, 1965). 94 notably King Lewanika of the Barotse.^^ Lewanika and his chiefs and councillors astutely bargained with the company's representative, leading to the signing of the Agreement on June 27, 1890. In return for an annual subsidy of £2,000, the Queen's protection,the appointment for a Resident, the maintenance of the Chief's constitutional authority, and a ban on unrestricted immigration, Lewanika and his chiefs and councillors (forty-one signed the document) gave the British South Africa Company mining and commercial rights over the whole of the Barotse dominions— later to be known as North- Western Rhodesia. The terms of the Lochner Agreement were widened following the Victoria Falls negotiations of 1898 between Lewanika and Arthur Lawley, the company's senior representative in Matabeleland (Zimbabwe), as a result of which the company secured proper jurisdiction for setting up an administrative machinery. This was followed by the 1899 Barotseland North-Western Rhodesia Order-in-Council. The new arrangement with Lewanika was formally recorded in an agree ment signed on October 17, 1900, which conveyed to the company the sole and exclusive right to engage in commercial l^The British South Africa Company was empowered under Article 3 of its Royal Charter of 1889 to acquire by any concession, agreement, grant, or treaty all or any rights, interests, authorities, jurisdictions, and powers of any kind or nature whatever; but the Charter did not itself confer any such rights, which could only be derived ab initiofrom indig enous rulers having the jurisdiction in the areas concerned. ^^Lewanika had refused to negotiate with Frank Lochner, representative of the British South Africa Company until he was given the fullest assurance that Lochner was representing Queen Victoria of England. 95 and other related activities including prospecting and mining in the whole territory. Under the new treaty, which substan tially varied the Lochner treaty, the 3fa2,000-a-year subsidy promised to Lewanika, which had never been paid, was reduced to an annual subsidy of £850. In 1909, Lewanika granted to the British South Africa Company (subject to certain condi tions) all the land, including the right to make grants of land for farming to white settlers approved by the king, within the territory over which he was Paramount Chief, that is to say within the 1899 Order-in-Council. It was from these concessions that Zambia's copper mines eventually emerged. Before the imposition of company rule, Zambia's social formation was characterized by the prevalence of noncapital ist relations of production. Precapitalist mode of produc tion was dominant throughout the country. Before the British South Africa Company rule, and the colonial rule that followed after 1924, Zambians lived as independent people under chiefs and village headmen who became rulers according to various tribal customary rules. Surplus products (over l^Lewanika claimed the country's sovereignty and granted concessions over practically the whole country. For a detailed discussion of the negotiations of the Lewanika concessions, see J. G. Lockhart and C. M. Woodhouse, Rhodes (London; Hodder & Stoughton, 1963), pp. 238-50. Also, for a copy of the Lewanika Concession with ratifications, see L. H. Gann, The Birth of a Plural Society: The Development of Northern Rhodesia under the British South Africa Company, 1894 to 1914 (Manchester: Manchester University Press, 1958), pp. 215-25. 96 family needs) produced in the villages by farmers, fisherman, cattle owners, and hunters were traded for hoes, spears, salt, barkcloth, and goods produced in the villages. Another part of surplus products was delivered to the chiefs as tribute (linubu) for the upkeep of the royal palace and government officials. The tribute was freely given out of respect for the chief and tradition. The chief received tribute in recognition of his position as supreme custodian of the tribal land, and in return for the villagers' protec tion and help in times of famine. The point we have so far developed is that in Zambia, unlike in Europe, where factory owners had at hand large numbers of landless people uprooted from the countryside, the inhabitants were largely self-sufficient landed proprietors. There was no ready-made reserve army. This was perceived by the British South Africa Company as an obstacle to the process of capital accumulation. For this reason one of the first tasks of company administration was to create a reserve army, to turn villagers into wage-workers, to separate men from their wives, families, fields, cattle, rivers, and hunting grounds. Measures adopted to bring about these changes initiated a process that gave rise to the disarticu lation or incoherence of the Zambian economy, which persisted throughout Zambia's colonial history. These measures were effected through native and public investment policies. 97 Imposition of Native Taxes In order to gravitate African labor into the imperialist economic orbit, the British South Africa Company established administrative machinery that set in motion various mecha nisms that forcefully commodified African labor. Also, the company's overall economic policy produced an economic structure that enhanced and preserved the interests of white settlers who were assisted to migrate into the country as commercial farmers. Before the imposition of native taxes. Native Commis sioners were appointed and charged with the duty of recruit ing paid labor. Where local resistance was great, compulsory labor was enforced by burning down huts in the entire village. However, such harsh measures did not prove effec tive since burned-down huts could easily be replaced once the Native Commissioner left the area. The labor problem continued to face both the company, which needed labor for its work of administering the country, and white settlers and miners (especially in the south, where the company had greater commercial and mining interests), who needed African labor on their farms and in the mines. As the scarcity of labor continued, the farmers, miners, and business groups exerted pressure on the British South Africa Company to rectify the situation. The company, desiring to increase its earnings from the sale of land (see table 2 ) and royalties in mining ventures, bowed to the demands of these settler groups by developing labor policies that aimed at rendering African 98 TABLE 2 NORTHERN RHODESIA: LAND APPORTIONMENT, 1947 Area Square Miles Barotseland 57,364 Other native reserves 54,239 Native trust land 159,766 Forest reserves and protected areas 1,806 Land alienated to Europeans (freehold and leasehold) 7,258 Township areas 319 Unalienated Crown land (Railway Belt, Abercorn, Fort Jameson, and Mkushi) 7,377 Total 288,129 SOURCE: Government of the United Kingdom, ^ Economic Survey of the Colonial Territories, Col. no. 28, vol. 1, 1952, p. 7, cited in Lord Hailey, An African Survey, rev. ed. (London: Oxford University Press, 1957), p. 708. 99 labor more abundant as a factor of capital accumulation. The first policy was one of tax imposition, which was enforced under the provisions of the Native Tax Proclamation, No. 9 of 1914, as amended by Proclamations No. 12 of 1918 and No. 2 of 1921, and Government Notice No. 100 of 1939. Able- bodied male subjects of eighteen years and above were made to pay poll tax. Hut tax was also imposed. Imposition of taxation upon Africans was also seen by the company as an elegant solution for it served two purposes— it reduced the company's costs while promising to increase its profits. Native tax became an important source of company revenue in Northern Rhodesia, where the resources of the territory were little developed, leading to deficits of £54,000 against £95,000 in 1911 for both North-Western and North-Eastern Rhodesia. Table 3 shows the budgetary pressure under which the company operated between 1911 and 1924. For this reason, the company reorganized the structure of its native adminis tration to include chiefs as government agents and, in practice, their authority was upheld insofar as this was compatible with the rule of the company. The Administration of Natives Proclamation issued in 1916 provided for the appointment and dismissal of chiefs; they were liable to punishment for failure to carry out the "lawful" orders of administration officers; they were paid small subsidies and were responsible for recruiting paid labor for government services, including collection of native taxes, and for assisting government-approved recruiting agents in their 100 TABLE 3 BRITISH SOUTH AFRICA COMPANY; REVENUE AND EXPENDITURE, 1911-24 Expenditure Period Total Revenue Total Expenditure Over Revenue 1911-12 122,618 188,403 -66,188 1913-14 138,039 208,403 -70,364 1914-15 134,906 205,586 -70,680 1915-16 119,168 197,921 -78,753 1916-17 143,792 184,079 -40,287 1917-18 139,097 192,351 -53,254 1918-19 152,000 199,170 -47,071 1919-20 169,625 260,107 -90,482 1920-21 235,000 331,000 -96,000 1921-22 279,000 339,000 -60,000 1922-23 258,008 338,983 “80,975 1923-24 237,443 344,037 -106,594 SOURCE: The Statesman's Year-Book [1912-24] (London: MacMillan, 1912-24). NOTE: All figures are in pounds sterling. 101 drive to recruit labor for the capitalist agriculture in Northern and Southern Rhodesia and the mines in both coun tries, including South A f r i c a . Native Commissioners whose authority became supreme in their districts, supported by district messengers or police and chiefs and their officials, moved from village to village, registering families and collecting taxes. Table 4 shows the importance of native tax as a source of company revenue from 1916 to the end of company rule in 1924. The obligation to pay tax or suffer a criminal penalty— usually three months' imprisonment with hard labor for first offend ers (7,589 persons in 1933)^^— compelled African males to sell their labor. Table 5 gives a complete picture regarding the impact of native tax laws as the means for forcefully commodifying African labor-power. The table shows that of the 350,046 persons convicted during the period 1921-35, a total of 243,636 (69.6 percent) were African adult males convicted for offenses against native tax laws, compared with 106,410 (30.4 percent) persons convicted for other offenses. As African men were increasingly drafted into the capi talist sector as laborers, the number of persons convicted for offenses against native tax laws dropped compared with 1 Government of the United Kingdom, Report of the Commission Appointed to Enquire into the Financial and Economic Position of Northern Rhodesia (London: Col. no. 145, 1938), pp. 179-81. ^'^See Robert I. Rotberg, The Rise of Nationalism in Central Africa: The Making of Malawi and Zambia, 1873-1964 (Cambridge, MA: Harvard University Press, 1965), p. 47. 102 TABLE 4 BRITISH SOUTH AFRICA COMPANY: REVENUE AND NATIVE TAX REVENUE, 1916-24 Total Revenue Native Tax Revenue from As Percentage of Period Total Revenue Native Tax Total Revenue 1916-17 143,792 81,759 56.9 1917-18 139,097 78,896 56.76 1918-19 152,099 83,485 54.9 1919-20 169,625 ———^a ___a 1920-21 235,000 91,000 38.7 1921-22 279,000 106,000 37.9 1922-23 258,008 92,277 35.7 1923-24 237,443 101,448^ 42.7 SOURCE: The Statesman's Year-Book [1917-25] (London: MacMillan, 1917-25). NOTE: All figures in pounds sterling. ^Data relating to revenue with respect to native taxes for the period 1919-20 is not reported in available records. ^Computed from the data in Northern Rhodesia Govern ment, Blue Book, vol. 1 (Livingston: Government Printer, 1924). 103 UH + j o u P 0 0 ) C P CO I CO •H. di (0 (0 'O p p G cn-p 0) I CD 'O P < fi -p CD t 3 cD 0) 0 !> i CD O' CO Ü •H Ï G 0) M O CO Xi CO 0 ) o P Ü CO C b O cD CD 0 ) O P CD CO c p CO N* VO CN VO (D O G c p (0 CO .X O CD O N* VO r~- CN m CO CD P P § 00 CO r o CN VO CO D > , P P CO 0 CD P • O o p k ) O c p CD CD ID CD b pL| P G > a X CN 5 CO CD O M o (0 P CD Ê CO Eh •H E h (0 I p P P P P CD CD S i n Ü CD O b m EH E h I CO CD CO M C P p CO X CD X 5 S IT 104 the number of persons convicted for other offenses. For example, for the period 1942 to 1947 a total of 6,614 (7.6 percent) accounted for persons convicted for offenses against native tax laws, compared with a total of 80,594 (92.4 per cent) persons convicted for other offenses out of a total of 87,208 convicted persons. Taxation also caused a flow of African workers to the labor markets of Southern Rhodesia and South Africa, thereby obtaining the desired increase in the supply of labor. The trend of labor migration is shown in table 6 . The second device was for the company to support the establishment of labor recruiting agencies. The company itself had in the early years acted as a labor recruiter through its Department of Native Affairs, which enlisted workers on behalf of the mines and farmers in Southern Rhodesia. The third policy was for the company to withhold investments in Northern Rhodesia. This was a deliberate and calculated policy of disarticulation of modes of production. For this reason, the British South Africa Company refused to honor the terms of its treaty with King Lewanika under which the company was obligated to construct roads and manufactur ing establishments in exchange for its rights to minerals. The company policy was to prevent economic development in Northern Rhodesia, except in areas along the line of rail and the copper belt, which were inhabited by white settlers, so that it remained the source of supply of cheap labor for enterprises in the south. 105 TABLE 6 NORTHERN RHODESIA AFRICAN ADULT MALES WORKING OUTSIDE THE TERRITORY, 1930-62 (THOUSANDS) Southern South Year Rhodesia Malawi Africa Tanzania Zaire Others^ Total 1930 27.4 — -- 3.0 9.0 — 39.4 1935 33.0 -- -- 15.0 1.0 — —— 49.0 1940 40.0 “ '— 7.0 10.0 3.0 — — “ 60.0 1945 47.0 -- 7.0 -— -- -- 54.0 1950 26.6 0.7 10.7 3.6 6.5 1.6 49.1 1951 25.5 0.7 11.2 3.3 6.2 2.3 49.1 1952 24.9 0.7 10.7 3.6 6.9 3.7 50.5 1953 25.7 0.7 9.1 3.9 7.4 3.4 50.2 1954 23.9 0.7 8.7 3.3 7.5 4.5 47.6 1955 23.5 0.7 8.0 3.2 7.7 3.2 46.3 1956 23.1 0.7 7.4 3.3 7.8 4.5 46.8 1957 23.4 0.7 7.5 3.1 8.6 4.2 47.5 1958 24.0 0.8 7.6 3.3 8.2 4.0 47.9 1959 24.5 1.0 9.3 3.6 8.0 4.7 51.1 1960 26.0 0.9 9.3 3.7 8.6 4.2 52.7 1961 25.9 1.2 10.3 3.5 9.7 5.3 55.9 1962 26.7 1.3 10.1 3.5 10.0 6.8 58.4 SOURCE; 1930 and 1935; Government of the United Kingdom, Report of the Commission of Inquiry into the Financial and Economic Position of Northern Rhodesia (Pirn Report), 1938 (London: HMSG, 1938); and 1940-62; Northern Rhodesia Government, Depart ment of Labor, Annual Report [1940-62] (Lusaka; Government Printer, 1940-62). Others include Botswana, Uganda, and Kenya. 106 The point that is pertinent to our thesis is that it was fear of imprisonment or property seizure, and other extra- economic measures (including official encouragement of the establishment of semifeudal relations along the line of rail where land was expropriated and developed for European capi talist agriculture), that forced Africans to enter labor markets. The British South Africa Company was the first agent of British imperialism to initiate and sustain mecha nisms that compelled Africans to sell their labor-power in the capitalist sector. The company played a vital role in the development of capitalism and creation of the wage- earning class in Zambia. Another even more important effective way the British South Africa Company supported the emerging capitalist agri culture was through marketing policies that put white farmers on the line of rail in a position of monopoly. When copper mines were developed, white farmers were guaranteed the largest single market by obtaining all their supplies in the main from the European growers and from outside the terri tory. In buying maize grown on farms owned by white settlers rather than maize grown on village lands, the mines discour aged the improvement of village agriculture and forced villagers to sell their labor power instead of their produce. The link between these choices appeared clearly in 1910, when the administrator for North-Western Rhodesia stopped Africans from selling maize to mines in Katanga where white farmers sold theirs. He argued that it would be better policy to 107 encourage the energies of Africans in the direction of mining rather than agriculture.^^ This policy, which remained, the foundation of the country's broad economic policy throughout the colonial period, left Africans with nothing to sell— no surplus for the market— because capitalism wanted their labor-power, not their produce. The development of agriculture capitalism was sustained by the company's public investment policy favoring the narrow railwaylG strip, which was at the center of its holdings. The reasons for this pattern of public expenditures are not hard to find. Although this area represented less than one- eighth of the total territory, it contained the areas of mining and farming that were the chief source of the compa ny's revenues. As a private firm, the company's main desire was to maximize revenues and to minimize losses, thereby maximizing profits. The British South Africa Company lastly encouraged and supported the penetration of merchant capital. This action undermined the indigenous traders whose activities were l^ian Henderson, "Wage-Earners and Political Protest in Colonial Africa; The Case of the Copperbelt," African Affairs 72 (1973);10. l^The railway line crossed into Northern Rhodesia from Southern Rhodesia at Victoria Falls in 1904, reaching Broken Hill mining area in 1906, and linked up with the Congo rail way system in 1909. The line from Broken Hill to the Congo was financed by the Rhodesia-Katanga Junction Railway and Mineral Company, and Erlanger in 1909 offered for sale B800,000 first mortgage debentures of the company at 5.5 percent being guaranteed by the Tanganyika Concessions Lim ited. 108 located in internal trade. It also simultaneously destroyed the class of artisans that produced goods for internal exchange. We find that once merchant capitalism was securely in place it needed a growing market, and created one by killing the demand for the products of village craftsmen. Following independence, the Zambian government mounted a drive for import substitution, but the colonial capitalists reversed that process and replaced Zambian goods with imports. New use-values were introduced to the villagers in the form of manufactured goods which became necessities in many villages. For example, the most important technology of production in the agricultural economy, the hoe, previously manufactured in the villages, was now imported from the métropole. The money for manufactured goods and services came for the most part from wages. The role that accumulation of mercantile capital played in the geneology of the capitalist mode of production was one of reinforcing the processes of destroying the noncapitalist mode of production and creating the working class. Thus we find the interpretation of the development of the African wage-labor force and capitalism in Central Africa by such neoclassical economists as Barber inconsistent with ^^While capitalism became the dominant mode of produc tion, it did not destroy the noncapitalist mode of produc tion; instead it encouraged the production of most profitable primary commodities such as cotton, groundnuts, and tobacco. 109 f a c t s . IB In Barber's scheme of analysis, the development of capitalism is conceived of as a spontaneous process in the sense that it is induced exclusively, or almost exclusively, by "market forces" and merely a more efficient allocation of economic resources (i.e., the free choice of individuals on the market place) with little or no role assigned to open or concealed forms of compulsion. The British South Africa Company and Mining Capital In 1923, the British South Africa Company decided on a new policy of giving out vast concessions to strongly capi talized concerns. This new policy opened the way for foreign industrial capital and international finance capital in Zambia. The company's new policy was readily supported by the British government, which was eager to remedy Britain's dependence on American copper. A small copper mine of Bwana Mkubwa was the first mining concern to receive massive foreign capital. It was launched with an authorized capital of 61,500,000 and was operated by a multinational syndicate called Copper Venture Limited (formed in 1921 with a capital of 65,000), a subsidiary of Selection Trust Limited, an investment corporation ^^William J. Barber, The Economy of British Central Africa; A Case of Economic Development in a Dualistic Society (Stanford; Stanford University Press, 1961). For a critique of Barber's work also see Giovanni Arrighi, "Labor Supplies in Historical Perspective; A Study of the Proletarianization of the African Peasantry in Rhodesia," in Essays on the Political Economy of Africa, ed, Giovanni Arrighi and John S. Saul (New York; Monthly Review Press, 1973). 110 incorporated in London in 1914 with a capital of 650,000, and the Anglo-American Corporation, incorporated in South Africa in 1917. One of the major purposes of Copper Venture Limited was prospecting. Its working capital was increased to 630,000 and was satisfactorily liquidated in 1925, having fulfilled its functions. In 1923 the Rhodesian-Congo Border Concession Limited was floated by the chairman of Selection Trust Limited and the Anglo-American Corporation. It received an exclusive grant of 50,000 square miles from the British South Africa Company for prospecting. The company made a number of further concessions to leading foreign investment companies for the same purpose. Although the British South Africa Company was successful in attracting foreign industrial into the country through a liberalized concession policy that gave major prospecting companies exclusive exploration rights, no vital discoveries of large ore-bodies were made until 1926. Consequently, the company was unable to operate as a profitable business concern, and for thirty years was unable to pay out dividends to its shareholders. The company was losing about 6130,000 a year on Northern Rhodesia and altogether paid out one and a quarter million pounds to meet the annual deficits on its l^See Kenneth Bradley, Copper Venture; The Discovery and Development of Roan Antelope and Mufulira (London; Max Parrish, 1952), pp. 75-90; and L. H. Gann, A History of Northern Rhodesia; Early Days to 1953 (New York; Humanities Press, 1969), pp. 204-12. Ill budgets.20 The company's financial problem was compounded by the settlers' dissatisfaction at a threat to impose income tax. For this reason the company transferred its other assets to the British Crown, and in 1924 virtually relin quished its powers under the company charter to administer the country, and to remain purely a private corporation seeking to gain profits from the mineral rights it held in the territory. Zambia became a protectorate under British rule. This action was preceded by crucial negotiations between the colonial office and the company, which led to the agree ment of September 29, 1923, providing that the Crown would relieve the company of the administration of Northern Rhodesia from April 1, 1924. Clause 3(G) of the agreement provided for the retention by the company of the mineral rights acquired by the company by virtue of the Lewanika concessions and by concessions in North-Eastern Rhodesia covered by the certificates of claim issued by Sir H. H. Johnston, and that the Crown shall recognize the company as the owner of such mineral rights. By the agreement, the chartered company was to receive half of all land revenue in (the old) North-Western Rhodesia (except in the North Char- terland Concession at Fort Jameson— now Chipata) in perpe tuity. The retention of mineral rights by the company and the development of the copper industry in the following 20Bradley, p. 77. 112 decade, which gave these rights an enormous and unanticipated value, ensured that the mineral rights question would play a prominent part in the political and economic history of both colonial and postcolonial Zambia.21 Capital Accumulation and Class Formation under British Colonial Rule, 1924-53 In this section we analyze the processes of capital accumulation, class formation, and class struggle during the British colonial rule. In this respect, we examine the role of the colonial state as a vehicle of capital accumulation and the extent to which such a role accounted for class formation and class struggle. Throughout the colonial period the state was an impor tant agency by which the economic priorities of settler capital and foreign capital were implemented in Zambia. The need for both settler and foreign capital to appropriate surplus from the indigenous population enmeshed primarily in a noncapitalist mode of production. With the assistance of the colonial state, the settler class, together with foreign See Government of the United Kingdom, Rhodesia; Agree ment between the Secretary of State for the Colonies and the British South Africa Company for the Settlement of Outstand ing Questions Relating to Southern and Northern Rhodesia, Cmnd. 1984 (HMSG, 1923). The revenue received by the company from these mineral rights in the next twenty-five years totaled 69,750,000, a result as little foreseen in 1924 as it was to be unpopular with the Protectorate Government and local politicians in the years to come. In 1949, however, the company agreed to the termination of their rights in 1986, and to surrender 20 percent of the annual proceeds from them to the government during the intervening thirty-seven years. E:' 113 capital, squeezed and destabilized the noncapitalist mode of production to assure themselves the inputs of low-wage labor they needed in order to accumulate capital in agriculture and the mining industry. These needs for capital accumulation required that the colonial state functioned in such a way as to assure these inputs. In the same fashion, the state carried out other functions to assure the viability of the settler economy. These functions included provision of infrastructure (communication, power, and transportation), organization of monopolistic settler-controlled marketing cooperatives and produce boards, and connecting the colony's economic activity into the wider international capitalist economy. The colonial state also played a role in mitigating and managing conflicts between settler and foreign capital. Before turning to the analysis of how the colonial state helped to consolidate the position of mining and settler capital by continuing and refining economic and labor poli cies of the British South Africa Company, it is necessary to insert a brief discussion of the nature of the colonial state. A colonial state is a product of colonialism that is the implantation of a state apparatus in the conquered terri t o r y . 2% The colonial state in Northern Rhodesia was a 22por a classical work on colonialism and the colonial state, see Karl Marx and Friedrich Engels, On Colonialism (New York: International Publishers, 1972). Also see Karl Marx, On Colonialism and Modernization, ed. Shlomo Avineri (New York: Doubleday, 1968). 114 geographical extension of the British state, and as such was directly subordinate to the latter. The colonial g o v e r n o r ^ B in Northern Rhodesia was subordinate to the colonial secre tary, while the colonial bureaucracy was subordinate to the Colonial Office. The Northern Rhodesia colonial state repre sented the absentee ruling class— the British bourgeoisie. It therefore functioned as a state, and by proxy as a ruling class. The Colonial State, Mining Capital and Wage-Earning Classes In order to understand the particular forms of state intervention in connection with the interests of both foreign and settler capital, we have to start with the growth of mining capital that has remained dominant since the termina tion of the British South Africa Company's administration. The mining industry was the largest single industry that attracted foreign capital into the country. Also, the growth of the wage-earning class is significantly associated with the growth of the mining industry. When the colonial state took over the administration of Northern Rhodesia, it continued the company's policy of crtating favorable conditions for investment in the copper 22pollowing the termination of the British South Africa Company rule. Sir Herbert Stanley was appointed the first governor in 1924, with wide powers that included appointment and suspension of officials, and pardons. He was titular commander-in-chief of the armed forces, he could grant land, subdivide the territory into provinces, and his assent was necessary for all local legislation. 115 industry. This policy was instrumental for unprecedented flow of foreign capital from financiers and mining interests in London, New York, and Johannesburg. As will be remem bered, Copper Venture Company was used for initially pros pecting and new companies were formed to develop any promising deposits. In 1926, the Selection Trust was reconstituted (with substantial American capital) to become Selection Trust Lim ited, with a capital of 6800,000. The main purpose of the new company was to work with other interests and jointly to finance promising ventures by floating new operating compa nies. In this connection, the American Metal Company Limited of New York and other American interests put up an almost 50 percent share in the capital of 6175,000 needed for the early development work. Roan Antelope Copper Mines Limited was floated in 1927, with a capital of 6600,000. This capital was increased to 61,000,000, and in 1929 to 61,250,000. This expansion had throughout been strongly supported by the American Metal Company, which by 1952 held 33 percent inter est, while the capital of Roan Antelope Copper Mines Limited was 610,000,000. In 1928, Selection Trust Limited formed the Rhodesian Selection Trust Limited to develop Nkana Concession and Mufulira properties. In 1929, Rhodesian Selection Trust increased its capital to 61,000,000, and it rose to 65,500,000 by 1952, at which time the American Metal Company's interest was 51 percent. Mufulira Copper Mines Limited was formed in 1930 with a starting capital of 116 6600.000, which rose to 6900,000 during that year, in 1937 to 65.000.000, and in 1951 to 610,000,000 excluding loan stocks. In 1931, Rhodesian Selection Trust held 64 percent of the shares in Mufulira Copper Mines Limited. The American capitalist interests continued to gain ground on the copper belt through the American Metal Company, which in 1930 vastly extended its holdings by acquiring 800,000 shares of Roan and 1,000,000 shares of the Rhodesian Selection Trust against which it issued 350,000 new shares of its own common stock and paid $1 ,0 0 0 , 0 0 0 in cash to an affil iated company of Selection Trust Limited of L o n d o n . 24 Due to these extensive financial and technical transatlantic connec tions, the American capital secured more effective represen tations to the Northern Rhodesia government. While the American capitalist interests entered Northern Rhodesia through the Selection Trust Limited, British impe rialist and South African capitalist interests entered the country through the Rhodesian Anglo-American Corporation, which was incorporated in 1928 with a capital of 63,500,000. The Rhodesian Anglo-American Corporation was linked to South African capital through gold and diamond industries and the British South African Company. In a bid to keep the copper 24gy the end of 1930 the American Metal Company owned 1,777,198 shares in Roan Antelope Copper Mines Limited at a cost of 68,756,000 and 1,641,361 shares in the Rhodesian Selection Trust Limited at a cost of 67,766,000. By 1941 the American Metal Company had issued 1,224,585 shares. Of these Selection Trust Limited owned 289,000. 117 belt primarily an imperial interest, in 1929 a powerful British financial alliance, comprising Rhodesian Anglo- American, the Rio Tinto Company, the Rothschilds, and other interests (which included major British banks) was formed for the purpose of stopping American investors from acquiring controlling interests in the mining companies owned by the Rhodesian Anglo-American Corporation group. We have devoted much space to telling the story of copper mining in what came to be known as the copper belt region because the dominance of the capitalist mode of production in Zambia can be traced back to the beginning of large-scale extraction of copper and other minerals. The story of copper is also designed to enable us to understand how Zambia came to be linked to international capitalist interests, through money-capital obtained largely from the imperialist countries used to purchase plant and equipment and to employ required labor-force. Analysis of the devel opment of the copper industry is also important in order to understand the ascendancy of capitalist relations as the predominant form of production relations in Zambia, and its consequences for the noncapitalist mode of production. Importantly, this articulation of the capitalist mode of production with the noncapitalist mode provides a starting point from which to understand the takeover of state power at independence and of the centrality of the postcolonial state in Zambia's economy. Copper mining constituted (and contin ues to be in postcolonial Zambia) a vital facet of Zambia's 118 colonial mode of production.25 For the Northern Rhodesia government, the mining indus try remained the largest single source of revenue, as it has for the Zambian government. In 1921, the revenue of the Northern Rhodesia government was £279,104, in 1931 it was £856,376, in 1941 it was £2,979,613, in 1951 it was £15,632,472 (excluding Development Fund receipts), and the budget for 1952 was £23,662,000. For these selected years, the Northern Rhodesia government revenue totaled £43.4 million, of which a total of £23.5 million (54 percent) came from the mining industry.25 Table 7 shows the importance of the mining industry as a source of revenue for the Northern Rhodesia government. It is clear from this table that the buoyancy of the government's revenue (two-thirds of which came from income tax) was largely conditioned by the buoyancy of the profits of the mining companies. For example, during fiscal 1949-50 assessments on individuals represented only 8.4 percent of the total revenue, whereas assessments on the mining companies represented approximately 73 percent of the total revenue. Correspondingly, table 8 shows the extent to 25The colonial mode of production was especially charac terized by the particularly uneven and distorted form that capital accumulation took in Zambia: an oppressive colonial state apparatus organized on behalf of vast copper mining multinationals, intensified exploitation of African labor, settler racism that excluded Africans not only from small businesses but from most skilled and semiskilled laboring categories, and the concentration of commercial agriculture in settler hands. 25sradley, p. 25. 119 X ■P X -P (0 G ü G m G EH CD CD CD ■H EH H E co CO 0) O G (0 P CO CO -P 0) b Ü CO 0 •H U 3 CD CD ■H G G CO S ë X! 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CN CN •cf 0 •• T3 b tn p E "■ CN M CD G b G O CN CO ■P O U b O H ■P D g EH g • P CD P 0 0 c^ 00 en 0 O » CD CO O G -4' 0 W P i Z X CD O I I I I I 1 b p G CD X î rH ■rl N* 0 0 c^ 00 en (n p p CD G N* N* 'Hf N* CD G P CD a\ CTi en en en en i ■P O >1 O b 5 a b P X» P 120 TABLE 8 INTEREST, PROFITS, AND ROYALTIES REMITTED ABROAD AS PERCENTAGES OF GROSS NATIONAL INCOME, 1945-49 Gross Interest, Profits, Interest, Profits, National and Royalties and Royalties as Year Income Remitted Abroad Percentage of GNP 1945 13,671 2,355 17.2 1946 16,286 4,237 26.0 1947 25,543 10,639 41.6 1948 33,466 13,010 38.8 1949 39,350 12,201 31.0 SOURCE; Northern Rhodesia Government, National Income and Social Accounts of Northern Rhodesia, 1945-1949 (Lusaka; Central African Statistical Office, 1950), p. 23. NOTE: All figures in millions of pounds sterling. 121 which British imperial capital extracted surplus value from Northern Rhodesia industries (mines, refineries, and the railway system), of which substantial surplus-value came from the mining industry. Colonial Structure of Accumulation and Class Struggle In the preceding section, our main focus was on the development of mining capital in order to show the form of penetration foreign capital took. We say that mining capital was heterogenous, comprising British, American, and South African capital. The bourgeoisie (ruling class) who owned and controlled the means of production in the mining industry were physically resident in Britain, South Africa, and the United States. Their collective interests were protected by the Northern Rhodesia colonial state, which was subordinate to the British state. The state functionaries who ran the colonial state (most of whom were members of the British bureaucracy) symbolized colonial rule by Britain and class rule by the bourgeoisie. In this section we examine the general structure of colonial economy and its consequences for class formation and class struggle.27 Zambia's colonial economy consisted of two 27our use of the term class struggle is intended to be theoretically embracing. That is, we recognize that the character and form of class struggles vary greatly, and class struggles take place in various spheres of social life, namely the economic, political, and ideological. Also, class struggles may have different degrees of intensity— from passive opposition to hostile and sustained confrontation, from silent to open, and from spontaneous to conscious. 122 related spheres— a capitalist sphere and a noncapitalist one. The capitalist sphere comprised those enclaves in which the capitalist mode of production had successfully been made to penetrate and become dominant and virtually exclusive. As we have noted, some of the impact of colonial rule and the penetration of the capitalist mode of production became visible. Some of the noncapitalist modes of production were rapidly displaced under the impact of colonialism. The conditions for their reproduction could not survive. How ever, the noncapitalist modes of production were purposefully not completely destroyed. The colonial state that was central to the process of articulation of these modes of production planned for the preservation of some aspects of noncapitalist modes of production. This led to partial proletarianization of the African population— notwithstanding the fact that extraeconomic coercive measures were resorted to in order to procure labor-power on the scale and at the rates required by the capitalist sector of the economy. The result was that although Africans sold their labor- Furthermore, various forms of class struggle are also closely connected to the different forms of class organization and the class alliances that are forged in the process of struggle, and to the nature and the stage of the general class struggle itself. The phenomena discussed here also apply to class consciousness, which is the ideological arm of class struggle. For detailed theoretical treatment see N. Bukharin, Historical Materialism; A System of Sociology (London: Allen & Unwin, 1926), pp. 292-93; Karl Marx, "The Class Struggle in France" and "The Eighteenth Brumaire of Louis Bonaparte," in Karl Marx and Friedrich Engels, Selected Works, vol. 1 (Moscow: Progress Publishers, 1962). 123 power in the capitalist sector, they retained access to land in their villages to which they returned periodically to live and usually kept their families there. As will be shown when we analyze the dual structure of wages (based on race) in some of the major industries during colonial rule, it was because both partial proletarianization and migrant labor system served to reduce the cost of capital accumulation that they were perpetuated. Family production within the noncapi talist sector served to supplement the low wages paid to African workers in the capitalist s e c t o r . 2® This enabled capitalist producers to pay wages that were below those required to reproduce the workers' families. Also impor tantly, the noncapitalist mode provided a way of reproducing a reserve army of labor, not immediately required in capital ist production, at minimal (or no) cost to the state. This explains why unemployed and aged Africans were forcibly repatriated to their villages from urban areas. Therefore, both partial proletarianization and the migrant labor system permitted the mining companies and employers in other coun tries to recruit able-bodied young men in the prime of life, and extracted surplus-value through the adoption of a bewil dering variety of coercive measures, and then expel spent 2®For a similar view with regard to African workers in South Africa see Harold Wolpe, "Capitalism and Cheap Labor- Power in South Africa: Prom Segregation to Apartheid," Econ omy and Society 1 (February 1974). For a contrary viewpoint see George Chauncey, Jr., "The Locus of Reproduction: Women's Labor in the Zambian Copperbelt, 1927-1953," Journal of Southern African Studies 7 (1981):135-64. 124 workers to the rural areas when they were no longer exploit able, thereby externalizing the financial costs associated with maintaining the family, raising children, and caring for the sick and aged.29 The extent to which Africans had entered the capitalist sector by 1951 is shown in table 9. The existence of the noncapitalist mode side by side with the capitalist mode was used to support a system of wage-dualism that came to be anchored in the ideology of " c o l o r - b a r . in determining wage structures, the wage level of European workers was determined initially under the pretext of prevailing level in the countries where they were recruited, and by the additional sum needed to induce them "to forego the social and economic facilities of more devel oped countries." The African wage rate, on the other hand, was related in the noncapitalist sector. As is characteris tic of all capitals, the desire of the Northern Rhodesia Chamber of Mines to reduce labor costs resulted in a rigid comprehensive racial division of labor in the copper mining industry. The labor force came to be divided into two largely noncompeting groups. All the skilled labor, as well 29por a similar argument see Michael Buraway, "The Functions and Reproduction of Migrant Labor Material from Southern Africa and the United States," American Journal of Sociology 81 (1976):1049-55. B^The color bar is defined as a process of ideology under which the African worker is prevented from (a) acquir ing skill, (b) exercising skill, and (c) obtaining the full reward for the exercise of skill. The process of color-bar operated through the law and agreement between European labor unions and management. 125 TABLE 9 DEPLOYMENT OF AFRICAN LABOR FORCE IN EMPLOYMENT, 1951 Area of Labor Force Workers Agriculture and forestry 57,025 Mining and quarrying 37,749 Manufacturing 19,375 Construction 46,424 Electrical, water, and sanitary services 717 Commerce and finance 9,305 Transport and communications 6,158 Private domestic service 20,528 Others (schools, hospitals, churches, govern ment, hotels, laundries, etc.) 31,345 SOURCE; H. L. Gann, A History of Northern Rhodesia: Early Days to 1953 (New York: Humanities Press, 1969), p. 452. 126 as almost all semiskilled labor, employed in the mining industr y w a s European. The mining companies had no intention of accepting equality in the value of the labor-power of black and white, and throughout the colonial period had in fact insisted on a dual wage structure. The mining companies maintained this position with unshakable tenacity, in spite of the determined attempts by black workers to demonstrate that what they sought was not the acquisition of low-level industrial skills by a small proportion of their number, but a meaningful increase in base wages— that is, a real wage reflective of a value appropriate to their position as workers and not as migrant peasant farmers. However, the black workers' struggle was unsuccessful as it was government native policy not to encourage an "encroachment" by natives into work performed by Europeans. It was official policy that European jobs could not be given to Africans. The scheme for imple menting this policy included agreements between the Northern Rhodesia Mine Workers' Union (European union) and mining companies not to provide special education or technical training that would give Africans competitive skills. B^Our main focus is on the mining industry that until independence remained the single largest employer of both Africans (14,000 by 1935) and Europeans. The mining industry constituted the largest concentration of monopoly capital in the country. Also, it was in the mining industry where African workers pioneered the techniques of strike and mass confrontation that were to be used later in the struggle for independence. 127 However, despite mining companies' retrogressive poli cies African workers had quickly adapted themselves to industrial conditions (with a union of 100, 0 0 0 members) and rapidly acquired considerable progress and displayed remark able ability to do those jobs reserved for white employees in South Africa. It was this advancement and the aptitude to adjust themselves to the needs and demands of industry that prompted fear among the white employees and led to another agreement between the mining companies and Northern Rhodesia Mine Workers' Union (Clause 42), under which the mining companies agreed that work of the class or grade that was being performed or job that was being filled by an employee at the time of the signing of the agreement shall not be given to persons to whom the terms and conditions of the agreement did not apply. Since the terms and conditions of the agreement applied to European daily paid (semiskilled) employees who consti tuted the bulk of the union's 6,000 membership, the clause in effect meant that no job performed by these workers would be given to an African worker. Because Africans were not allowed to embark on certain occupations, those who acquired skills outside schools were prohibited from occupying certain positions. However, after the Second World War under the so-called "African advancement policy," which was part of a transformation scheme, large sections of semiskilled European workers were transformed into supervisors and overseers of African workers. The net 128 effect of the color-bar policy was that "black hands" may actually do the work under the "white eyes" of an overseer who is paid the full price for the skill employed in the performance, although the African worker has actually applied the skill. From the preceding sections it must be clear that any analysis of colonial Zambia must come to grips with the problem of race and racial policies of the colonial state. However, our effort has been to try to explain aspects of social formation in terms of social categories other than the purely racial. We have, therefore, in line with this theo retical orientation, departed from the conventional "liberal" perspective that explains color-bar solely in terms of racial oppression— the product of the racial ideology of specific groups of whites and not in consanance with the demands of inherently rational, color-blind free market e c o n o m y . ^2 By taking this position we do not deny the fact that Europeans and Africans are differentiated populations, nor is color-bar simply the result of an undifferentiated ideology. We view the mining and state policies that were based on color-bar as historical products employed as instruments of exploitation (i.e., surplus expropriation and appropriation) designed primarily to facilitate rapid capital accumulation. ^2por example, among liberals, see R. L. Prain, "The Problem of African Advancement on the Copperbelt of Northern Rhodesia," African Affairs 53 (1954) :91-103; and Harry Oppenheimer, "Industrial Relations in a Multiracial Society," African Affairs 55 (1956):313-19. 129 To be sure, color-bar policies had served the interests of the ruling class. They had helped to depreciate the value of labor-power possessed by the African fractions of the working class. Above all, they seriously facilitated the fragmentation of the working class, both Africans and Euro peans . Public Economic Policy and Development of Local Businesses We have so far examined labor policies of the colonial government and their impact on the structure of accumulation in the"mining industry. In this section we examine other areas of accumulation in which the colonial state played a vital role. The colonial government provided both legal and financial basis for capital accumulation, which discriminated against Africans. As we have already stressed, the colonial government operated within a political and legal framework that vested influence over its decisions in certain constit uencies. De facto, if not de jure, its major constituency was the white settler population. White settlers had gained increasing power in the running of the government and thereby increasing influence over the pattern of public expenditures and business policies. As early as 1918, white settlers had already compelled the British South Africa Company to concede to their demand for forming an advisory council of five elected members. When the Legislative Council came to be controlled by the white settlers, an understanding was reached whereby the executive branch of the government became 130 in part accountable to the legislative branch. Through various changes in the territory's constitution white settlers gained greater access to governmental power and a greater capacity to influence government decisions. On the other hand, while white settlers continued to gain control of the state and state apparatus, Africans lacked institutionalized means for compelling the colonial government to take account of their interests. Although the first representative of African interests was appointed to the Legislative Council in 1938, he was a white settler whose views were considered liberal and paternalistic. By comparison, while white settlers had participated in elections since 1918, Africans were denied the right to vote until 1959.33 While the settlers had been permitted to organize themselves into political parties since the 1920s, Africans' attempts to form political parties were proscribed and prosecuted by the government as acts of sedition. Even when the time for political expediency came, Africans who were nominated to the African Representative Council served only in an advisory c a p a c i t y . 34 a s table 10 shows, Africans were not represented in the Legislative Council until 1948, 3^Under the electoral laws of Northern Rhodesia in effect until 1957, only eleven Africans qualified to vote out of an electorate of 20,000 voters. For a detailed discussion see David C. Mulford, Northern Rhodesia General Election, 1962 (Nairobi: Oxford University Press, 1964), p. 4. 34on this and other related points see Rotberg, The Rise of Nationalism in Central Africa, pp. 207-8. 131 00 'O* o o TP O CN X> CN when two African representatives were appointed. Resulting from these constitutional arrangements, white settlers firmly secured the control of the colonial state and turned it into an instrument for protecting their common interests. At this point we seen an emergence of an alliance of settler capital, industrial foreign capital, and British imperialist capital. Thus, the colonial government exercised its "trust" only passively. Despite official pronouncements during the 1920s and 1930s (in the spirit of the Lewanika Concessions) that were meant to ensure "paramountcy of native interests," the government expended the greater part of its energies and resources on behalf of the small white population. The magnitude at which the settlers were able to compel alloca tion by the public sector can be seen from the pattern of expenditure plans. In 1953, the government was compelled to revise the 1947 Ten-Year Development Plan. Under the revised plan the amount unambiguously allocated to the noncapitalist sector fell from &4.11 million to £2.9 million. This repre sented a decline in the share of the proposed capital expen diture from 33.4 to 15.4 percent of the total planned invest- ments^S in favor of the capitalist sector. These shifts in allocations of planned investment are shown in tables 11 and 12. These drastic shifts should not be surprising as the 3^The computation is made from Northern Rhodesia Govern ment, Approved Estimates of the Development Fund, 1954-1955 (Lusaka; Government Printer, 1954), p. 3. 133 TABLE 11 PLANNED EXPENDITURES UNDER FIRST (1947) VERSION OF TEN-YEAR DEVELOPMENT PLAN, 1947-57 Expenditure Category Amount^ Percentage Health 1.60 12.3 African education 1.54 11.8 European education .25 1.9 Agriculture, forestry, and veterinary 2.11 16.2 Communications 1.82 14.0 Rural development 1.50 11.5 Water development .97 7.5 Agricultural development, marketing, and secondary industries .50 3.8 African housing 1.00 7.7 General building and public works 1.30 10.0 Loan to local authorities .25 1.9 Unallocated balance .17 1.3 TOTAL 13.01 99.9 SOURCE: Northern Rhodesia Government, Ten-Year Development Plan for Northern Rhodesia as Approved by Legislative Council on 11th February 1947 (Lusaka: Government Printer, 1951). ^Millions of pounds sterling. 134 TABLE 12 1953 VERSION OF TEN-YEAR (1947-57) DEVELOPMENT PLAN FOR NORTHERN RHODESIA Expenditure Category Amount® Percentage Health 3.6 6.6 African education 1.8 3.3 European education 5.1 9.4 Agriculture, forestry, and veterinary 1.9 3.5 Communications 9.2 17.0 Rural development 1.0 1.8 Water development 1.5 2.8 African housing 6.6 12.1 General building and public works 9.5 17.5 Law and order 1.8 3.3 Loans to local authorities 5.5 10.1 Public utilities 5.9 10.8 Other 1.0 1.8 TOTAL 54.2 100.0 SOURCE: Northern Rhodesia Government, Approved Esti mates of the Development Fund, 1954-1955, Northern Rhodesia (Lusaka: Government Printer, 1954), p. 3. ^Millions of pounds sterling. 135 colonial government had come to partake in the financial benefits of the system of exploitation. 36 There was an increase of planned expenditures in the categories of "public works" and "communications." These expenditures covered the majority of projects on economic infrastructure, which rose from 24 percent of the 1947 plan to 34.5 percent of the budgeted investments in 1953, an increase that in real terms amounted to £15.6 million. In other spheres of public spending, shifts included the level of planned expenditures on European education, which increased from £1.54 million to £5.1 million. This represented a rise from 1.9 to 9.4 percent of the total planned capital outlay. On the other hand, the expenditures for African education remained virtu ally stagnant in real terms, resulting in a proportionate decrease from 11.8 percent to 3.3 percent of the revised schedule of public investments. The colonial government exhibited the same bias in favor of white commercial farmers. It established legal precondi tions that greatly enhanced the development of capitalist agriculture and provided a legal framework under which agri cultural investments took place, agricultural services that included, among others, research, marketing, and provision of 36gy this time industrial capital had come to dominate the tax base of the government. While in 1947 the mines contributed £1.2 million to government revenues, or 27.7 percent, when the plan was revised in 1953 the figure had risen to £16.8 million, or over 55 percent. For further details see Elena L. Berger, Labor, Race and Colonial Rule; The Copperbelt from 1924 to Independence (Oxford; Clarendon Press, 1974), p. 8 . 136 rail. White farmers could secure credit from the state-owned Land Bank or from commercial sources. The colonial govern ment also controlled the level of production by African farmers for the purpose of preventing them from competing with the white farmers, who were allocated a fixed share of the market. As if this were not enough, from 1955 to 1957 the government paid £2.5 million to white farmers in subsi dies for maize production^? Similar subsidy programs existed in other sectors of the agricultural industry, such as live stock, dairy products, and tobacco. Similar economic and fiscal policies existed in the commercial and manufacturing sectors of the economy. These policies were specifically designed to preclude Africans from engaging in these businesses. Even though the broad policy was to discourage the establishment of large-scale secondary industries so as to guarantee that the country remained primarily a source for raw materials and a market for British and South African manufactured goods, white settlers were assisted to own small-scale manufacturing and commercial enterprises, which were developed to service the export- import economy and the consumption needs of European resi dents; and administrative and business needs. Bricks, cement, and sawmills had to be produced locally because their high weight-to-value ratio made their importation uneconomic. 3?See Robert E. Baldwin, Economic Development and Export Growth; A Study of Northern Rhodesia, 1920-1960 (Los Angeles; University of California Press, 1966), pp. 154-60. 137 Bakeries, butcheries, creameries, and light industrial plants providing soft drinks, ice cream, and beer produced perish able goods for middle-class consumption. All these busi nesses were by law and public economic policy restricted to Europeans. In accordance with this broad economic policy of protecting European-owned enterprises from competing with African- and Asian-owned businesses, the country was divided into business zones on the basis of race. Accordingly, European-owned enterprises were permitted to do business in "first class" trading areas— these are downtown areas where g O all big businesses such as banks, insurance companies, European supermarkets, and others were operated by Europeans. Asians (Indians) were permitted to locate their business in "second class" trading areas, and Africans were restricted to engaging in business in "African" townships— these mainly ran small grocery stores, and a few traded in second-hand clothes as vendors. All these conditions seriously impeded the development of indigenous businesses. Thus, through state intervention in the economy, the capitalist sector was assured of the continued existence of a class of wage-earners whose source of livelihood was the sale of their labor-power. These conditions were intensified during the period of the Federation of Rhodesia and Nyasaland, which is considered in the next section. The colonial banking system and foreign exchange control were effectively linked to those of Britain through the British currency, and London headquarters of locally established banks. 138 Zambia under the Federation of Rhodesia and Nyasaland, 1953-63 "Die witman moet boss bly"^^ Our opposition to federation is based on the simple fact that the Europeans of Central Africa . . . are aiming at a complete domination and exploitation of the black people of Central Africa, . . . We are being betrayed by the British government. . . . This is our c o u n t r y . These statements symbolize the nature of the estrange ment of black and white that existed in Zambia from the end of British South Africa Company rule to the beginning of federation. Northern Rhodesia Africans had become aware of the existence in South Africa and Southern Rhodesia of out right white settler hegemony. In Northern Rhodesia they witnessed the British government subtly modifying its concept of protectorate in order to accommodate growing common interests of settlers and industrial capitalists. Also, due to rapid industrialization, which had further entrenched white paramountcy (thereby converting the colonial state apparatus to their own ends), Africans had become aware of the fact that colonial policies were constantly reflecting an increasing ambivalence toward African interests. On these grounds, among others, Africans opposed the establishment of the Federation. Their opposition was made 3^"The white man must remain master"— slogan of South Africa's Nationalist Party for the 1948 general election. Quoted in Martin J. Murray, ed.. South Africa Capitalism and Black Political Opposition (Cambridge, MA: Schenkman, 1982), p. ix. 4®Harry Mwaanga Nkumbula, President of African National Congress in Northern Rhodesia, June 26, 1952. 139 known as early as 1949, when a number of African associations concerned with African welfare and advancement had declared their opposition to federation when the question was first discussed at their convention under the umbrella of the African National Congress, founded in 1944. For Africans, federation meant the domination of Southern Rhodesia; the domination of Southern Rhodesia meant the domination of white settlers; and the domination of white settlers meant the perpetuation of racial inferiority and of the threat to the African's land. In short, they knew that federation would prejudice their political freedom. These fears were not unfounded. The resounding victory of Malan's Nationalist Part in the South African elections of 1948 once again^l prompted discussions among white settlers and industrial capitalists of the possibility of union. These discussions led to the Victoria Falls Conference of 1949, at which it became clear that Southern Rhodesia's white settlers planned to rule Northern Rhodesia and Nyasaland from Salisbury (then capital of South Rhodesia), and to sap much 4^Before the Federation of Rhodesia and Nyasaland was established, schemes for incorporation one or more of the Central African territories into a broader union had excited both white settlers and British officials as early as 1925. In its modern sense, federation was sired by Lord Passfield. For the British South Africa Company's amalgamation proposal with respect to the two Rhodesias and the Union of South Africa (1915-17) and the public debate that ensued in North ern Rhodesia, see John B. Stabler, "The British South Africa Company Proposal for Amalgamation of the Rhodesias, 1915- 1917: Northern Rhodesia Reaction," African Social Research 7 (June 1969). For a general view of proposals for federation, see Colin Leys and Cranford Pratt, A New Deal in Central Africa (New York: Praeger, 1960). 140 of the revenue from Northern Rhodesia's copper mines. All these facts confirmed the Africans' suspicion that federation was a scheme with the objective of legalizing the white settlers' plans to consolidate their hegemony in central and southern Africa. Although eight million Africans (table 13), against three hundred thousand whites, had strongly opposed the idea of federation, viewing it as a cynical device designed to perpetuate white domination, the Federation of Rhodesia and Nyasaland was imposed on September 3, 1 9 5 3 , embracing the self-governing British colony of South Rhodesia and the British protectorates of Northern Rhodesia (Zambia) and Nyasaland (Malawi). However, the Federation, a solely white accomplishment, gave impetus to and coincided with an unprecedented acceleration in the African struggle for freedom and self-government. Congresses and trade unions joined forces with the mission of bringing the Federation to an end.43 As a result of intensified struggle, the Federa tion was destined to have a life span of only ten years. 42por earlier African (and two liberal unofficial Euro pean members of the Northern Rhodesia Legislative Council) opposition to the idea of amalgamation see Government of the United Kingdom, Rhodesia-Nyasaland Royal Commission (The Bledisloe Report), Cmd., 5949 (London: HMSO, 1939), p. 4. 43on the growth of African nationalism and political events leading to the dissolution of the Federation and granting of independence to Northern Rhodesia, see David C. Mulford, Zambia: The Politics of Independence, 1957-1964 (Oxford: Oxford University Press, 1967); and Rotberg, The Rise of Nationalism in Central Africa. 141 TABLE 13 FEDERATION OF RHODESIA AND NYASALAND® POPULATION IN 1960 Source Population Africans 8,080,000 Europeans 312,000 Asians and others 41,000 TOTAL 8,433,000 SOURCE; Ronald Segal, Political Africa; A Who's Who of Personalities and Parties (New York: Praeger, 1961), p. 382, ®Area 485,000 square miles. 142 characterized by conflicts between Europeans in the Federa tion and the British government, and Africans who were grad ually enfranchised, against the will of the ruling European governments both and the federal and territorial level. Eventual granting of independence to Northern Rhodesia and Nyasaland on the attainment of majority rule led to the dissolution of the Federation on December 31, 1963, and indirectly to the unilateral declaration of independence of South Rhodesia on November 11, 1965. The Federal State and the Structure of Capital Accumulation In this section, we analyze the mode of state interven tion in the economy's critical sectors; the general infra structure (transport and communication), agriculture, manu facturing, mining, public education, and public finance. The motive for federation and the manner of state intervention in restructuring the apparatuses of capital accumulation by classes of white settlers and industrial capitalists can be better understood by considering the racial and economic characteristics of Southern Rhodesia vis- avis Northern Rhodesia before federation. Economic factors were mainly instrumental in stimulating the interest shown by Southern Rhodesia in the cause of federation. In July 1954 the public debt of Southern Rhodesia was stated as £33 million, that of Northern Rhodesia as £21 million, and that of Nyasaland as £6 million. While Southern Rhodesia had a large public debt. Northern Rhodesia's revenue in 1953 was 143 estimated at £30.25 million and the exports were valued at £94.75 million.44 in view of these economic factors, and the fact that Southern Rhodesia had inadequate funds for its development program, which was designed to meet the needs of a rapidly growing European population, the class of white settlers in Southern Rhodesia saw the great advantage that closer union with Northern Rhodesia could give it in its efforts to restructure the machinery for capital accumula tion. As expected, the main argument presented to the British government by white settlers in support of their case for federation was that the scheme would yield great economic benefits for the r e g i o n . 45 Following the approval of the Federation's constitution, in which the political power of white settlers was clearly enshrined, the first step was for the white settlers to appropriate the Federal State. As such, it became an instru ment for protecting common interests of settler capital, and industrial and finance capitals. The first preoccupation of the new state was the formulation of public policies aimed at 44por background discussion, see Lord Hailey, ^ African Survey, Revised 1956; A Study of Problems Arising in Africa South of the Sahara (London: Oxford University Press, 1957), pp. 276-84. 45gee C. H. Thompson and H. W. Woodruff, Economic Devel opment in Rhodesia and Nyasaland (London: Dennis Dobson, 1954), pp. 182-93. For the British government's reservation regarding the political position of Northern Rhodesia and Nyasaland, see the Preamble to the Constitution as given in the Annex to Federation of Rhodesia and Nyasaland Order in Council, No. 1199 (1953) , p. 15. 144 consolidating capitalist enclaves and creation of favorable conditions for capital accumulation so as to attract foreign capital. In order to foster the desired tempo for accomplishing these objectives, functions that were considered crucial to the processes of accumulation were reserved for the federal legislature. These included, inter alia, external affairs, migration into the Federation, defense, courts, prisons, finance (including currency), transport and works, commerce and industry, power and communication, railways, interterri torial roads, posts and telegraphs, customs and excise, education (higher education and primary and secondary educa tion of non-Africans), European agriculture, major irrigation works, and health. From this list, which came to be known as the "Exclusive List," it is clear that the Federal State controlled all state apparatuses that were decisive for capital accumulation. Some indication of the relative magnitude of revenue and expenditure that was expected to ensue from the operation of the Federal State is provided by the estimates framed in the report of the Fiscal Commission in 1952.46 The report esti mated that out of a total revenue of £52,054,000, the federal 46por complete records of federal expenditure during the ten-year period of the Federation, see Federation of Rhodesia and Nyasaland, Estimates of Expenditure ; To Be Defrayed from Revenue Funds and from Loan Funds during the Years Ending 30th June, 1954 to 30th June, 1963 (Salisbury; Government Printer, 1953-62). 145 budget would account for £27,624,000 and the three territo rial budgets for £24,430,000 (Southern Rhodesia £12,977,000, Northern Rhodesia £8,567,000, and Nyasaland £2,886,000). The major items of federal expenditure would be public works £4,151,000, public debt £3,613,000, development projects £3,000,000, non-African education £2,646,000, health £2,967,000, and defense £2,337,000. The general extent to which the Federal State became a crucial factor for the development of a capitalist economy in the Federation is shown in the state-sponsored development plans for the periods 1957-61, 1959-63, and 1962-65. In the 1957-61 plan, in which the investment expenditure planned for the period totaled nearly £138 million (£137,660,000), £117 million, or 85 percent, was allocated to economic services or infrastructure. In the 1959-63 development plan of £76.8 million, 75 percent was allocated to economic services. Of the £55,428,000 planned for investment in the 1962-65 devel opment plan, 68 percent was allocated to economic services. All these public investment decisions were taken with direct reference to the economic implications for the accumulation of capital by bourgeois classes. Public Investment and Capital Accumulation In this section we examine patterns of public investment during the Federation and their implications for capital accumulation by classes of white settler bourgeoisie operat ing in agriculture, large-scale international capitalism 146 (industrial and finance), and the white and Asian petty- bourgeois ie operating in trade and other sectors of the economy. To these three major classes that appropriated the Federal State may be added the class of white wage workers whose entrance into the economy followed the capitalist development of the Federation, especially in the two Rhode sias. These classes are especially mentioned here because they constituted the federal regime's dominant constituency, and as such it was their common interests that influenced patterns of public investment. In this regard, we assume that three primary factors influence decisions of public investors, namely ideological preferences, the need for political support, and the desire to augment the expected value of public revenue. Ideological and political consid erations lead governments to invest in ways that private investors would not. This understanding serves as a starting point for our analysis of the nature and magnitude of the intervention of the Federal State in the economy. First, we examine the financial behavior of the Federal State in the provision of infrastructural prerequisites, namely physical overhead capital, particularly in the form of transportation and power networks. These are crucial for capital accumulation. Power supplies are necessary for the creation of the industrial sector, and transportation is essential both to the spread of production for the market and to the expansion of consumer demand for the products of industry and.agriculture. In other words, the investment in 147 physical overhead capital was seen as a necessary condition for creating a wide market in the Federation and for expand ing the industrial sector. Regarding transportation, the first concern of the Federal State was to see that the railway system was modern ized to the level considered adequate to serve the needs of agriculture and industrial bourgeoisie. To this end, when the Federal State assumed the responsibility for running the Rhodesia Railways in 1953, it embarked on a scheme of substantial expansion of the system in order to boost its capacity. Also, in addition to the opening up of the interior in support of the emerging capitalist agriculture, the system was extended by a line terminating at Walvis Bay in South West Africa (Namibia). Another line was constructed connecting Bulawayo in Southern Rhodesia and Lourenco Marques (Maputo) in Mozambique. This involved the construction of about 660 miles of new track, half in Southern Rhodesia and half in Mozambique, the cost of the latter being borne by the Portuguese government. The cost borne by the Federation as estimated at 610 million. The completion of this project enabled the Federation to have access by rail to three ports. Port Elizabeth (in Southern Africa), Beira, and Lourenco Marque in Mozambique. The financing of the railway system provides us with a clear picture of the nature of capitalist class alliance that existed during the Federation. Of the 699 million first 148 major capital investment in the Rhodesia Railways during the Federation, £39 million was provided through the Southern Rhodesia Government and £15 million through the Northern Rhodesia Government. The federal government was responsible for £32 million. The balance was provided through a loan from the International Bank for Reconstruction and Develop ment (World B a n k ) . 4? In addition to capital investment, the United States Government granted two loans amounting to £ 8.6 million. The Anglo-American Corporation purchased nearly £8 million of rolling stock and then rented this equipment to Rhodesia Railways, in addition to a loan of £1 million. In 1954 the Government of Northern Rhodesia provided Rhodesia Railways a loan of £2,164,000.48 The importance that the Federal State attached to Rhodesia Railways as a means for facilitating the process of capital accumulation is demonstrated in the allocation of public investment funds in the 1957-61 development plan. Under allocation for economic services, the group covering transport and communications accounted for planned expendi tures of £54 million, of which £38,750,000, or nearly 72 percent, was allocated to Rhodesia Railways. This was in addition to own resources that amounted to £13,800,000 and a 4?See Government of the Federation of Rhodesia and Nyasaland, The Break-up Effects and Consequences on the Two Rhodesias; Presented to the Federal Assembly on 26th June 1963, by the Prime Minister (Salisbury: Government Printer, 1963), p. 58. 48gee The Statesman's Year Book (London: MacMillan, 1956), p. 288. 149 total of £24,950,000 in government loans^^ as shown in table 14. In the 1962-65 development plan, Rhodesia Railways was allocated £11,655,000. In addition to these unprecedented investments in the railway system, the federal government invested £16 million in the development of interterritorial roads since federation in support of private capitalist investments in commerce and industry. Another major investment decision by the federal govern ment, as part of its concerted effort to provide adequate infrastructure to industries, was made in 1956, when it commissioned the construction of the Kariba hydroelectric project at an estimated total cost of £80 million. The major portion of this amount was raised through government-guaranteed external and internal loans made to the government-controlled Federal Power Board. External loans totaled £46.57 million. The loan from the International Bank for Reconstruction and Development (World Bank) of £28.57 million was severally and jointly guaranteed by the federal government and the British government. Loans by the Common wealth (formerly Colonial) Development Corporation and the Commonwealth Development Finance Company Limited (respec tively £15 million and £3 million) were guaranteed by the 49gee Government of the Federation of Rhodesia and Nyasaland, Development Plan 1957-61 (Salisbury; Government Printer, 1957). Also, for traffic And operating statistics of Rhodesia Railways for the period 1954-62 see Government of Rhodesia and Nyasaland, Economic Report [1953-63] (Salisbury; Government Printer, 1957-63). 150 TABLE 14 RHODESIA RAILWAYS; CAPITAL INVESTMENT UNDER THE 1957-61 DEVELOPMENT PLAN Investment 1957-58 1958-59 1959-60 1960-61 Total Capital expendi ture 12.50 10.40 8.75 7.10 38.75 Of which own resources 6.10 3.10 2.60 2.00 13.80 Government loans 6.40 7.30 6.15 5.10 24.95 TOTAL 25.00 20.80 17.50 14.20 77.50 SOURCE; Government of the Federation of Rhodesia and Nyasaland, Development Plan 1957-1961 (Salisbury; Government Printer, 1957) . NOTE; All figures in millions of pounds sterling. 151 federal government only. In addition to these loans, the federal government undertook to make a further loan of £6 million in case the available funds were insufficient. The federal government also undertook to make further loans amounting to £730,000. Internal loans made to the Board by the federal govern ment totaled £28 million. However, although these loans were made by the federal government, the original lenders toward whom the federal government had obligations were Rhodesia Copper Mining Companies (£20 million), British South Africa Company (£4 million), Barclays Bank D.C.O. (£2 million), and the Standard Bank of South Africa (£2 million). This was the biggest single long-term federal investment project planned to provided electricity to the copper mining industry in Northern and Southern Rhodesia's broad-based economy at cheap rates. In the 1957-61 development plan of over £60 million for electric power development, the Kariba project was allocated over £54 million, or 90 percent, of the total allocation for electric power development (39 percent of total expenditure under the plan). Under the 1959-63 development plan, the Kariba project accounted for an annual average expenditure of £6.3 million, or 34 percent of the planned expenditure. During the Federation (1954-63), public works also constituted one of the major spheres of economic activities in which the Federal State invested heavily, as table 15 shows. The class nature of these public investments is 152 TABLE 15 EXPENDITURES ON NEW WORKS SINCE FEDERATION, 1954-63, FROM LOAN AND REVENUE VOTES Period Loan Votes Revenue Votes Total 1954-55 3,230,726 437,182 3,667,908 1955-56 3,567,215 477,483 4,044,698 1956-57 3,453,607 683,730 4,137,337 1957-58 3,430,329 786,111 4,216,440 1958-59 2,995,591 674,322 3,669,913 1959-60 2,792,980 443,703 2,236,683 1960-61 3,576,912 1,074,296 4,651,208 1961-62 3,043,422 1,398,506 4,441,928 1962-63 2,736,676 636,962 3,373,638 TOTAL 28,827,458 6,612,295 35,439,753 SOURCE : Government of the Federation of Rhodesia and Nyasaland, Annual Report of the Under Secretary to the Federal Ministry of Works for the Period 1st July, 1962, to 31st December, 1963 (Salisbury; Government Printer, 1963). NOTE: All figures in pounds sterling. 153 obvious. They were primarily intended to benefit the indus trial and agricultural bourgeoisie and their allies. For the purpose of reproduction of the ruling class, more public funds were spent on new works connected with non-African education. Of £32,066,115 spent on "new (building) works" (1954-62), £10,549,995, or 32.9 percent, was spent on build ings for European education (total public expenditure on European education from 1954 to 1962 was £57,156,561),^^ and European health had a share of 23.2 percent. Expenditure on defense and prisons was respectively 11.8 percent and 5.3 percent. To be sure, a large number of working-class Afri cans benefited from the 8.2 percent spent on housing in African compounds, but the primary purpose of the housing program was to stabilize the supply of labor for growing industries in urban areas. Buildings connected with European agriculture had a share of 8 percent. Another sector of the economy in which the class char acteristic of the Federal State became clear was the agri cultural sector,whose white population constituted the largest group in the alliance of capitalist agricultural and mineral exporters, manufacturing capitalists, building and 5®See Government of Rhodesia and Nyasaland, Annual Report of the Under Secretary to the Federal Ministry of Works for the Year Ended 30th June, 1962 (Salisbury: Govern ment Printer, 1962); and Annual Report on Education for the Year 1961 (Salisbury: Government Printer, 1962). 51ln this context, by agricultural sector we refer to European agriculture, for which the federal government was responsible as provided in the federal constitution. 154 construction capitalists, transport capitalists, finance capitalists, and foreign capitalists who controlled the state through the United Federal Party (UFP). This fraction of the bourgeoisie had hegemony in the alliance and was able to ensure that the state adequately protected its interests. This fact is borne out by the role the federal government played in developing capitalist agriculture in the Federa tion. As a starting point for class analysis in this respect, we argue that in order to understand the nature and style of the Federal State's intervention in the economy, it is neces sary to understand the material base of various fractions of the bourgeoisie in the Federation. This amounts to arguing that, as we analyze nonrecurrent (capital) and certain recur rent expenditures by the federal government, we capture the idea that all decisions that were taken in this respect had direct reference in the economic implications for the accumu lation of capital by various fractions of the bourgeoisie. The same goes for investment and other expenditure decisions made by statutory bodies. Therefore, the extent to which the settler bourgeoisie controlled the Federal State can be concretized by examining government expenditures in projects that had direct bearing on capital accumulation in the agricultural sector. The broad economic policy of the federal government pertaining to agricultural development aimed at a systematic transformation of the agricultural sector on the basis of capitalist 155 relations of production. Public investments in this sector aimed at changing agricultural production on the basis of deliberate and consistent production of substantial cash C O crops for the domestic and external markets.^ In the 1955-56 estimates of expenditure defrayed from revenue and loan funds, agricultural development in general was allocated £2,345,281. This figure was revised to £2,347,101, an increase of 8 percent. This expenditure was met from revenue funds. From this source also the sum of £589,336, which was revised by 22 percent to 590,636, was voted for research and specialist services. Under expendi ture from loan funds, agricultural development received £304,121, which was revised to £480,671, a rise of £176,550, or 58 percent. European agriculture in Northern Rhodesia (Zambia) was allocated £100,046. In the 1956-57 budget the total allocation for agricultural development was £5,287,645. Of this allocation £3,329,200, or 63 percent, was channeled into subsidies.53 The total allocation for agriculture in the 1957-58 estimates was £6,632,481. Out of this £4,701,701 (71 percent) was allocated for subsidies. In the 1961-62 53por a broad government policy statement regarding agricultural development, see Government of Rhodesia and Nyasaland, Federal Government Economic Policy; Principles (Salisbury; Government Printer, 1962). 53By subsidies we refer to the contribution made by government, directly or indirectly, to defray part of the operating expenses of enterprises, including statutory bodies. These grants have the effect of reducing market prices below the factor costs of production. 156 budget of £3,978,691 a total of £1,619,868, or 41 percent, was set aside as subsidy in the agricultural sector. In the last federal budget ( 1 9 6 2 - 6 3 ) the total allocation for agri cultural development was £4,659,622, out of which £2,264,502, or 49 percent, was set aside for subsidies in respect of European agriculture. While these enormous sums of money were made as direct state grants to the agricultural bourgeoisie, this fraction of capitalists had easy access to credit facilities made available by the federal government through state-controlled regional land and agricultural banks. As table 16 shows, between 1 9 5 5 and 1 9 6 1 the Land and Agricultural Bank of Northern Rhodesia granted a total of £15,220,211 to European farmers in long- and short-term loans. On the other hand, for the period covering the years 1 9 5 3 to 1 9 5 9 , the Southern Rhodesia and Northern Rhodesia Land and Agricultural Banks granted a total of £ 2 8 . 8 million to European farmers as shown in table 17. In addition to loans granted by Land and Agricultural Banks, European farmers had easy access to credits granted by commercial banks and other financial institutions. Between September 1 9 5 4 and September 1 9 5 9 , for example, bank credits to primary agriculture and fishing totaled £67.8 million. 54 To sustain the dominance of capitalist mode of produc tion in the agricultural sector, the federal government 54gee Government of Rhodesia and Nyasaland, Economic Report, 1 9 6 0 (Salisbury: Government Printer, 1 9 6 0 ) , p. 50. 157 TABLE 16 LONG- AND SHORT-TERM LOANS GRANTED TO FARMERS BY LAND AND AGRICULTURAL BANK OF NORTHERN RHODESIA, 1955-61 Year Total Loans® 1955 2,006,125 1956 1,817,015 1957 1,681,430 1958 2,595,515 1959 3,103,695 1960 2,327,991 1961 1,688,440 TOTAL 15,220,211 SOURCE: Northern Rhodesia Govern ment, Reports ofthe Board of Land and Agricultural Bank of Northern Rhodesia, 30th June, 1955-30th June, 1960 (Lusaka; Government Printer, 1961); and Govern ment of Rhodesia and Nyasaland, Report of the Land and Agricultural Bank of Northern Rhodesia for the Year Ended 30th June, 1961 (Salisbury: Government Printer, 1962) . ‘In pounds sterling. 158 TABLE 17 LONG- AND SHORT-TERM LOANS GRANTED TO FARMERS BY THE SOUTHERN RHODESIA AND NORTHERN RHODESIA LAND AND AGRICULTURAL BANKS, 1953-59 Loans 1953 1954 1955 1956 1957 1958 1959 Total Long-term 2.8 3.1 3.5 3.9 4.5 5.2 4.6 27.6 Short-term — — — — — — --- —“ 0.1 1.1 1.2 TOTAL 2.8 3.1 3.5 3.9 4.5 5.3 5.7 28.8 SOURCE: Government of Rhodesia and Nyasaland, Economic Report, 1960 (Salisbury: Government Printer, 1960), p. 56. NOTE: All figures in millions of pounds sterling. 159 organized formal marketing facilities (including research and storage facilities) through marketing boards and commissions, namely Dairy Marketing Board, Grain Marketing Board, Cold Storage Commission, Tobacco Research Board, two Tobacco Marketing Boards (Southern and Northern Rhodesia), Tobacco Export Promotion Council of Rhodesia and Nyasaland, and Pig Industry Board. The federal government made substantial investments, including expenditures on a wide range of specialist ser vices. Table 18 shows these state-owned marketing organiza tions ' investments of a permanent nature in Southern and Northern Rhodesia. Table 19 shows levels of government expenditure, totaling £ 8 6 8 ,0 0 0 , on provision of marketing and marketing-related facilities with respect to three statutory marketing boards for a four-year period, 1957-61. Main items of expenditure included a new Salisbury dairy, silos for a total cost of £300,000 to contain the equivalent of 500,000 bags, and seasonal storage facilities. Further provisions for expenditure in relation to marketing and marketing-related facilities were made in the 1962-65 development plan. For the fiscal year 1962-63, a total of £166,000 was allocated to the Dairy Marketing Board for replacement of plant and equipment. For the same period the Grain Marketing Board was allocated a total of £315,000. The Cold Storage Commission received £285,000 for processing and marketing facilities, while the Tobacco Research Board received £34,000 for capital development. 160 TABLE 18 INVESTMENT OF A PERMANENT NATURE OF STATUTORY MARKETING ORGANIZATIONS IN SOUTHERN AND NORTHERN RHODESIA IN 1963 Total 1963 Book Value Southern Northern Organization of Fixed Assets Rhodesia Rhodesia Dairy Marketing Board 1,641,557 1,246, 888 394,669 Grain Marketing Board 1,473,703 820,897 652,806 Cold Storage Commission 3,176,834® 2,574,467 437,556 Tobacco Research Board 275,665 244,088 31,577 South-Western Tobacco Marketing Board 788 788 ——— North-Eastern Tobacco Marketing Board 300b -- —— Tepcorn 1,600 1,600 Pig Industry Board 3,363 33,363 TOTAL 6,603,810 4,922,091 1,516,608 SOURCE: Government of Rhodesia and Nyasaland, The Break-up Effects and Consequences on the Two Rhodesias (Salisbury: Government Printer, 1963). NOTE: All figures in pounds sterling. ^Includes assets in Nyasaland with a book value of £164,811. ^Situated in Nyasaland. 161 O o O O rH o o O o (Ü o o o o -p » -■ "• o rH o r- oo EH CO C' n CO m en H 00 vo m .—I I rH o o o o r-» VO o o o o m W 1 o o o o Through marketing monopolies created by the state, by establishing statutory marketing boards, white farmers enjoyed lower unit costs, resulting in maximum returns. These state-sponsored marketing advantages extended into the export trade. The federal government also used its power to control imports into and exports from the Federation to provide white farmers with protected markets. It also used a system of federal tariffs, an important instrument of protec tive policy that substantially contributed to the consolida tion of capitalist development in the agricultural sector. The extent to which the federal government assisted European farmers to accumulate capital, especially in South ern Rhodesia, is measured by the gross value of the output of European agriculture. During the first three years of the Federation, income in the agricultural sector rose signifi cantly. In the season that ended September 30, 1953, the gross value reached £34,2 million. The gross value rose substantially to £37.7 million in the 1954 season and reached the new record level of £39.0 million in the season that ended September 30, 1955. During this period the total net value of European agriculture, which was £30.2 million in the season that ended September 30, 1953, rose to £33.4 million in 1954 and to a record level of 34.5 million in the season that ended September 30, 1955. During this period the value of tobacco output increased by £ 1.1 million and that of dairy 163 products by £ 0.2 million.55 Consolidation of Capitalist Mode of Production and Class Relations General Economic Policy In the preceding section we discussed the role played by the Federal State in developing the capitalist mode of production in the Federation through unprecedented public investment in power (supply of electricity), transport and communication (especially railways and roads), and other investments that were particularly targeted for developing capitalist agriculture. In this section we examine the mode of state interven tion in order to promote and protect particular and common interests of the ruling class. The main focus of analysis is on economic policies aimed at promoting and consolidating private accumulation of capital— the so-called private enter prise. Complementary analysis focuses on fiscal and monetary policies as instruments for developing industry and commerce. In this regard, we examine the establishment of money- markef55 institutions, and their facilitation of capital 55gee Government of Rhodesia and Nyasaland, Economic Report, 1956 (Salisbury: Government Printer, 1956), p. 29. 55By money market we mean institutions that specialize in the borrowing of temporary surplus funds at call or at very short notice and their employment in the discounting of bills and other forms of short-term marketable assets. Thus, money-market institutions specialize in mobilizing local idle funds to meet the short-term financial needs of the capital ist sector of the economy. 164 movement.57 we also examine the extent to which officially sponsored and supported financial institutions gave stimulus to the formation of capital markets5® in the Federation. In this respect, quantifiable effects of regulations governing these institutions' business transactions are used to deter mine the pattern of state intervention in the field of finance and credit. To determine the degree to which state measures facili tate private capital accumulation, we examine the growth of private capital formation.59 in addition, other measures such as the value of exports, net operating profits, together with depreciation allowances for private companies and statu tory bodies are used to quantify the extent to which the Federal State supported the national bourgeoisie to 57capital movement in economic theory refers to the movement of money capital (i.e., liquidation of capital investment) from one country to another. However, as used in this study, it involves both the long-term and short-term loans made to or received from foreign private citizens, and the long- and short-term government loans and credits extended either directly or through intermediate channels. 58capital markets refer to markets for buying and sell ing long-term loanable funds, in the form of bonds, mort gages, and other forms of securities. Capital markets may be distinguished (although there is no clear-cut distinction between the two markets) from money markets in that capital- market loans generally are used by businesses, financial institutions, and governments to buy capital goods, whereas money-market loans generally fill a temporary need for work ing capital. The same institutions usually are involved in both markets. 59a s used here, private capital formation refers to the total value of goods of private investment minus allowances for depreciation and other physical deterioration of existing stock. 165 accumulate capital. Capital accumulated by foreign ruling classes is measured by the total value of imports of goods and services and income paid abroad (transfers of interest, dividends and profits) as proportions of the gross national product ( G N P ) 5 0 of the Federation. Finally, the extent to which the state provided the general infrastructure for fostering capitalist development is measured by gross invest ment expenditures by the federal government, which are the quantitative expression of the state's commitment to the accomplishment of this goal. The Federal State actively intervened in the economy in order to create conditions that maximized private accumula tion of capital. The general policy ensured that private enterprise participated in thé economy over as wide a field as possible, and to focus the economic activities of the government on the creation of the best possible climate for 1 expansion, including the provision of basic services." To ensure that private enterprise contributed fully to policy making processes, the federal government established a 5®Gross national product means the sum of the values in British sterling, at market prices, of all goods and final services produced in the Federation in any given year. This is "gross" measure because no deduction is made to reflect the wearing out of machinery and other capital assets used in production. Where the expenditure approach is used, GNP refers to the sum of expenditures in the Federation on consumer, interest, and government goods plus net exports (i.e., exports minus imports). 5^Government of Rhodesia and Nyasaland, Federal Govern ment Development Plan, 1962-1965 (Salisbury: Government Printer, 1962), pp. 1-3. 166 coordination machinery between the government and some sections of the private sector. Each year the federal government provided forecasts of future production, demand for services, marketing patterns, and information designed to facilitate the accumulation of capital. In this connection, an important instrument of coordination was the preparation and dissemination of forecasts of growth in individual sectors and in the economy as a whole. Other invisible infrastructural provisions included the establishment of common markets for goods, services, capital and labor, using a common currency and a common system of taxation, and the establishment of a common customs tariff. This was done by selective change in tax rates and allow ances, by legislation and by other actions that were within the scope of the prerogative powers of the federal govern ment. Fiscal policy measures were also taken to vary the rates of customs duties on imports, on a selective basis, in order to encourage the development of manufacturing industries. In the field of income tax, allowances were changed in order to stimulate agriculture, mining, manufacturing, and transport. In particular, policy priorities designed to have the largest sustained and most direct impact on accumulation of capital were given to the sectors of agriculture, mining, and manu facturing. 167 State Support for Development of Industry and Commerce The above general economic policies were implemented by allocating specific functions to the Ministry of Commerce and Industry to spearhead government efforts to attract local and foreign investments in various industries, and to develop local and external markets for goods and services produced in the Federation. To this end, the federal government estab lished the Industrial Development and Research Branch in the Ministry to carry out research and development programs. In addition to special studies and to development of specific products, on experimental basis, the selected branch industries for which the Federation appeared to offer pros pects were established to interest investors, both local and foreign. These included the oil refinery project at a total cost of £10 million, undertaken by the government by entering into an agreement with foreign investors on February 16, 1962. In entering into this agreement precautions were taken to safeguard the interests of the existing distributors of petroleum products in the Federation. The government also consulted with and obtained the support of all the oil companies importing petroleum products in tanker lots to the federal markets. It was estimated that the oil refinery would generate various economic benefits, including savings on external payments to the extent of £2 million per annum. Other major studies by the federal government led to the establishment of an industrial chemical industry, iron and 168 steel industry, and a copper rolling plant in the Federation. Another concerted effort to promote industrial develop ment in the Federation, so as to consolidate capitalist production, was made by the Industrial Promotion Corporation, established in 1959 with the aim of facilitating the flow of private capital to industry. The capital of the Corporation was raised from private sources both internal and external. Its initial capital was £1 million, and there was a provision for substantial borrowing powers in addition. To demonstrate its policy of encouraging privatization of the economy, the federal government sold the Cotton Industries Board to Rhode sian Spinners Limited, a local company formed by the British firm of David Whitehead and Sons. The Board was set up for research into cotton growing and for the purchase, process ing, and sale of Southern Rhodesia cotton. The manufacturing industry continued to receive assis tance from the federal government throughout the period of the Federation. The assistance was in various types. Tax concessions ere extended by allowing the writing off of future profits, and by the introduction of investment allow ances. Another form of government assistance received by the . manufacturing industry and other businesses was in the form of accelerated depreciation allowances. As table 20 shows, a greater amount of capital was depreciated between 1956 and 1961. From the amounts received by companies as depreciation allowances during this period it is evident that there was a 169 TABLE 20 DEPRECIATION ALLOWANCE AND GROSS NATIONAL PRODUCT, 1954-61 Depreciation Allowances at 1954 Market Prices Gross National Product Year at Current Market Prices Amount % of GNP 1954 338.3 21.0 6.2 1955 389.6 24.0 6.2 1956 435.5 28.0 6.4 1957 439.9 32.2 7.3 1958 447.4 34.8 8.0 1959 508.9 38.1 7.5 1960 536.6 41.0 8.0 1961 546.8 44.6 8.2 SOURCE; Government of Rhodesia and Nyasaland, National Accounts of Rhodesia and Nyasaland [1954-59], and Economic Report [1955-62] (Salisbury; Government Printer, 1955-62). NOTE: All figures in millions of pounds sterling. 170 tendency to allow for higher prices in determining deprecia tion allowances. Depreciation allowances were also high when considered as proportions of the gross national product for each year during this period. Other schemes for assisting the manufacturing industry included changes, in 1959, in the regulations that governed the conditions under which goods could be sold on hire purchase. The period over which repayments could be made was lengthened and, in some cases, reduced the initial deposit. For example, the minimum deposit on furniture was reduced from 25 percent to 5 percent, and the maximum period of repayment increased from eighteen months to three years. The effect of the relaxations in the regulations governing hire purchase agreements in 1959 was the rapid rise in demand for manufactured consumer and commercial goods. Furthermore, local industries received tariff assistance through which they were assured of local markets by being protected against foreign competition. Resulting from all these promotional efforts was the establishment of the £350,000 motor car assembly plants by the British Motor Corporation and the £1,500,000 Ford Motor Company plant. These plants were followed by establishment of plants by several related industries. Generally, the impact of state policies aimed at attracting capital investments can be seen in table 2 1 , which shows that substantial investment at a rate that bore a very high ration to the gross domestic product took place between 171 TABLE 21 CAPITAL FORMATION AND GROSS NATIONAL PRODUCT, 1954-62 Gross Capital Formation at 1954 Market Prices Gross Domestic Product Year at Current Market Prices Amount % of GNP 1954 338.3 90.0 26.6 1955 389.6 106.7 27.4 1956 435.5 148.7 34.1 1957 439.9 155.5 35.4 1958 447.4 140.6 31.4 1959 508.9 131.5 25.8 1960 536.6 128.1 23.9 1961 546.8 127.9 23.4 1962 566.6 107.5 19.0 SOURCE: Government of Rhodesia and Nyasaland, Economie Report '[1954-61] (Salisbury: Government Printer, 1955-63). NOTE: Ail figures in millions of pounds sterling. 172 1954 and 1962. On the other hand, table 22 shows the extent to which state policies attracted new companies and increased capital of local companies between 1953 and 1956. The number of local companies registered in 1956 was 1,173, compared with 1,118 in 1955, which was previously the highest recorded figure. The total of nominal capital of new registration was £34,675,865 as compared with £31,056,414 in 1955 and £72,789,259 in 1954. The total nominal capital for 1954 was much higher than for 1953 (£24,608-339) because of the change of domicile of the Copper Mining Companies. Development of Export Trade The federal government perceived the need for developing external markets for federal products (goods and services) as an indispensable part of its efforts to foster a sustained capitalist development in the Federation; development of external markets was also seen as a crucial part of the machinery for accumulating capital. It was especially important to develop markets in view of the rapid growth of the manufacturing industry as it was invisaged that such outlets would enable federal industries to increase their scale of production and thus to lower unit costs. In conse quence, the federal government systematically intervened to provide the necessary infrastructure in the form of basic and promotional services. In this regard. Foreign Trade and Export Promotion sections were created to assist federal producers to find and 173 TABLE 22 NEW COMPANIES REGISTERED AND INCREASES IN NOMINAL CAPITAL OF EXISTING COMPANIES, 1953--56 New Registrations Nominal Total Nominal Increases Nominal Year Number Capital of Capital Capital 1953 741 17,197,361 7,410,978 24,608,339 1954 783 66,553,052 6,236,207 72,789,259 1955 1,118 16,377,676 14,678,738 31,056,414 1956 1,173 16,419,568 18,256,297 34,675,865 SOURCE: Government of Rhodesia and Nyasaland, Economie Report, 1957 (Salisbury: Government Printer, 1957). NOTE: Ail figures in pounds sterling. 174 develop export markets, and to develop up-to-date intelli gence relating to export markets, namely information concern ing trade conditions, customs duties, import controls, documentation requirements and other trade practices, and the names of suitable foreign agents. In connection with the work of the Foreign Trade and Export Promotion sections, the federal government sought to coordinate the interests of various capitals, and to mitigate their potential conflicts, by establishing the Tobacco Export Promotion Council of Rhodesia and Nyasaland and Export Promo tion Council. These bodies provided a forum (in each respect) in which capitalists coordinated their export trade interests with the assistance of the federal government. The other infrastructural provision was related to the measures taken by the federal government to provide for a larger stable domestic market with beneficial effects on price, quality, and availability of federal exports. This attracted investment in exporting industries. Another step taken by the federal government in promot ing federal exports was for the Federation to become a contracting party to the General Agreement on Tariffs and Trade (G.A.T.T.) so as to diversify markets for federal products overseas, and to negotiate for the introduction of the federal tariff, and for the removal of the limitations of the Congo Basin treaties in North-Eastern Rhodesia. This initiative was followed by the establishment of 175 Trade Commissioners' Offices or External Trade Representa tives in London, Johannesburg, Bonn, Elizabethville (Belgian C o n g o ) , 52 Lourenco Marques (renamed Maputo after indepen dence) in Mozambique and Nairobi in Kenya. One of the primary duties of trade representatives was to promote the growth of federal exports. Those in London, Johannesburg, and Bonn had an additional function of attracting foreign investment capital to the Federation. Trade representatives also supplied regularly up-dated trade information, particu larly on such matters as tariff changes, import restrictions, tender opportunities, and specific commodity needs. The work of trade representatives was supplemented by a series of annual trade missions abroad to promote federal exports and other aspects of external transactions. These missions included five visits to the Far East (Singapore, Hong Kong, Taiwan, and Japan) and Australia by government officials between 1955 and 1961. These trade missions resulted in trade agreements between the Federation and Japan and Austrialia. Another trade agreement was entered into with South Africa in 1960, the main object of which was to attract new industries to the Federation by increasing duties on manufactures of South African origin. The extent to which the federal government succeeded in supporting the national bourgeoisie to accumulate capital was 52pollowing independence in 1960, Belgian Congo and Elizabethville were respectively renamed Zaire and Lubumbashi. 176 reflected in the fact that production in the manufacturing industry greatly exceeded the pace of development in exports. Domestic merchandise exports from 1954 to 1961 increased in volume by 51.5 percent and in value by 39 percent, from £144 million to £200 m i l l i o n . 53 Also, the degree to which the federal government was successful in diversifying export markets could be measured by the fact that whereas in 1954 two-thirds of federal exports went to Britain and South Africa, by 1961 this proportion had fallen to 54 percent. The government, through various measures, succeeded in diversifying export commodities. Exports of secondary manu factures increased from £7 million in 1954 to £14 million in 1961 and £16 million in 1962. Table 23 shows the total value of exports from the Federation and the total value of imports into the Federation (together with the balance of trade) from 1954 to 1962. The table shows a constant increase of imports with a peak of £235,600,000 in 1957 due to imports of merchandise, which grew at a faster rate than exports starting in 1956. Imports of merchandise reached a record figure of £159,266,000 as compared with £138,574,000 in 1955 and £125,290,000 in 1954. Also, as a result of unprecedented government support for the developing manufacturing industry, exports of mer chandise increased to a total value of £181,748,000 compared with £172,784,000 in 1955 and £146,835,000 in 1954. As a 53gee Government of Rhodesia and Nyasaland, The Break-up Effects and Consequences, p. 17. 177 TABLE 23 VALUE OF TOTAL EXPORTS AND IMPORTS AND BALANCE OF TRADE, 1954-62 Total Imports Year Total Exports at Current Prices Balance of Trade 1954 183.6 168.5 15.1 1955 191.3 172.2 19.1 1956 196.1 194.5 1.6 1957 195.3 235.6 -40.3 1958 176.9 213.7 -36.8 1959 227.8 210.4 17.4 1960 250.8 219.3 31.5 1961 250.1 219.5 30.6 1962 250.0 207.4 42.6 TOTAL 1,921.9 1,841.1 80.8 SOURCE: Government of Rhodesia and Nyasaland, Economic Report [1956-63] (Salisbury: Government Printer, 1956-63). NOTE: All figures in millions of pounds sterling. 178 result of the greater rate of expansion in imports the visible favorable balance of trade of the Federation declined from £19,100,000 in 1955 to £1,600,000 in 1956, and was unfavorable by £40,300,000 in 1957 and by £36,800,000 in 1958. One of the outstanding features of the import trade was the substantial advance in purchases of goods assigned to the group "metals, metal manufactures, machinery and vehicles." During 1956 these were valued at £78,490,000, or over 45 percent of the Federation's total imports, and showed an increase of over £15,000,000 in 1955, and exceeded the 1954 figure by over £25,000,000.^^ The increased growth rate of the Federation's external trade from 1954 shows the degree to which, through state intervention, the Federation became integrated into the international capitalist system. The other integrating factor was the increased rate of investment by government (i.e., territorial governments and local authorities), statutory bodies, and private business enterprises, which led to increased external (and internal) borrowing. Gross investment expenditures maintained an upward trend between 1954 and 1957. They sharply increased from £84.4 million in 1954 to £113.1 million in 1955, and then increased by over 27.4 percent to £144.2 million. A new record level of £151.6 million was reached in 1957. The same phenomenon obtained ®^For a detailed description of the Federation's external trade for the period 1954-56, see Government of Rhodesia and Nyasaland, Economic Report, 1957 (Salisbury: Government Printer, 1957), pp. 53-72. 179 between 1955 and 1957 regarding investment expenditures by railways and statutory bodies. Investment expenditures in this sector rose from £13.6 million to 1955 to £18.2 million in 1956, and reached a new record level of £23 million in 1957.65 Throughout the period of the Federation (1953-63) it was feasible to maintain a high rate of investment in relation to total output of the economy due to the extent to which the Federation's economy was integrated with international capi talism. Not all the investment expenditures undertaken could be supported from the Federation's own resources. For this reason inflows of foreign capital had usually financed a share— sometimes a substantial share. Although this should not obscure the fact that the Federation had achieved a high rate of domestic savings (as table 24 shows) in relation to total income or available finance, the flow of domestic savings over most of the Federation period fell short of the rate at which investment expenditure (both in the public and private sectors) was proceeding. Also, there were a few occasions, as in 1957, when the excess of domestic capital formation over domestic savings dictated the need for external financing.65 Table 25 shows levels of external 65gee Government of Rhodesia and Nyasaland, Economic Report [1957-58] (Salisbury; Government Printer, 1957-58). 6 6 in 1957, domestic savings amounted to 50.4 percent of gross domestic capital formation, as compared with an average ratio of 74.7 in 1956. 180 (0 r o CM ■M* i n VO CD TABLE 25 NET INCOME PAID ABROAD AND GROSS NATIONAL PRODUCT, 1954-61 Net Income Paid Abroad at Current Market Prices Gross National Product Year at Current Market Prices Amount % of GNP 1954 338.9 34.1 10.1 1955 389.6 37.2 9.5 1956 435.5 45.0 10.3 1957 439.9 38.7 8.8 1958 447.4 28.7 6.4 1959 508.9 38.9 7.6 1960 536.6 42.5 7.9 1961 546.8 43.5 7.9 SOURCE: Government of Rhodesia and Nyasaland, Economic Report, 1962 (Salisbury: Government Printer, 1962). NOTE: All figures are in millions of pounds sterling. 182 payments made by the Federation between 1954 and 1961, It will be seen that these payments were substantial and consti tuted significant proportions of the gross national products for the period. Development of Financial Institutions So far in our discussion of the federal government's general and specific economic policies, and its vigorous support for private business enterprises, we have implied the existence of financial institutions in the Federation and the role they played to support the continuous expansion of both trade and investment. Thus, increases in the volume and value of financial transactions demanded an increase of equal magnitude in the scope of financial services®^ available to commerce and industry. In this connection, the federal government was anxious that, when established, these financial institutions func tioned as money and capital markets. It was especially important that they organize domestic capital. This was crucial for the national bourgeoisie, whose accumulation interests were in conflict with the interests of foreign capitals due to the Federation's continued excessive demand 6 ?The term financial services is used here with an understanding that it covers a heterogeneous set of activi ties. However, in the context in which it is used in this study it refers to those financial services rendered by institutions dealing in money markets, and, as such, consti tuted the Federation's centers for organized dealings in monetary assets that provided the liquidity needed by lenders and at the same time satisfied the short-term requirements of borrowers. 183 for capital funds with which to finance the high rate of expenditure on domestic capital formation. During the period of the Federation (1953-63), total expenditure on domestic capital formation, measured at current prices, amounted to £1,373.5 million, or 29.4 percent of gross domestic product of the capitalist sector. Expenditure on fixed capital formation accounted for most of the total expenditure on investment. For the period 1954 to 1963, the total expendi ture on fixed capital formation at current market prices amounted to £1,126,3 million, or 26.6 percent of gross domestic product of the capitalist s e c t o r . 5 ® The first step was the establishment of the Bank of Rhodesia and Nyasaland in 1956^9 as the central bank of the Federation in terms of the Bank of Rhodesia and Nyasaland Act of 1956. In terms of this act, the Bank had powers to control banking business by requiring each commercial bank to maintain minimum reserve balances with it. The Bank had the power to vary these minimum reserve balances between 6 percent and 25 percent of the demand liabilities and between 3 percent and 10 percent of the time liabilities of each bank in the Federation. 6 ®For additional data relating to this point see R. A. Sowelem, Towards Financial Independence in a Developing Economy; An Analysis of the Monetary Experience of the Federation of Rhodesia and Nyasaland, 1952-63 (London: George Allen fit Unwin, 1967), pp. 132-47. 6^The Bank of Rhodesia and Nyasaland was dissolved late in 1965, following Zambia's independence in 1964. 184 Among other powers, the Bank of Rhodesia and Nyasaland had the authority to open accounts; to deal in gold and foreign currencies; to sell, discount, and rediscount bills; to make loans and advances; and to act as agent for, and underwrite the issue of, government and public authority loans. The bank was required under the act to act as the banker of the federal government and to any of the territo rial governments that requested its services. The second step was to formulate monetary policies that aimed at fostering the expansion of the money market. These policies included holding constant bank rates (4.5 percent in 1960) and the minimum reserve balances (8 percent of demand and 3 percent of time liabilities in 1 9 6 0 ) This was followed by repealing the Currency and Exchange Control (Temporary) Act, which restricted transfers of capital and quasi-capital funds by residents of the Federation. The new policy (primarily designed to attract foreign capital) permitted external investors to remit profits, income from their capital. Further, profits or income produced in the Federation became freely transferable into any foreign currency, and capital was freely transferable within the Sterling Area. Transfer of capital outside the Sterling Area was allowed if it was shown that the capital came originally from outside the area. Here, as was the case throughout the colonial history of Central Africa, British imperial capital ^®See Government of Rhodesia and Nyasaland, Economic Report, 1960, p. 48. 185 was accorded special treatment. Liberal monetary policies succeeded in increasing activities of commercial banks, and in promoting the estab lishment of merchant banks, accepting houses, discount houses, and hire purchase companies by foreign (mainly British and South African) holding companies. Activities of building societies also increased. These financial institu tions, which operated under an official environment designed for their success, played an important role in mobilizing local idle funds to meet the short-term financial require ments of commerce and trade. In the absence of adequate short-term local investment facilities, the liquid reserves and other surplus funds accumulated by banks and other large business enterprises, such as the mining companies, tended to be largely employed in financial centers abroad, particularly London. The extent to which financial institutions were success ful in generating local funds for the purpose of financing the Federation's trade and investments can be measured by levels of credits and advances they granted to both the government and private businesses, including white petty- bourgeoisie. In 1955, commercial banks increased their total "earning assets" by 26 percent, and their credit granted to private businesses and individuals by 50 percent. Their loans and advances to the public rose by £10.3 million, or 51 percent, and their bill portfolios by £3.0 million, or 57 percent. 186 during 1955. By June 1956 loans and advances to the public had increased by £9.2 million. Advances to governments and statutory bodies also showed a sharp increase from £7.1 million in June 1956. At the end of 1958 the total credit granted by commercial banks to the public by means of loans and advances and bills was £40.7 million. By the end of 1959 it had risen by 17 percent to £47.6 million. Table 26 shows the total value of credit granted by commercial banks between 1954 and 1959. On the other hand, the total credit granted by the banking system (Commercial Banks, Accepting Houses, and Discount Houses, together with the Bank of Rhodesia and Nyasaland) to the public and government amounted to £61.7 million at the end of 1959, compared with £50.0 million for the commercial banks alone. The significance of the role played by financial insti tutions in mobilizing funds needed by government for invest ment is shown in table 27, which compares governmental external borrowing to internal borrowing. Class Relations The general task of the Federal State was to create and sustain general conditions that developed and consolidated capitalism as the dominant mode of production. This objec tive was shared by all fractions of the ruling class, which was composed of merchant bourgeoisie, a fraction of the ruling class that was wholly situated in the sphere of 187 TABLE 26 COMMERCIAL BANK CREDIT, 1954-59 Year Amount® 1954 34.5 1955 88.0 1956 97.9 1957 99.5 1958 100.5 1959 91.3 TOTAL 511.7 SOURCE: Government of Rhodesia and Nyasaland, Economie Report, 1960 (Salis bury: Government Printer, 1960). ^Millions of pounds sterling. 188 TABLE 27 GOVERNMENTAL EXTERNAL AND INTERNAL BORROWING, 1954-61 Year External Internal 1954 17.7 10.7 1955 11.2 13.3 1956 3.6 19.8 1957 0.7 15.2 1958 15.1 20.5 1959 11.9 28.2 1960 7.9 23.7 1961 2.4 25.8 TOTAL 70.5 157.2 SOURCE: Government of Rhodesia and Nyasa land, National Accounts of Rhodesia and Nyasa land [1954-59] (Salisbury: Government Printer, I960); for data 1960-61, Economic Report, 1962 (Salisbury: Government Printer, 1962). NOTE: All figures in millions of pounds sterling. 189 circulation and represented international capitalism by acting as an intermediary between foreign capital and the markets in the Federation— thereby facilitating the expansion of foreign capital in the Federation. The second fraction of the ruling class was the national bourgeoisie, made up of capitalists who invested virtually all of their capital in production facilities within the Federation. This group included the owners of mining conglomerates, manufacturing bourgeoisie, agricultural bour geoisie who owned capital-intensive means of production, as well as the owners of comparatively weak capitals— mostly Indian commercial bourgeoisie. To these fractions of the national bourgeoisie class is added the fraction of the white rural bourgeoisie that was the foundation of the capitalist sector of the economy. This group was economically committed to the development of the Federation. Unlike large-scale international bourgeoisie, it had a permanent capitalist interest in the economy of the Federation. Consequently, a more manifest conflict of interest between these two classes was centered around investment in overhead capital. The white rural bourgeoisie, together with some of the fractions of the national bour geoisie, had an interest in the expansion of overhead capital to foster the economic development of the Federation, while the bourgeoisie who owned capital-intensive means of produc tion, especially railways and power, had an interest in restrictive policies— that is, increasing investment in 190 response to, and not to induce, greater demand. Thus, the interests of the majority of the national bourgeoisie lay in expansionist policies that preceded economic development. For this reason, they supported such highly capital-intensive projects as the Kariba hydroelectric scheme, which primarily benefited the mining industry and urban-based manufacturing industries. In this case, the interests of both classes coincided as industrialization directly stimulated demand for agricultural produce. All these fractions of the bourgeoisie formed the grand alliance, which ruled the Federation from 1953 to 1963. Each of these classes benefited from the alliance relative to the strength of its material base, which it brought to the alliance as bargaining chips. Despite the heterogeneity of the interests of the frac tions that formed the ruling class, the common base of their alliance was rooted in the very essence of capitalism, namely the need to extract surplus-value from the working class. Consequently, the period of the Federation was exceptional in the degree to which the state was active in restructuring the economy to assure surplus appropriation. The strategy of restructuring the economy to facilitate accumulation of capital include legal services that aimed at weakening the working class (predominantly Africans) by structuring working conditions on the basis of race. One of the results of this policy was a system of dual wage structure, shown in table 191 28. At the same time it was important to expand the supply of labor. This was done (in addition to various ways of forced labor as discussed earlier) by lowering the opportu nity cost of the indigenous population in the noncapitalist sector, that is, its overall productivity. As we have already argued, these policies were able to accomplish, the objectives for which they were formulated because the noncap italist sector that largely subsidized the capitalist sector was preserved. Wages were kept lower because a large part of the real cost of the means for the subsistence of African workers and their families was borne by the noncapitalist sector. Between 1954 and 1962 this sector generated a total income of 6634.4 million, or 80 percent of the total income of 6788.4 million received by African employees as wages in the capitalist sector during the same period. The last class that became an associated member of the grand alliance was the class of white wage-earners, formed by artisans, semiskilled workers, foremen, clerical workers, and administrative employees. Demand for their labor was concen trated in mining, transport (especially railways), and services (civil service— mostly in Southern Rhodesia). The white working class did not emerge from a local dispossessed class, like the poor whites in South Africa.White wage 71por an incisive treatment of the subject of the poor whites in South Africa, see Robert Davis, Capital, State and White Labor in South Africa 1900-1960; An Historical Mate rialist Analysis of Class Formation and Class Relations (Atlantic Highlands, NJ; Humanities Press, 1979), pp. 179- 243. 192 TABLE 28 WAGES AND SALARIES IN THE FEDERATION ACCORDING TO RACE, 1954-62 Year Non-Africans® Africans Total 1954 92.4 58.6 151.0 1955 105.2 67.0 172.2 1956 118.5 77.6 196.1 1957 133.8 86.8 220.6 1958 145.0 92.6 237.6 1959 150.7 96.6 ' .... 247.3 1960 157.0 100.5 257.5 1961 157.5 104.1 261.6 1962 161.5 104.6 266.1 TOTAL 1 ,221.6 788.4 2 ,010.0 SOURCE: Government of Rhodesia and Nyasaland, "National Income," Economic Report, 1963 (Salisbury: Government Printer, 1963), p. 19. NOTE: All figures in millions of pounds sterling ®Non-Afrleans refers to European, Asian, and colored wage-workers. 193 workers came to the Federation to fill specific jobs, and as a result no "reserve army for white labor" existed in the Federation. On the other hand, it was estimated that the number of Africans employed ("reserve army") in the urban areas in the Federation was between 60,000 and 70,000 between 1957 and 1961. Except for 1959, when there was a new intake of 3,000 Africans into the capitalist economy, the numbers employed had declined annually since 1957 from a monthly average of 1,061,000 in 1958 to 1,009,000 in 1961.7% As a result of this relatively weak bargaining position occupied by Africans on the labor market, white wage earners enjoyed wage premiums over African wage levels, and due to their very strong bargaining power vis-avis their employers. In addition, they were effectively organized into trade unions through which they used their strength to obtain economic concessions from the employers. The conditions on which their very strong bargaining power rested, namely the lack of a reserve army of white labor, continued to be an unstable urban African population and the absence of an effective educational and training system for the Africans that were perpetuated by the new trajectory of capitalist development during the Federation. As we have seen, during this period the emphasis was placed on policies that favored the hegemonic national capitalist fractions. These 72gee Government of Rhodesia and Nyasaland, Federal Government Economic Policy; Principles (Salisbury: Government Printer, 1962). 194 conditions enabled the Federal State to make effective inter ventions in the form of economic and social (education and health) programs from which white wage workers derived great benefits. Resulting from these state interventions was the class of white petty-bourgeoisie operating in most sectors of the economy, but especially trade and transportation, due to easy access to bank loans and credit facilities from state- sponsored financial institutions. On the other hand, the Federal State used its political and legal powers to perpetuate the class position of Afri cans, namely that of a class of predominantly self-employed rural cultivators. For this reason, we find that during the Federation the African wage workers, the African middle class, and the petty-bourgeoisie were still merely appendages of the peasantry rather than independent classes. This was especially true in Southern Rhodesia, where, unlike in copper industry of Northern Rhodesia, African trade unions were weak and unable to stage unsuccessful strikes against their employers. Conclusion The thesis of this chapter is that an understanding of a nation's history is fundamental to the analysis of its political economy. In this regard, the importance of his torical analysis as a research tool for specifying processes of class formation and the attendant class contradictions in every system of social production was stressed. The same 195 emphasis was made in relation to the nature and the role of the state. Again, in the same context, the point was stressed that historical analysis was especially important in the study of Zambia's postcolonial state for the reason that it was not established by an ascendant indigenous bourgeoisie, but a foreign imperialist bourgeoisie. This is to emphasize that the characteristics and the role assumed by the postcolonial state in Zambia cannot be properly analyzed and interpreted outside their historical context. The importance of histor ical analysis as a means for periodizing capital and the state in Zambia was also emphasized. It is evident from the discussion of the roles played by colonial regimes in Zambia from the Charter period to the period of the Federal State that through the mechanisms of historical analysis it has been possible to identify the major changes in the patterns of the structure of Zambia's political economy: the productive and social structures. Analysis of the power (power structure) derived from these structures made it possible to identify how the emerging class relations and relations of production influence economic and social policies. Historical approach has allowed us to trace the changes in the development of the capitalist mode of production and how it came to be dominant, mostly with the help of the colonial states, which took deliberate and purposeful actions aimed at subordinating the precapitalist mode of production 196 (significantly leading to an systematic disarticulation of this mode of production) to the capitalist mode of produc tion. Thus, in this chapter through historical analysis an effort has been made to specify the mechanisms leading to the development and reproduction of the capitalist mode of production as the dominant mode of production in Zambia. Through this approach, it has been possible to trace the historical role of the colonial states in the development of capitalism in Zambia. This includes interventionist poli cies, which first led to the commoditization of labor-power of the mass of the peasant population through repressive means, and direct pressure upon African wages to reduce relative costs (often leading to disastrous class struggles in which the state ordered the police to shoot at striking African mine workers) and increase profits. This chapter introduces the analysis of the economic role of the state in capitalism and its effects on the processes of class formation. Through analysis of the economic (together with the ideological function) role of the state in capitalism, it seems reasonable to conclude that it is this role that seems central to any discussion on the robustness of the state in an era of intercapital rivalries. This is especially important in discussing the role of the postcolonial state in capital accumulation and class forma tion following political independence. By underlining the E: 197 trends of accumulation and centralization of capital, and by discussing the political role of the colonial states, this chapter has endeavored to bring these important aspects of analysis together to clarify the role of the state in capital accumulation and class formation. The analysis makes clear the thesis that the state is an objective structure in a system of capitalist production. This points to the fact that a system of capitalist produc tion or capitalism cannot be analyzed without taking account of the role of the state. To this end, the chapter brings out the fact that in the process of capitalist production and reproduction the state has certain crucial economic func tions, which it will always perform, though in different forms and to different extents. The first economic function performed by both colonial states and the British South Africa Company was to guarantee the "sanctity” of private property, which constitutes the cornerstone of capitalism and capitalist production. The second function was to ensure the existence of a pool of the working class directly and indi rectly (through the use of force and other extraeconomic means, such as statutory requirement for unskilled workers— all Africans before independence— to work six days a week). Other economic functions performed by the colonial states (especially the Federal State) in Zambia included economic orchestration in the form of economic planning aimed at securing the availability of key inputs at low costs. These included the provision of capital, technology, economic 198 infrastructure, general manufactured inputs, and management of the external relations of the established capitalist system. The Federal State in particular acted in the interest of the domestic ruling class to ensure the supply of finance to industry by establishing and backing up a domestic banking system (including the creation of the Bank of Rhodesia and Nyasaland— the central bank) and private money and capital markets. Also included were the establishment of funds for particular agricultural and industrial projects and the granting of credits and subsidies in other ways, including tax allowances, investment grants, and other special interest rates. The Federal State played a vital role in importing advanced technology from abroad in the form of machines and skilled labor, and by attracting foreign industrial capital to establish factories in the Federation. The Federal State invested heavily in the area of economic infrastructure, particularly in energy and communi cations, and specialist services. The Federal State also played a major role in the provision of general manufactured inputs, which comprised those manufactured products with the strongest forward linkages for the economy in general, and for key sectors such as agriculture and mining. Another important economic function played by the Federal State relates to the management of external relations of the capi talist system. The state aggressively supported domestic 199 capitals in their competition with foreign capitals. This function involved the support of domestic capitalists in competitive foreign markets. There was also a defensive function that consisted of defending quasi-monopolistic positions established (with the help of the state) by domes tic capital relative to foreign capital. In this respect, the state (and the colonial state) employed such mechanisms as tariffs, exchange control, purchasing tied to domestic capital, and maintenance of preferential trading areas and monetary zones favorable to the domestic capital. Finally, from these economic and noneconomic functions of both the colonial and federal states discussed in this chapter, we come to the conclusion that these two states, which preceded the postcolonial state in Zambia, approximated the classical state in that they mainly functioned to protect and nurture the interests of the ruling class located abroad and in the federation. CHAPTER V THE POSTCOLONIAL STATE AND THE NEW STRUCTURE OF CAPITAL ACCUMULATION; THE ASCENDANCY OF THE PARASTATAL SECTOR, 1964-82 Introduction The colony of a colony; until 1963, Northern Rhodesia was in effect a colony of Southern Rhodesia, itself a British colony. Most of the revenue from the copper mined in the North was invested by the privileged white minority in the neighborhood of Salisbury, the Southern capital.^ The Copperbelt was the milch cow and Northern Rhodesia suffered a net loss in the years 1953-63 of nearly 6100,000,000— the bulk of which was used to develop Southern Rhodesia and the rest to prop Nyasaland. As though this were not enough, when the 6280,000,000 Federal debt was divided up at the end of 1963, Northern Rhodesia was saddled with 696,000,000— for which it had relatively little to show in the way of assets.% ^Rene Dumont, Socialisms and Development (London: Andre Deutsch, 1973), p. 123. %Richard Hall, The High Price of Principles : Kaunda and the White South (New York: Africana, 1969), p. 61. At the beginning of the Federation, in accordance with the Constitution (Order in Council, 1953), the federal gov ernment assumed responsibility for Southern Rhodesia's public debt of 691.3 million, out of a total outstanding at the end of March 1954 of 6135.1 million. On the other hand, the share of the federal debt assumed by Zambia was more than four times the territory's public debt of 622.5 million on December 31, 1953, assumed by the federal government in March 1954. In addition, 610 million in Federal Treasury Bills were taken over. See The Statesman's Year-Book, 1955 (London: MacMillan, 1955), pp. 289-91. Also see Government of the United Kingdom, Report of the Advisory Commission on the Review of the Constitution of the Federation of Rhodesia and Nyasaland, Cmd. No. 1149 (London: HMSO, 1960), p. 502. The note is ours. 200 201 They are much stronger than we are. . . . They built their infrastructure at our expense. . . . Zambia will thus find its own individual efforts frustrated if Zimbabwean-made goods flood the market.^ These statements reflect the magnitude of economic problems that Zambia's postcolonial state inherited at inde pendence. In varying degrees of intensity, both the imperial colonial state and the settler federal state systematically siphoned Zambia's wealth for investments in England and Southern Rhodesia. Both regimes obstructed development of secondary industries and the growth of indigenous bourgeoisie in Northern Rhodesia. By design. Northern Rhodesia was to remain a market for the products of the industries for Britain, South Africa, and Southern Rhodesia. A study commissioned by the Northern Rhodesia government to investigate the possibilities of developing secondary industries in Northern Rhodesia revealed the extent to which the country had become a captive market for imports from South Africa and Southern Rhodesia between 1936 and 1945, though ironically (but not surprisingly) denied as premature ^Zambia's President Kenneth Kaunda, making a realistic assessment in March 1980 of the extent to which Zambia's resources were used to develop Southern Rhodesia in relation to the independence of Zimbabwe and the economic implications for Zambia. Quoted in The (London) Times, 21 March 1980. Southern Rhodesia was previously administered by the British South Africa Company, and formally became a self- governing British colony in 1923 with a prime minister, but with a British-appointed governor as head of state. It was part of the Federation of Rhodesia and Nyasaland from 1953 to 1963. Though reverting to the formal status of a British colony in 1964, following dissolution of the Federation, it acquired de facto independence in 1965 as Rhodesia. De jure independence in 1980 involved, inter alia, a change of name to Zimbabwe. 202 the need for developing such industries.^ Local products from South Africa included in imports to Northern Rhodesia rose from 6376,140 in 1936 to 61,669,978 in 1943, a rise of 344 percent. For the same period, the value of local products from Southern Rhodesia included in imports to Northern Rhodesia rose by 203 percent from 6492,433 to 61,493,273. The value of imports from other countries (including Britain) during this period was equally high, rising from 6719,450 to 62,005,982, an increase of 179 p e r c e n t . 5 Throughout the colonial rule the balance of trade between Northern and Southern Rhodesia remained in favor of Southern Rhodesia, whose secondary industries were far more developed than those in Northern Rhodesia. This pattern of colonial neglect characterized the economic policy and plan ning of the federal rule that followed. During the decade of federal rule, Zambia was forced to occupy an unenviable constitutional position. From January 1954 to December 1963, Zambia was a colony of two regimes. ^See W. J. Busschau, Northern Rhodesia Report on the Development of Secondary Industries in Northern Rhodesia (Lusaka: Government Printer, 1945). Busschau (a South Afri can) was capital's intellectual ideologist, who opposed state intervention in industry as inimical to the operation of the free market system. Busschau was an executive in New Consol idated Gold Fields (South Africa) Limited, who (like other ideologists) guided capital in its ultimate mission of extracting surplus from its working class. For to maximize profitability is to go beyond the technical organization of production into the sphere of class conflict, where labor resists, sabotages, and confronts capital. ^Computations are made from tables on trade and customs revenue of Northern Rhodesia (1936-43) in Busschau, pp. 74- 77. The figures used do not include values of reexports. 203 As a British colony, the British government retained its usual powers, especially in respect to constitutional change, but as a member of the Federation, important legislative powers (including powers relating to fiscal and trade mat ters) were the prerogative of the federal government. Therefore, despite its enormous mineral wealth, qua colony, Zambia could not appropriate any larger part of the copper royalties. The following statistics exemplify the magnitude of Northern Rhodesia's contribution of wealth through mineral production. The total value of mineral production in the Federation in 1954 was £116,466,000. Northern Rhodesia's share of this total value was £97,675,000, or 84 percent, while Southern Rhodesia's contri bution was £18,776,000, or 16 percent. In 1956 the value of mineral production in the Federation was £152,597,000. Of this total value. Northern Rhodesia's share was £129,336,000, or 85 percent, while Southern Rhodesia's share of the Federa tion's total value was £23,261,000, or 15 percent. Northern Rhodesia's contribution to the Federation's mineral wealth (and foreign trade) continued in importance throughout the period of federation. In 1960 the total declared value of mineral production in the Federation was £154,772,000, of which a total declared value of £128,392,000, or 83 percent, was produced in Northern Rhodesia, compared with a total declared value of £26,380,000, or 17 percent, produced in 204 Southern Rhodesia.® Further, Northern Rhodesia's copper production played a key role in the Federation's external trade. The average copper price was used as an indicator for the unit value of the Federation's exports. The Federation's fluctuations in trade and exchange reserves depended primarily on fluctua tions in the price and volume of copper sales. For example, the Federation's export earnings from goods and services fell by £20 million from £196.9 million in 1956 to £176.9 million in 1957 due to lower copper prices. It was estimated that if 1955 copper prices had ruled in 1957, exports of goods and services would have been worth £239.2 million. The propor tionate share of copper production to the Federation's gross domestic product remained high throughout the period of federation. In 1962 this sector accounted for 21 percent of the gross domestic product. The United Kingdom government guaranteed to see that the terms of the 1950 agreement (revising that of 1923), which provided for continued enjoyment of the royalties (free of discriminatory taxation) until 1986, would be honored by the government of Northern Rhodesia. In return, the Northern Rhodesia government received payment of 20 percent, which was ®See Government of the Federation of Rhodesia and Nyasaland, Economic Report, 1957, p. 23; and Economic Report, 1967, p. 85. ?see Government of the Federation of Rhodesia and Nyasaland, Economic Report, 1958, p. 22; and 1963, p. 6 . 205 described by British authorities as a "voluntary contribu tion."® Qua member of the Federation, Zambia could not raise the rate of income tax on copper companies (33.3 percent in 1963-64) because the federal government had overriding power in fiscal matters. Consequently, Northern Rhodesia could only apply a territorial surcharge, but being limited to 20 percent of the basic tax. However, the yield of this sur charge was finally decided by the federal legislature. Under the Federation's fiscal system, the Northern Rhodesia territorial government only received 18 percent of basic income tax (17 percent up to July 1, 1956),^ apart from the surcharge and its share of the royalties. The effect was that not merely were copper profits flowing out of Zambia, but tax revenues from the industry as well. The working of federal public finance was designed to funnel revenues from Northern Rhodesia into Southern Rhodesia, where the majority of Europeans (219,000 in December 1959, compared with 75,000 in Northern Rhodesia) resided. By December 1962, the total population of Europeans in the Federation had reached 309,400, and of these 223,000, or 72 percent, resided in Southern Rhodesia. Because of the structure of its expendi tures, the federal government spent far more in Southern See Peter Slinn, "Commercial Concessions and Politics during the Colonial Period: The Role of the British South Africa Company in Northern Rhodesia, 1890-1964," African Affairs 70 (October 1971):374-84. 9gee Government of Rhodesia and Nyasaland, Report of the Fiscal Review Commission, 1957 (Salisbury: Government Printer, 1957). 206 Rhodesia than in Northern Rhodesia. The extent to which Northern Rhodesia subsidized the rest of the Federation can be determined by examining the estimates of federal receipts originating in Northern Rhode sia and federal expenditures allocated to the territory. For instance, federal receipts originating in Northern Rhodesia in 1959-60 fiscal year were estimated to be £25.2 million, whereas federal expenditure in the territory was estimated to be £15.9 million. In addition. Northern Rhodesia received payment in respect to the share of federal income tax. This brought the total of federal current payment to £21.5 mil lion. Consequently, Northern Rhodesia contributed £3.7 million more to the federal government as receipts (federal receipts included the entire income tax originating in the country) than it received from it as payments. This net drain of Northern Rhodesia's financial resources had been typical throughout the federation period. From 1954 to 1960 the loss amounted to £56.1 million. As we pointed out in the preceding chapter, the federal government was (under the Federal Constitution) responsible for European education and agriculture, and most of the European children and farmers were in Southern Rhodesia. During the 1960-61 agricultural season there were 8,610 (86.5 percent) Europeans working on farms in Southern Rhodesia out ^®See Arthur Hazlewood and P. D. Henderson, Nyasaland; The Economics of Federation (Oxford; Basil Blackwell, 1960), pp. 44-46. 207 of a total of 9,957 European farmers in both Southern and Northern Rhodesia. For the same period, 1,347 (or 13,5 percent) Europeans worked on farms in Northern Rhodesia. Also, in this respect, the extent of state support received by European farmers is illustrated by the fact that for 1960- 61, the gross value of agricultural production in Southern Rhodesia was £57,400,000, or 88.6 percent of the total gross value of £64,800,000 for both territories. For the same period, the gross value of agricultural production in North ern Rhodesia was £7,400,000, or 11.4 percent of the total gross value. Analysis of the income and expenditure of the federal government clearly shows the extent to which Southern Rhode sia benefited from the Federation. In the estimate of expenditure from revenue funds for the 1963-64 fiscal year, the Federal Ministry of Agriculture was allocated £3,173,089 for expenditure in respect to European agriculture in South ern Rhodesia as compared to £715,053 allocated for expendi- 1 1 ture on European agriculture in Northern Rhodesia. Another factor was that federal capital was placed in Salisbury, already the most developed city in the Federation. H f n Southern Rhodesia the Federal Ministry of Agricul ture was responsible for agricultural development in general, including research, conservation, animal health, and tsetse control. It provided conservation and extension services in the European and Unreserved Land areas. In Northern Rhodesia the Federal Ministry's activities were confined to conserva tion and extension services and certain specialist advisory services to European agriculture. Research, veterinary services, and tsetse-fly control were the responsibility of the Northern Rhodesia government. 208 The value of building plans passed for Salisbury during 1960 was 67.7 million, and 64.7 million for 1961 (respectively, 48 and 43 percent of the Federation's total value of building plans passed). So were all the other main federal institu tions— the University College, the Bank of Rhodesia and Nyasaland, and the Supreme Court. Similarly, most of the salary bill of the federal armed forces was spent in Southern Rhodesia. Altogether, out of 35,000 federal public employees in June 1962, 22,000, or 63 percent, were serving in Southern Rhodesia and 9,000 (26 percent) in Northern Rhodesia, while only 4,000, or 11 percent, were serving in Nyasaland. Also, most of the headquarters of federal public corporations, whose net operating profits for the period 1954 to 1961 totaled 658.9 million, and with gross operating profits of 689.9 million between 1954 and 1962, were located in Southern Rhodesia.For example, the headquarters of the Rhodesia Railways was located in Bulawayo, where all the major mainte nance of the Railways' rolling stock was carried out. The main offices, workshops, and stores employed a staff of 8,000, compared with a total staff of 7,500 for the Rhodesia Railways operation in Northern Rhodesia. On the dissolution of the Federation, the headquarters organization accounted for 10 percent (610.1 million) of the Railways' 6101 million l^See Government of Rhodesia and Nyasaland, Economic Report, 1962, p. 24; and Economic Report, 1963, p. 19. 209 assets. Under the Federal Development Plan (1963-65), loan expenditure in Southern Rhodesia amounted to 6144,950, while only 627,000 was allocated for expenditure in Northern Rhodesia. Estimated revenue in Southern Rhodesia during the 1963-64 fiscal year was 6384,400, compared with estimated revenue of 662,000 for Northern Rhodesia. These figures represent a typical pattern of the effects of economic and fiscal policies of the federal government throughout the period of the Federation. Other indicators may be used to show how much Southern Rhodesia's economy benefited from the Federation. During the first year of the Federation (1954), Southern Rhodesia's estimated personal disposable income rose to 6125.5 million and that of Northern Rhodesia to 656 million. By 1961 esti mated personal disposable income for Southern Rhodesia had risen to 6214.5 million. This accounted for 70 percent for both markets. In 1961 Northern Rhodesia's estimated personal disposable income was 692.5 million, or 30 percent for both markets. On these factors, the Southern Rhodesia market was much larger and attractive to industrialists than the North ern Rhodesia market. The way the federal economy was organized seriously stunted the growth of industries in Northern Rhodesia. By reserving tariff powers to the federal government, a common ^®See Government of Rhodesia and Nyasaland, The Break-up Effects and Consequences on the Two Rhodesias, p. 58. 210 market was created, protected from outside competition but internally unified. As is the general case with common markets. Southern Rhodesia, which was most developed indus trially, attracted still more industries. The federal government invested heavily in Southern Rhodesia in respect to economic infrastructure (transportation and communication networks, financial services and expanded bank credit facili ties, industrial and commercial facilities, and local water and electricity supplies) and social services, especially educational, housing, and health facilities. Also, as is evident from the above statistics. Southern Rhodesia was enabled to develop an effective local market due to high wage rates among other factors. For example, 74 percent of the Federation's super-income recipients resided in Southern Rhodesia, compared with 22 percent for Northern Rhodesia. This group's income reported in 1963 for income tax purposes was 619,239,324 (78 percent of the Federation's total super tax income of 674,794,388), while the total of reported income in respect to Northern Rhodesia super-income recip ients for the same period was 64,454,394, or 18 percent of the Federation's total supertax income for that year.^^ The extent to which the federal government's economic policies favored Southern Rhodesia vis-à-vis Northern Rhode sia can be measured by examining the growth of the gross l^See Government of Rhodesia and Nyasaland, Eighth Report of the Commissioner of Taxes for the Year Ending 30th June, 1962 (Salisbury; Government Printer, 1963), p. 21. 211 domestic product in respect to each of the territories during the decade of Federal rule (1953-63). One year after the imposition of the Federation (1954), the gross domestic product for Northern Rhodesia stood at 6125 million compared with 6160 million for Southern Rhodesia. While the gross domestic product for Northern Rhodesia increased to 6177 million in 1962, an increase of 42 percent, that of Southern Rhodesia had increased by 59 percent to 6254 million. This was 56 percent of the Federation's gross domestic product of 6455 million for that year, compared with Northern Rhode sia.^® All these facts explain why industrialists who wished to put up factories in the Federation preferred to locate them in or near Salisbury or Bulawayo unless there were special reasons for locating them somewhere else. In addition to the fact that the bulk of the market was in the south, so far as material standards of living for Europeans were concerned. Southern Rhodesia was a paradise. In practice, this meant that the only industries of any size that went to Northern Rhodesia were those that found it cheaper to supply the local northern market from separate factories in the north. Their products were normally of low value in relation to their bulk, the transport costs thus dictating manufacture close to the market. Examples are maize milling, sugar refining. Government of the Federation of Rhodesia and Nyasa land, Supplement to the National Accounting of the Federation of Rhodesia and Nyasaland, 1954-1962 (Salisbury; Government Printer, 1963). 212 brewing, and the manufacture of some building materials such as cement (the factory at Chilanga near Lusaka, sponsored by the Colonial Development Corporation) and metal windows. Until the end of the Federation, Zambia's manufacturing "take-off" was seriously impeded by "backwash" effects of economic policies of colonial states that caused the Zambian market to remain wide open to the products of Southern Rhodesian and South African industries. At independence, the manufacturing sector in Zambia contributed 5.8 percent of the gross domestic product and 10 percent of formal sector employment.1 ® Indiqenization of the Economy The Mulungushi Declaration^^ In the preceding chapter we considered how various colo nial policies disarticulated Zambia's economy. We discussed in detail how the Federal State deliberately (through ^®See Government of the Republic of Zambia, National Accounts and Balance of Payments of Zambia, 1954-64 (Lusaka: Government Printer, 1965); and Manpower Report: A Report and Statistical Handbook on Manpower, Education, Training and Zambianization, 1965-66 (Lusaka: Government Printer, 1966), p. 64. The grand total (267,073) of persons employed in the formal sector excludes an estimated 35,000 domestic servants. ^^Mulungushi is the name given to UNIP's conference center on the bank of the Mulungushi River in Kabwe (formerly Broken Hill) district, where the founding leaders of the United National Independence Party (UNIP) secretly met in August 1959 (following their release from restriction and banning of Zambia African National Congress) to form UNIP, the political party that successfully led the masses of black people to independence. Since then, Mulungushi has remained the center for UNIP's annual conferences. The Mulungushi Declaration was made by President Kaunda at one such party conference on April 19, 1968. 213 systematic state intervention) caused incoherence in the economic system of Zambia, making parts or sectors of the economy not complementary. Conversely, we showed how the same Federal State intervened in the economy of Southern Rhodesia in order to systematically make it coherent, causing sectoral complementarity and reciprocity. The result was that the Southern Rhodesia economy enjoyed a system of link ages in production. Broadly, one sector specialized in agricultural products, while the other supplied the agricul tural sectors with manufactured goods. Complementarity, in respect to all sectors of the economy, was the ultimate goal of the federal government's economic policy for Southern Rhodesia. On the contrary, the economy in Zambia generally lacked these linkages, complementarity, and reciprocity. As we mentioned in the preceding chapter, both the colonial and federal states were interested only in the production of copper, which was the most profitable primary export commodity. The agricultural sector was systematically neglected, except for a narrow (but strategically located) strip of agricultural land along the rail line, which was reserved for white farmers. As expected, the agricultural sector became compounded by some of the natural tendencies of subsistence agriculture toward disarticulation. Africans were forced to produce mainly for their own consumption, that is, produce primarily use-values, as opposed to exchange- values. This caused some degree of incoherence. Again, as expected in that kind of situation, the market mechanism 214 became weak due to limited exchange. And because it is the market mechanism that acts as an integrative force in the wider economy, the Zambian economy remained disintegrated even after independence. As we mentioned before, the development of the manufac turing sector was most neglected. The incoherence of the manufacturing sector in Zambia was inevitable. Those who were making the investment decisions were making their deci sions according to the necessities of the process of accumu lation, particularly the quest for maximum return on invest ment in the minimum amount of time. Also, the incoherence of the manufacturing sector was associated with these factors; the multiplicity of decision centers (almost all external in South Africa, Southern Rhodesia, Britain, and the United States), ad hoc investment decisions, the reliance of the industries on imported inputs, and the chaotic development of infrastructures that inevitably influence the development of manufacturing, especially the type of investment and its location. The manifestations of disarticulation in the manufac turing sector of Zambia during the Federation are readily discernible from table 29, which compares net contributions of manufacturing industry to gross domestic product in Northern Rhodesia and Southern Rhodesia from 1954 to 1961. This table also shows the extent to which colonial economic policies hampered economic development in Zambia. The 215 rH m CN « lO O h cn CM ro T-1 rH ■'S’ «• CÜ CO 0 VO 1 Mulungushi Declaration was designed to address all these problems, especially to make investment decisions compatible with Zambia's development needs. The Mulungushi Declaration of April 19, 1968, marked a new watershed in the history of indigenization of the econ omy, and the development of secondary industries in Zambia. It declared as primary role of the state the establishment, maintenance, protection, and expansion of the conditions of capital accumulation in general. It outlined a program of economic reforms aimed at putting an end to a system of economic discriminations in which Zambians had neither the capital nor the skill to participate in the economic life other than as workers or consumers. Finally, the Mulungushi Declaration marked the beginning of class struggle spear headed by the state. Addressing the annual conference of the ruling party (UNIP),President Kaunda gave as the rationale behind state 1 It is necessary to point to the ambiguity inherent in the term development in view of its popularity. At times it refers to a process, whereas in other contexts it suggests certain goals. Whenever development is treated as a partic ular kind of social change process, quantitative indicators are stressed— income, productivity, output, literacy rate, etc. Conversely, when it is discussed as a goal, development evokes an image of life deemed qualitatively better than its opposite, underdevelopment. As used in this study, the term development imports both connotations, relative to particular contexts in which it is used. l^Zambia is a one-party state following a proclamation of December 13, 1972, which legally put in place a presiden tial one-party system with the United National Independence Party (UNIP) as the supreme institution of the state, thereby putting to an end the multiparty system that characterized 217 intervention in the economy the fact that policies pursued by expatriate enterprises and external investors made the exclu sion of Zambian entrepreneurship from economic activity and opportunity absolute. The other reason was that expatriate enterprises did not identify themselves with the country. Instead of reinvesting some of their enormous profits, they were obsessed with "making hay while the sun shines" and expatriated increasingly large portions of their profits. Table 30 shows the trend (which President Kaunda asserted was repeated in many other resident and foreign-owned companies) in the use of profits by one large foreign-owned company during the period 1960 to 1967.2® the other hand, tables 31 and 32 are intended to show a long trend of interests, dividends, and profits remitted abroad by foreign-owned companies between 1945 and 1964. Postindependence remit tances made prior to economic reforms (1965-69) are analyzed in table 33. While tables 31 and 32 generally show an uptrend in remittances, a downtrend in transfer of surplus- the eight-year existence of Zambia's First Republic. How ever, President Kaunda has resisted the Party's desire to make him "Life President." 2®The large company was Roan Selection Trust, whose chairman. Sir Ronald Prain, denied the charges as unwar ranted, arguing that in any event there had been no relation between the company's rate of dividend payout and its rate of mining development. Instead, he argued that the rate of payout from the company's consolidated net profits, which averaged 76 percent, was a reflection of the high rates of taxation in Zambia, taking into account royalties, export tax, and income tax. See R. L. Prain, "Chairman's Annual Statement for 1968," in Roan Selection Trust Limited; 1968 Annual Report (Luanshya; Roan Selection Trust, 1968). r 218 tu co b i p td ri I G p p CN p IT) CM 00 o m G •ri G 0 »«•«•••• rH G tu p in t~- vo o O m •P o ce r- 00 00 r- 00 t'' E p tu p I ce 0 ü I •rH e I o G I O T3 0 M 0) U P •P Ü3 M O § rH 00 rH Ht CM lO 00 O S i CM en rH r~ m in vo r~ (0 PCHfÜ •H MH rH in m t~- vo vo g t- td O H VD ÜS CM rH Ht Ht Ht p r~ •rH q I co ce o' o •H p < VD Q 1 Qice S’ to tS] •rH I—I -U i P tHs z - td 00 tu o œ •H • |vo P G m Q) 10 o> to O >4 < f p " 0 ^ •ri m M nJ tH td to P P P 00 m in 00 CM O r~ N P ü w C O G M tu 0 EH eh (D M Ht CM ro en en CM r~ LD P tu tu rH ro M tu ü ce in in CM !—i rH CM rH CM O "G P g tu k O p •H G ce to (U p ü W •rH § w ce o •H (D p p iH M ce o g (% A PW p to « 1 â tu 73 o g G CO to (d œ •o to I co to (U tl) VO tu p G p c ü rH r~ ro iT) l~- P P P O G M A •rH *rH tH m rH in VO CM P tn 5 O te S P ID to m r~ ro rH •—! en m VO g I 5 •ri O P q P rH o P ^8 P 0) CQ CM rH rH rH •—1 rH rH CM O rH G t) ce ce tu •rH CO S o G p td tu •rH G CO tu M tu S co P & G to G G ceil P -rH 3 tn •H EH tu te •ri >i to P G P CM Lf) Ht tn tn ro CM Ht o >Joo & g ttJ •H en m CM CM en 00 ro ro ü hlvo td EH cep VO ro VO tn 00 p CM ro en to EB* CO* H t ro m m tn 00 tn O ## (0 O tu u§s ce 1—1 M tu ü P - O P G ce t» H tu P G) 73 EH •G tu O < O EH E CO z G O I—I o rH CM ro Ht m VO r~ G tr> q VOVO VO VO VOVO VO VO O 5 G en en en en en en en en •H en O rH rH P rH rH rH rH rH P rH ü 219 TABLE 31 GROSS NATIONAL PRODUCT AND NET INTEREST, DIVIDENDS, AND PROFITS REMITTED ABROAD, 1945-54 Gross National Remittance Percentage Year Product® Abroad of GNP 1945 11.4 2.4 21.1 1946 12.3 4.0 32.5 1947 15.2 10.5 69.1 1948 20.5 11.7 57.1 1949 27.4 13.8 50.4 1950 32.9 22.2 67.5 1951 54.2 27.7 51.1 1952 64.4 26.6 41.3 1953 83.7 25.4 30.3 1954 116.6 23.2 19.1 SOURCE; Northern Rhodesia Government, Central Statis tics Office, National Income and Social Accounts of Northern Rhodesia, 1945-1953 (Lusaka; Government Printer, 1964), pp. 1-4; and Richard Hall, Zambia (New York; Praeger, 1965), p. 306. NOTE; All figures in millions of pounds sterling. ^Figures in respect to African subsistence income are not included in the gross national product. These were nominal entries (65 million each year) based on experience in Southern Rhodesia. 220 TABLE 32 GROSS NATIONAL PRODUCT AND NET INTEREST, DIVIDENDS, AND PROFITS REMITTED ABROAD, 1956-64 Gross National Remittance Percentage Year Product Abroad® of GNP 1956 160.5 31.9 19.9 1957 139.8 20.3 14.5 1958 134.9 11.2 8.3 1959 172.7 20.9 12.1 1960 187.2 25.9 13.8 1961 183.9 23.0 12.5 1962 179.6 24.5 13.6 1963 189.9 24.3 1 2 . 8 1964 214.5 34.6 16.1 SOURCE: Government of the Republic of Zambia, Central Statistics Office, National Accounts and Balance of Payments of Zambia, 1954-1964 (Lusaka: Government Printer, 1964), p. 3. NOTE: All figures in millions of pounds sterling at current prices. ®The figures in respect to remittances abroad do not include payments made to Southern Rhodesia. Both Northern and Southern Rhodesia were constituent territories of the Federation of Rhodesia and Nyasaland, and for this reason were deemed one economy despite the fact that large sums of money were remitted.to Southern Rhodesia during the Federa tion. 221 TABLE 33 GROSS NATIONAL PRODUCT AND NET INTEREST, DIVIDENDS, AND PROFITS REMITTED ABROAD, 1965-69 Gross National Remittance Percentage Year Product Abroad of GNP 1965 604.4 45.5 7.5 1966 724.3 58.0 8.0 1967 840.5 50.6 6.0 1968 937.3 52.1 5.6 1969 1,192.6 47.5 3.9 SOURCE; Government of the Republic of Zambia, Central Statistics Office, Statistical Year-Book, 1971 (Lusaka; Government Printer, 1972), p. 179. Percentage computations are ours. NOTE: All figures are in millions of Kwacha, the Zambian currency introduced in January 1968 at the rate of K2 = one pound sterling; it replaced the pound, which in turn had replaced the Rhodesian pound on independence. The par value is 1.14592 grams of fine gold per Zambian Kwacha. From 1968 to July 8 , 1976, the Zambian Kwacha was pegged to the U.S. dollar. Since July 9, 1976, the central rate for the Kwacha has been maintained in terms of the Special Drawing Right (SDR) at a rate of K1 = SDR 0.08479, until March 1, 1978, when the exchange rate for the Kwacha was fixed at K1 = SDR 0.976311. This amounted to an exchange rate depreciation of the Kwacha by 10 percent in terms of foreign currencies. Since January 7, 1983, the rate has been K1 = SDR 0.781049. Zambia avails itself of margins of 2.5 percent around that fixed relationship. The U.S. dollar is the intervention currency, and the rates of the Bank of Zambia (the central bank) for the U.S. dollar are based on the IMF's daily calculation of the U.S. dollar to SDR rate. 222 value is recorded in table 33, which may generally be attributed to political pressure directed at expatriate and foreign-controlled companies following independence. President Kaunda's general stance in both cases was that such practices led to gross undercapitalization and excessive local borrowing, and that they had caused an increase of nearly 100 percent in foreign exchange^^ expenditure on invisibles, which had jumped from 616,459 million in 1965 to 631,887 million in 1967, although goods purchased that year amounted to only 644 million. Other cases of illegal practices included subsidiary companies, which purchased merchandise from parent companies overseas at anything up to 33 percent more than cost price in order to increase expatriation of capital. The given example was of a foreign-owned company with 6200,000 paid-up capital, which acquired 62 million in overdraft rights, of which it promptly used 61 million.2% From these cases. President Kaunda argued that despite his government's liberal financial policies, foreign inves tors remained suspect of every black government regardless. For this reason, he stressed, it had become imperative for ^foreign exchange generally refers to the conversion of the money of one country into its equal of another country. In the context of the above argument, foreign exchange expenditure on invisibles caused excessive claims of foreign ers on Zambia, giving rise to artificial demand for foreign exchange (mostly British pound sterling and U.S. dollar) to effect payments in respect to such claims. P O See Government of the Republic of Zambia, Zambia's Economic Revolution, pp. iii-v. 223 the government "on behalf of the people" to participate in the major sectors of the economy in order to stabilize the economy, restrain unnecessary outflow of foreign exchange, and to induce an atmosphere in which Zambians would individ ually and corporately share in the commercial and industrial life of the country. Under the circumstances it became evident that what was required was to match political inde pendence with economic independence.23 To accomplish this, these four major areas of economic reform were particularly emphasized in the Mulungushi Declaration as crucial if indigenization of the economy was to be realized; Regulation of the Remittance of Profits and Dividends Abroad The first of the four main measures that required state intervention under the Mulungushi economic reforms was the regulation of remittance of profits and dividends a b r o a d . 24 This measure was deemed necessary in order to create 23pollowing Ghai, economic independence is defined as the progressive substitutions of national for foreign capi tal, skills, and enterprise. Great caution is required in using the concept as it can easily become a formal category that masks rather than clarifies what is actually happening in contemporary Zambia. Hence the need to focus upon classes, thus necessitating concrete analysis of the social formation under consideration. See Dharam Ghai, "The Concept and Strategies of Economic Independence," in Economic Inde pendence in Africa, ed. Dharam Ghai (Nairobi; East African Literature Bureau, 1973), pp. 1-25. 24Dividends refer to the amounts of a company's profits that the board of directors decides to distribute to ordinary shareholders. In every case a dividend is usually expressed either as a percentage of the nominal value of the ordinary share capital or as an absolute amount per share. 224 conditions for making investment capital available in Zambia, and was especially necessary since the country's economy was dominated by foreign-owned and -controlled companies. One of the characteristic features of the operation of these compa nies was that they tended to remit abroad very large propor tions of their profits, in some cases about 80 percent, rather than reinvesting them within the country. Under the provisions of the Exchange Control Regulations (ch. 593 of the laws of Zambia), except with the permission of the minister of finance (through the Bank of Zambia) no person may transfer or remit or cause to be transferred or remitted from Zambia any moneys, credits, or assets for the payment of a dividend outside Zambia. These regulations apply to transactions in respect to securities with persons resident outside Zambia. The Exchange Control Regulation No. 159 of 1968 permitted foreign-controlled enterprises^^ to remit profits and dividends to overseas holding companies and shareholders provided such profits and dividends did not exceed 30 percent of the equity capital of the company, and provided further that the 30 percent did not exceed 50 percent of the net profits. The remittance of depreciation allowance is not permitted. However, to attract foreign investments nonresident companies are normally permitted to repatriate their capital. p C ^^Foreign-controlled enterprises are defined as enter prises having 51 percent or more of their equity capital owned abroad, and enterprises with head offices outside Zambia. 225 together with increases in such capital arising from their operations, when they have satisfied the authorities (on the basis of documentary evidence) that the original investment was made with funds brought into the country from sources outside Zambia.2® In general, residents are not permitted to transfer capital abroad, and with certain exceptions, are required to offer for sale to an authorized bank any foreign exchange that accrues to them. Exchange control regulations also variously apply to emigrants. The avowed objective of exchange control measures is to regulate outflow of funds from the country, thereby making such funds available for domestic investment. As was envis aged by the Mulungushi Declaration, a byproduct of these policy measures was that many foreign-controlled companies sought to increase their equity capital by borrowing from external capital markets. This relieved pressure on the domestic capital market, which was still in its infancy. Thus, exchange control regulations played (and still play) a major part in designating the amount of capital to be retained in, or profits to be transferred to, foreign currency areas. They are based on a plain rationale that all income derived from foreign sources has to be transferred to the host country, as have all payments of loans and other external liabilities. Exchange control regulations are p C For a detailed discussion of a system of incentives affecting various industries following independence see Gov ernment of the Republic of Zambia, Outline of the Govern ment 's Industrial Policy (Lusaka: Government Printer, 1966). 226 intended to accumulate foreign currency reserves^? and to control the domestic money supply by, for instance, limiting foreign borrowings. Exchange control measures also served an important latent political objective in that as foreign-controlled companies increased their equity capital with funds from external sources they simultaneously increased their stake in the country. In Zambia, as in most developing countries,2® the importance of exchange control regulations has grown in consonance with the growth of general-purpose borrowing and the need for external finance for investments in major devel opment projects. The question of agreements with foreign investors will be treated in our discussion of state "take over" of copper mining companies, and in ch. VIII where we 27poreign currency reserves refer to currencies (such as U.S. dollar and U.K. pound sterling, which have continued in their roles as leading reserve currencies) that governments and international institutions— especially the International Monetary Fund (IMF), the Organization for Economic Coopera tion and Development (OECD), and the European Economic Community (EEC)— are willing to hold in their gold and foreign exchange reserves and that finance a significant proportion of international trade. Some of the important prerequisites for these two conditions are normally that the values of these currencies must be stable in relation to other currencies, that there exist efficient foreign exchange markets in which the currencies may be exchanged for other currencies, and, importantly, that such currencies must be convertible. 0 A For a variety of systems of exchange control on a global scale in both developed and developing countries, see International Monetary Fund, Exchange Arrangements and Exchange Restrictions; Annual Report [1970-83]. Washington, D.C.: International Monetary Fund, 1970-83. 227 consider the place of foreign capital in Zambia's economy. Regulation of Domestic Borrowing by Expatriate Companies To complement policies aimed at restricting foreign- controlled companies from remitting profits and dividends abroad, the Mulungushi decree directed the Bank of Zambia (the central bank) to develop credit policy mechanisms that would effectively restrict bank borrowing (including dis counting of commercial bills, restricting to individual value of K10,000 or over) by non-Zambians and companies that were not Zambian-controlled. By this decree commercial banks and n Q nonbank financial institutions ^ were required before approv ing a loan for business purposes to a company or partnership or an individual businessman to ascertain that if it is a company its members and shareholders are Zambians with Zambian passports or green national registration cards; if it is a partnership, that all the partners are Zambians with Zambian passports or green national registration cards; and that if it is an individual, he must be a Zambian with a Zambian passport or green national registration card. Applications for loans or overdrafts received from non- Zambians were to be referred to the Exchange Control n Q The main distinction between commercial banks and nonbank financial institutions lies mainly in the considera tion that the liabilities of the commercial banks act as media of exchange, while those of nonbank financial institu tions do not. For an excellent detailed analysis of the differences and similarities of these two financial institu tions see G. Clayton, "British Financial Intermediaries in Theory and Practice," Economic Journal 72 (1962);869-86. 228 authorities, who were to consider them on the basis of specific criteria governing such cases under various economic reform regulations designed to regulate businesses of non- Zambians. Under these regulations non-Zambian companies were defined as those with less than 100 percent Zambian owner ship. Under this definition enterprises owned by resident expatriates were treated as non-Zambian. Whether foreign- owned enterprises were allowed to obtain loans depended on the amount of capital they brought into the country. In the case of resident expatriate businesses, the extent to which they could borrow locally depended on the amount of their own investment and the type of business they operated. The two major objectives of controlling credit facili ties were to prevent non-Zambian enterprises and individuals from making high profits by using domestic bank finance, and importantly, to divert bank credit away from the non-Zambian sector to the Zambian sector. Also, it was anticipated that the reduction in the availability of domestic bank finance might encourage the inflow of funds and the retention for local use of a relatively higher proportion of profits other wise remitted abroad. These regulations had important monetary policy effect. Since the Zambian sector accounted for about 15 percent of the total bank credit, and because most large-scale borrowers were non-Zambian by the new definition (100 percent Zambian ownership), the Bank of Zambia acquired de facto control over the total volume of credit (and thus the money supply), in 229 addition to maintaining an appropriate debt-equity ratio. It also acquired control over direction of commercial bank credit. Generally, the new credit policy, whose express inten tion was to channel more bank credit to Zambians, indirectly brought about a deceleration in the phenomenal rate at which the money supply^® had been expanding as a result of a very rapid economic growth (and a rapidly growing demand for bank credit) following independence. Thus, the new credit policy came to be used by the Bank of Zambia as a vehicle for redirecting credit to selected priority sectors, which included the government sector. Part of the liquid funds of the banking system that was siphoned off to the government sector in the form of bank credit was K13.7 million toward the end of 1967. By the end of 1968 it had increased by 172 percent to K37.3 million. Credit to the government sector continued to rise during 1969, and at the end of December it had reached K49.1 million, a rise of 75.9 percent. This was in line with the government's new policy, which required the Bank of Zambia to channel part of the surplus resources of the commercial banks to the state. Table 34 shows on a quarterly basis the extent to which commercial bank credits were diverted to the state between June 1966 and December 1969. ^^Money supply is defined as consisting of the immedi ately available purchasing power (i.e., currency— coins and paper money) in the hands of the Zambian public, including demand and time deposits. 230 TABLE 34 COMMERCIAL BANK CREDIT TO THE PUBLIC SECTOR, 1966-69 Total Credit^ Percentage Year June December Rise/Fall 1966 23.12 21.78 -5.8 1967 13.42 13.72 2.2 1968 16.20 37.30 130.2 1969 37.76 49.09 30.2 SOURCE: Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December, [1968 and 1969] (Lusaka: Bank of Zambia, 1968 and 1969) . ^Treasury bills and investment in other government activities. In millions of Kwacha. 231 Commercial banks were very liquid during the period 1965 to 1970, and due to their excess liquidity^l were able to supply the private sector's increasing demand for credit. At the end of the fourth quarter of 1965, liquid assets^^ of commercial banks stood at K59.5 million, or 62.4 percent of their liabilities to the public,which totaled K95.3 million (table 35). Deposits continued to rise at a fast rate. Toward the end of 1966 they reached a level of K120 million, and rose to K141 million at the end of 1967, an increase of 18 percent. The uptrend continued between 1968 and 1969. Total deposits reached K180 million at the end of 1968, a rise of 28 percent from the previous year. By Decem ber 1969, the upward trend reached a record level of K212 million, a rise of 18 percent over the 1968 level. These trends are displayed in table 36. ^ B y liquidity in this context is meant enchashability. An encashable asset is one that is or will be convertible into liquid purchasing power in all conceivable (monetary) circumstances. ^^Liquid assets include gold, notes, and coins of Zambia, balances at the Bank of Zambia, Zambia Government Treasury Bills, bills of exchange and promissory notes eligible for discount at the Bank of Zambia, Local Registered Government Stocks of maturity not exceeding six years, and balances in United Kingdom, call deposits in United Kingdom, and United Kingdom Treasury Bills. See Monthly Digest of Statistics (Lusaka), November 1972, p. 43. ^^Liabilities to the public include all deposit liabil ities plus bills payable. 232 TABLE 35 COMMERCIAL BANKS' LIQUID ASSETS AND LIABILITIES TO THE PUBLIC, 1965-70 Liabilities to Year Liquid Assets the Public^ Liquidity Ratio 1965 59.5 95.3 62.4 1966 81.6 127.4 64.1 1967 58.0 148.9 39.0 1968 89.3 193.7 46.1 1969 110.6 238.8 46.3 1970 117.3 267.7 43.8 SOURCE: Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December, 1974 (Lusaka: Bank of Zambia, 1974), p. 65. NOTE: All figures in millions of Kwacha. ^All deposit liabilities plus bills payable. F 233 TABLE 36 COMMERCIAL BANKS' DEPOSITS EXPANSION, 1966-69 Total Deposits^ Percentage Year June December Rise 1966 105.52 120.36 87.7 1967 125.32 141.04 88.9 1968 151.15 180.48 83.7 1969 179.75 211.71 84.9 SOURCE: Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December, [1968 and 1969] (Lusaka: Bank of Zambia, 1968 and 1969). ^Includes demand deposits, time and savings deposits, excluding bills payable. In millions of Kwacha. 234 Zambianization of Retail Trade The third arena of class struggle under the Mulungushi Declaration was the retail trade, which was dominated by commercial bourgeoisie of Asian extraction. This class consisted of fractions of big wholesalers and textile merchants, retail agents employed by foreign and retail trade companies. This last group formed the comprador class. This fraction of commercial bourgeoisie operated in trading areas designated as first-class trading areas under various munici pal trading ordinances. The second stratum was composed of medium-scale retail ers who operated general stores in second-class trading areas. The third fraction consisted of small retailers who mainly concentrated in the rural districts. It is important, for the purpose of analysis, to point out that the colonial regimes legalized monopoly in retail trade in favor of the Asian community. Africans were prohibited from doing busi ness in many retail trading areas. This helps to explain why the Mulungushi Declaration was enthusiastically hailed by Africans as state action that marked the beginning of a political process aimed at consolidating the "common man's revolution." Indeed, this marked the genesis of indigenous bourgeoisie. As will be seen, the apparatuses and functions of the state have been realigned since the Mulungushi Decla ration to foster the development of this class. For this reason, we consider the interventionist role of the postcolo nial state in Zambia, both at political and economic levels. 235 President Kaunda declared that the state would assist Zambian enterprise to develop by allocating it certain geographical and business areas where it would be protected from competition by expatriate businesses, which would be restricted to certain areas within the centers of major cities. However, in order to accelerate Zambian ownership of businesses, it was declared that no additional trading licenses would be granted in these areas except to Zambian individuals, Zambian companies, or Zambian partnerships. Trading and bar licenses would only be granted or renewed in all other areas of the country if the application came from a company or cooperative whose members or shareholders are Zambians, or an individual who is a Zambian. In this respect, expatriate enterprises were given notice that their trading licenses would not be renewed and were advised to find Zambians to whom to sell their businesses. To this effect the Trade Licensing Act of 1968 was passed, requiring that all retail and wholesale licenses may only be issued to Zambian citizens, except for trade in certain categories of prescribed goods, listed as exempted goods from time to time by the ministry responsible for trade and industry. ^^The areas where resident expatriate retail businesses were allowed to continue to operate under the Mulungushi Declaration are in the urban centers of Chingola, Mufulira, Kitwe, Luanshya, Ndola, Kabwe, Lusaka, Mazabuka, Chôma, and Livingstone. See Government of the Republic of Zambia, Zambia* s Economic Revolution, pp. 29-31. 236 Thus, we see that the postcolonial state in Zambia does not only function as an instrument of capital accumulation, but as the vehicle through which national bourgeois classes develop and are nurtured. National bourgeois classes are, so to say, creatures of the state. State Enterprise and Partnerships The main purpose of the Mulungushi Declaration was to institute the necessary structural change by providing post colonial Zambia with a new infrastructure for capital accumu lation. The first strategy was to establish conditions aimed at facilitating ownership of the means of production by Zambians denied them by structural impediments during colo nial rule. However, it was clear to the state that individ ual Zambian ownership would not extend beyond retail trade and other small businesses that did not require substantial capital to acquire. For this reason President Kaunda turned to what may be termed the fourth policy ingredient in the Mulungushi mixture aimed at indigenization of the big expatriate and foreign- owned enterprises^^ that, due to the magnitude of capital capital for their acquisition, were beyond the reach of Zambians. He announced that the state was issuing an ^ For the purpose of strategy, high-stake foreign-owned companies (mining companies, commercial banks, and nonbank financial institutions) were not included in the 1968 economic reforms. The nature of their foreign ownership and the crucial positions they occupied in the economy precipi tated their omission. 237 "invitation"to the owners of twenty-six leading foreign- owned and -controlled companies^^ to offer the state 51 percent of their shares. Compensation was to be computed on the basis of book value of assets excluding goodwill. This meant that no account could be taken of profitability. Revaluation of assets would also not be permitted. The formula of takeover was to be worked out by the Industrial Development Corporation (INDECO), a state-owned investment corporation that was to manage the state's shares. When the list of these 51 percent takeover companies is analyzed closely, a certain logic in their selection becomes apparent. They were acquired on the basis of market domi nance, product, and profit levels. The takeover scheme in this respect was used as a device for curbing the excessive profit margins enjoyed by these companies, and to break price rings that had led to monopolistic conditions in certain sectors of the economy. legal reasons the method of takeover had to be in terms of an invitation (backed by political pressure) to offer controlling interest to the state. The independence constitution negotiated with the British government in May 1964 contained specifically entrenched provision (section 18) against the compulsory acquisition of private property, and these provisions could be altered only by a national referen dum. The constitution was amended by a national referendum in 1969 to allow the entrenched clauses of section 18 to be altered by a two-thirds majority of Parliament. ^^Ironically, one of these companies was Mwaiseni Stores Ltd., a Zambian-owned company, with equity capital of K150,000 and turnover in 1957 of Kl,500,000. The explanation for this would seem to lie in the government's policy aimed at preventing Zambian "business barons" from emerging. This size may be an indication of the approximate dividing line between private and state-controlled companies in Zambia. 238 One other strategic feature of the 51 percent takeover was that it was inclusive in that it embraced all industries. The first group of companies was in the construction industry (including quarries), then followed companies (in the same manufacturing industry) that enjoyed monopoly in the manu facture and supply of window and door frames. The third group was drawn from the brewing industry, and the fourth group of companies comprised those in the field of trans portation. The fifth group was in retail and wholesale distribution organization. The sixth and seventh groups of companies on the takeover list were respectively in the fishing and timber industries. The investment involved in the acquisition of the , controlling interests in these companies was estimated at approximately KIO million. The significance of these acqui sitions in relation to our theme is that, first of all, they point to the historic specificity of the Zambian postcolonial state. It took unprecedented action to acquire these means of accumulation, which were concentrated in the hands of the white ruling class. This class established a hostile bour geois settler state (Federal State), which embarked upon unprecedented economic and political actions that turned into settler bourgeoisie a petty-bourgeois section of manufactur ing capital and odd fragments of commercial and agricultural capital. At the same time, a sustained and accelerated process of proletarianization of Africans destroyed any 239 possibility of individual Zambians' acquiring big enterprises at independence. The logical step was for the Zambian state to assume the control of these enterprises. Secondly, although we believe that the state cannot be entirely subsumed under its accumulation function, these acquisitions drew the Zambian state into the spheres of direct production and circulation of commodities, thereby making its accumulation function prominent. It is assumed here that the development of domestic bourgeoisie will at times be constrained by the imperatives of accumulation: that is, the need to reproduce existing class relations (albeit in a modified form). Also, since no hegemonic frac tions of indigenous capital existed at independence to domi nate the postcolonial state, the apparatuses and functions of the state have been realigned primarily not to foster the development bourgeoisie. Instead, the government has created the mechanisms to control the conditions under which foreign companies invest in Zambia and the limit to which Zambian 3 Q private companies can grow. Preliminary points of analyti cal significance can be deduced from these remarks. There is evidence to argue that the Zambian state serves as an organ both for the conditional penetration of international (foreign) capital and for the limited development of the ^®The limits (aimed at curbing the development of private capitalism), which determine the degree to which Zambian enterprise can remain a purely private enterprise, are based on the amount of capital employed, turnover, and the number of workers employed. See Government of the Republic of Zambia, Zambia's Economic Revolution, pp. 36-37. 240 domestic bourgeoisie. In this particular perspective the state may be perceived as the organ of capital in general, with the state taking the lead. It is the state that has remained the primary source of indigenization. This, of course, is not to deny the fact that there has been a broad base of popular support for any assertion of economic nationalism since independence. Indig enization of the economy has been justified as a response to popular demand, and public support has been mobilized by the party in defense of indigenization policies. It would be misleading, however, to suggest that indigenization policies have been pursued as a response to pressures from an indige nous economic elite (especially during the early years of economic reforms) as has been the case in countries where postcolonial states have been dominated by hegemonic frac tions of indigenous capitals.^9 This largely explains why state-controlled enterprises dominate Zambia's economy, and why Zambia's new bourgeoisie are creatures of the postcolo nial state. Creation of State Monopoly Corporations : INDECO The purpose of this section is to discuss the main ^^Good examples are Kenya and Nigeria, for which, respectively, see Nicola Swainson, The Development of Corporate Capitalism in Kenya, 1918-77 (Los Angeles; Univer sity of California Press, 1980), pp. 173-211; and Thomas J. Biersteker, "Indigenization in Nigeria: Renationalization or Denationalization?" in The Political Economy of Nigeria, ed. I. William Zartman (New York: Praeger, 1983), pp. 185-206. 241 reasons for the creation of state monopoly corporations and the role played by the Industrial Development Corporation (INDECO) Limited, a state-owned and controlled investment and development company, as a vehicle for implementing the Economic Reforms program and the government's industrial policy in general, aimed at indigenization of the Zambian economy. Generally, state monopoly corporations have been used as instruments of state intervention in the economy. Primarily, their creation was a response to the perceived limitations of the market mechanisms, particularly due to undeveloped Zambian private entrepreneurship. On this account state ownership was mainly on the "traditional pattern." Govern ment investments were confined to certain special types of enterprise, which had generally been the hardest type to develop. Some had been where the government had to have control because such businesses were a strategic necessity. The state also invested in businesses where the risks were too high for private capital, or too much capital was needed (without immediate returns) and private enterprise was unable or unwilling to provide it, or the returns appeared too low for private enterprise, but the project was never theless necessary in the national interest.*0 In the main. ^Enterprises developed by the Zambian government (fol lowing independence) because there were a strategic necessity and were in the national interest included Tanzania Oil Pipelines Limited, jointly owned by INDECO (67 percent) and the Government of Tanzania (33 percent); Zambia-Tanzania Road Services Limited, jointly owned by INDECO (35 percent) and 242 the private sector was left for the private enterprises to explore. But this policy could not continue for so long because of the inevitable conflict between class interests of expa triate enterprises that dominated the private sector and class interests of the Zambian state. On a wider scale, the rationale for creating diversified state monopoly corpora tions is not difficult to see. At independence, Zambia's economy was highly and negatively skewed, except for the dominant mining enclave being supported by a small industrial and services sector on the outskirts of the Copperbelt. The secondary industrial sector that existed was, as a whole, underdeveloped and not integrated. The need to redress the situation led to the expansion of the scope of the activities of INDECO, which had been in existence since 1951. As originally conceived, INDECO was to be primarily a development bank, providing management guid ance and loans on commercial terms to private industry. In 1963 INDECO was reorganized and transferred to the control of private shareholders, with the Northern Rhodesia government retaining a minority of the voting shares. It continued with the main objective of promoting new industries in the private sector, helping existing ones with extra finance, and the Government of Tanzania (65 percent); and the Tanzania- Zambia Railway (TAZARA) Limited, jointly owned by the govern ments of Tanzania and Zambia, which links Dar-es-Salaam in Tanzania with the existing Zambian railway system at Kapiri- Mposhi. 243 creating favorable conditions for manufacturing in Northern Rhodesia. In keeping with the broad economic policy of the colonial and federal states, INDECO disclaimed any intention of taking a permanent majority interest in the industries it s p o n s o r e d . The corporation targeted investment mark was put at L500,000 by 1966, but during 1963 only twelve applica tions worth £187,500 were approved. This was because only Europeans and European-owned enterprises could apply for loans. In August 1964 (two months before independence), INDECO reverted to the government. 4% This marked the beginning of new life for the corporation, which was to become the largest state-owned investment company in the country. INDECO entered a new phase of accelerated development since April 1968 (as we have seen), when President Kaunda announced the first major economic reforms in which INDECO was to play a vital role as the principal instrument for state equity participation in industry. INDECO was also to take measures designed to assist Zambian entrepreneurship to emerge in Both the Northern Rhodesia government and federal government, through indirect subsidies, bore the costs of product development, which could presumably be amortized by later sales, only to turn over the economic activity to nongovernmental entrepreneurs at nominal cost at precisely the point of completion of the costly development phase. 42prior to independence, Anglo-American Corporation, Roan Selection Trust, the British South Africa Company, and the Commonwealth Development Corporation moved out of INDECO, leaving it as an entirely Zambian government-owned and - controlled corporation. 244 private commerce and industry by providing them with loans and other related assistance. INDECO's great leap forward into the takeover business and other joint-venture enter prises (including direct investment) gave birth to the "parastatal s e c t o r , "43 made up of enterprises in which the state holds majority ownership, or a controlling interest. These parastatal companies are legal entities limited by shares and incorporated under the provisions of the Companies Act, Cap. 686 of the Laws of Zambia. A parastatal organization is not an integral part of the government but an institution, organization, or agency that is wholly or mainly financed or owned or controlled by the government. 44 in legal terms, its structure is the same as that of its purely private counterparts. Its operations are government by its Memorandum and Articles of Association, by the provisions of the Companies Act,and by decisions of its Board of Directors. The direct shareholding of the ^Parastatal literally means "quasi-governmental." In this case, governmental refers to the ownership and quasi refers to the aspects that in principle place these enter prises financially outside the government budget and their management outside the government bureaucracy. 44The formulation we have adopted was used by the Mwanakatwe Commission of 1975. See Government of the Repub lic of Zambia, Report of the Commission into the Salaries, Salary Structure and Conditions of Service of the Zambia Public and Teaching Services, the Zambia Police Force and Prisons Service, the Defence Forces and the Staffs of Local Authorities, Including Casual and Daily-Paid Employees and of Personnel Employed by Statutory Boards and Corporations and by Companies in Which the State Has a Majority or Controlling Interest, vol. 1; The Public Services and the Parastatal Sector, 10th July, 1975 (Lusaka: Government Printer, 1975). 245 government varies but is 100 percent in the case of the main controlling groups. INDECO is the precursor of all nonmining subgroup hold ing companies. The magnitude of its operation as the vehicle through which the state intervened in the economy, from 1968 to 1982, can be discerned from its financial and other growth indicators, including those of some of its major subsidiary companies (64 as of March 31, 1969). A broad policy relating to their profitability was set by President Kaunda in inaugu rating the 1968 Mulungushi Economic Reforms. He established the policy that state-controlled enterprises would not be treated differently (more favorably) from private enterprises and would be expected to make profits. As beneficiary majority shareholder, the state would reap the profits and have the power to decide how these savings would be rein vested. The authorized share capital of INDECO was increased in November 1968 from K20 million to K50 million, of which K34.4 million had been paid up at the end of March 1970. At that time INDECO's total investment (at book value) amounted to K59.2 million, of which K57.4 million was equity participa tion in enterprises and Kl .8 million was loans (table 37). In 1969 (one year after takeover), INDECO experienced the most dramatic expansion in its history, and established itself as the foremost industrial group in Zambia apart from the mining industry. The group's total net assets more than tripled from K35.5 million in 1967 to K108 million, an 246 TABLE 37 FINANCIAL INDICATORS OF INDECO, 1964-70® December 31 March31 Indicator 1964 1965 1966 1967 1968/69 1969/70 Paid-up capita1^ 2.03 3.14 7.06 13.36 21.21 34.39 Total assets^ 2.11 4.90 8.87 16.08 46.68 60.03 Investments^ 1.23 3.92 6.36 15.08 46.33 59.20 Loans advanced 1.08 1.67 1.37 3.43 2.46 1.80 Equity partici pation 0.15 2.25 4.99 11.65 43.87 57.40 SOURCE; Government of the Republic of Zambia, Central Statistics Office, Statistical Year-Book, 1969 (Lusaka; Government Printer, 1969); Industrial Development Corpora tion, Annual Report, 1969-1970 (Lusaka: Industrial Develop ment Corporation, 1970). NOTE: All figures in millions of Kwacha. ®The financial years 1964-67 correspond to calendar years; the financial years 1968/69 and 1969/70 run from April 1 to March 31. ^End of period. 247 expansion of 204.5 percent. More significantly, K46.3 million (42.8 percent) of this total represents investment in the development of new projects outside takeovers. The group's net profit amounted to K2.9 million on a turnover4^ of K76.2 million, compared with a turnover of Kl.8 million in 1967. The profit represented 11.6 percent of total shareholders' equity of K25 million, or 17.8 percent of shareholders' equity excluding equity of projects under development, which totaled K8.7 million.46 Also, during 1969 INDECO held controlling interest in companies that accounted for 17 percent (K45 million) of the turnover of K270 million in the manufacturing sector. For the same period, the INDECO group earned about 14 percent (K5 million) of this sector's gross profits of K35 million. The INDECO group of companies also employed about 12 percent (4,600) of the manufacturing sector labor force of 37,000 during 1967. Other sets of data (in relation to INDECO) illustrate the intensity with which the state intervened in the economy, and the extent to which it succeeded as an instrument of capital accumulation in postcolonial Zambia. By 1970, INDECO's assets had multiplied sixty times from K2 million at independence to K120 million with a pretax profit of Kll 46Turnover in this case represents the invoiced value (total sales revenue) of goods and services to customers outside the INDECO group, and includes excise duty. 46gee Industrial Development Corporation, Annual Report, 1968-1969 (Lusaka: Industrial Development Corporation, 1969), p. 2. 248 million as compared with a pretax of K45,000 in 1964. The success of state intervention in the economy through INDECO remained highly visible during the early crucial years of independence. In 1974 INDECO manufacturing and related subsidiaries produced about 45 percent (K200 million) of the turnover of K440 million, and 46 percent (K22 million) of the gross profit of K48 million earned in the entire manufacturing sector. They held 64 percent (K117 million) of the sector's fixed assets, which amounted to K182 million; employed almost 38 percent (17,000) of the manufacturing labor force of 45,000; and contributed 52.2 percent (K95 million) of the manufacturing sector's contribution of K182 million to the gross domestic product (GDP), which totaled Kl,309 million. INDECO continued its rapid expansion during the first ten years of independence to a peak in 1974, when it had a turnover of K332 million, fixed assets of K240 million, and net assets of K249 million. At this point the ratio of INDECO's interests to minority partners was almost 2:1. This indicator (like others that we have considered) points to the aggressiveness with which the state intervened in the indus trial sector during the early years of takeovers. INDECO's degree of success in this respect is measured by the fact that the ratio of its shareholder funds to foreign interests in subsidiaries, which stood at 75:1 in 1965, was substan tially reduced to 15:1 in 1967, 1.7:1 in 1969, and 2.9:1 in 1970. 249 Although (due to the political significance of take overs) INDECO's own projects and expansions were overshadowed by the takeovers, the takeover of majority ownership of private enterprises accounted for only 15.6 percent (K22 million) of the increase in assets, which took place from the end of 1967 to March 31, 1969, totaling K141 million. The remaining 85.4 percent were INDECO's own projects, many of which were large, capital-intensive projects from the First National Development Plan (1966-70), which aimed at radical transformation of the industrial sector in which INDECO was to continue to play a dominant role as a midwife in assisting the state machinery to develop new secondary industries. INDECO remained at the center of the state mechanism that created a new economic structure for accumulating capital. The new industries included the textile mill, the nitrogenous fertilizer factory, a plant to manufacture explosives for the mines, a tire factory, a second cement factory, a factory to manufacture grain bags, an oil pipeline (at a cost of £20 million) and oil refinery, a fishing industry, a sugar plantation and mill, a copper fabricating plant, and an integrated iron and steel industry.4? The total book value of fixed assets for the INDECO group between 1967 and 1976 amounted to K261.5 million. Of this amount, only K88.3 million, or approximately 34 percent, was 47gee Government of the Republic of Zambia, Office of National Development and Planning First National Development Plan, 1966-1970 (Lusaka: Government Printer, 1966), p. 35. 250 accounted for by takeover of shareholdings in existing enter prises. Table 38 shows the growth of INDECO as measured by the value of its total assets for the years 1969 to 1982, while table 39 provides a list of thirty-seven companies that were subsidiaries of INDECO Limited as of March 31, 1982, together with percentage of equity attributable to INDECO group. INDECO is also a minority partner (less than 51 percent equity ownership) in four foreign-controlled compa nies: Duncan Gilbey and Matheson (Z) Ltd. (40 percent), Dunlop Zambia Ltd. (23 percent), Nkwazi Manufacturing Company Ltd. (5 percent), and Scaw Ltd. (2 percent). The growth of INDECO and the significance of its role as the state's instrument of intervention in the economy, and as a growing means for accumulating capital, may be measured by its financial transactions and the number of workers employed in the corporation. INDECO's authorized share capital at the end of 1982 was K150 million. The issued and paid-up capital was K149.4 million. Shares pending allotment at the end of 1982 stood at K72.4 million. Table 40 provides a picture of INDECO's growth in terms of fully paid ordinary shares from 1970 to 1982. INDECO has grown into an ever-expanding capitalist enterprise that experiences the need to accumulate (through merger schemes, expansion, and other investments) as an external coercive force. The state expects INDECO and other parastatal companies to be operated in such ways and under price structures that they cover their expenses, including 251 TABLE 38 INDUSTRIAL DEVELOPMENT CORPORATION: TOTAL ASSETS, 1969-82 Year Total Assets® 1969 108.1 1970 119.9 1971 145.9 1972 167.9b 1973 223.2 1974 247.8 1975 189.6b 1976 201.1 1977 233.2 1978 358.4 1979 398.7 1980 435.8 1981 492.4 1982 592.3 SOURCE: Industrial Development Corporation, Annual Report [1969-82] (Lusaka: Industrial Develop ment Corporation, 1969-82). ®Total assets comprise fixed assets (i.e., the value of assets on the balance sheet of the corpora tion; this is often the purchase price and may be less than the market value) and net current assets. Shown here in millions of Kwacha. ^Assets of subsidiaries transferred to new Zambia Industrial Mining Corporation (ZIMCO) holding companies in 1972 totaled K13.1 million, and in 1975 they amounted to K74.3 million. 252 TABLE 39 MAJOR SUBSIDIARY COMPANIES OP THE INDUSTRIAL DEVELOPMENT CORPORATION AND EQUITY OWNERSHIP AS OF MARCH 31, 1982 Equity Company Percentage 1. Anros Industries Ltd. 80.0 2. Chilanga Cement Ltd. 56.0 3. Consolidated Tyre Services Ltd. 100.0 4. Chôma Milling Company Ltd. 100.0 5. Crushed Stone Sales Ltd. 100.0 6. General Pharmaceuticals Ltd. 100.0 7. Indeconsult Ltd. 100.0 8. Indeco Milling Ltd. 100.0 9. Indeco Properties Ltd. 100.0 10. Kabwe Industrial Fabrics Ltd. 100.0 11. Kafironda Ltd. 54.0 12. Kafue Estates Ltd. 100.0 13. Kafue Textiles of Zambia Ltd. 55.0 14. Kapiri Glass Products Ltd. 87.0 15. Livingstone Motor Assemblers Ltd. 70.0 16. Lusaka Engineering Company Ltd. 60.0 17. Mansa Batteries Ltd. 86.0 18. Metal Fabricators of Zambia Ltd. 51.0 19. Zamefa Sales Ltd. 51.0 20. Monarch Zambia Ltd. 100.0 21. Motor Parts Distributors Ltd. 100.0 253 TABLE 39— Continued Equity Company Percentage 22. Mwaiseni Properties Ltd. 100.0 23. National Breweries Ltd. 51.0 24. National Milling Company Ltd. 51.0 25. Nitrogen Chemicals of Zambia Ltd. 100.0 26. Norgroup Plastics Ltd. 100.0 27. ROP (1975) Ltd. 100.0 28. Rucom Industries Ltd. 100.0 29. Supa Baking Ltd. 100.0 30. Zambezi Saw Mills (1968) Ltd. 100.0 31.Zambia Breweries Ltd. 55.0 32. Zambia Clay Industries Ltd. 100.0 33. Zambia Oxygen Ltd. 51.0 34. Welding Electrodes Ltd. 51.0 35. Zambia Steel & Building Supplies Ltd. 100.0 36. Zambia Sugar Company Ltd. 78.0 37. Nakambala Estate Ltd. 78.0 SOURCE: Zambia Industrial and Mining Corporation, Annual Report, 1982 (Lusaka: Zambia Industrial and Mining Corporation, 1982). 254 TABLE 40 INDUSTRIAL DEVELOPMENT CORPORATION: TOTAL VALUE OF ISSUED AND FULLY PAID SHARE CAPITAL OF ORDINARY SHARES OF PAR VALUE OF K2 EACH, 1970-82 Value of Issued Percentage and Fully Paid Relatives Year Share Capital^ 1970 = 100 1970 34.4 100.0 1971 41.0 119.2 1972 44.4 129.1 1973 45.0 131.0 1974 46.0 134.0 1975 49.0 142.4 1976 49.0 142.4 1977 50.0 145.3 1978 53.2 155.0 1979 53.2 155.0 1980 73.4 213.4 1981 134.3 390.4 1982 149.4 434.3 SOURCE: Industrial Development Corporation, Annual Report [1970-82] (Lusaka: Industrial Devel opment Corporation, 1970-82). ^In millions of Kwacha. 255 depreciation and interest on any debt owing to government, plus a profit. The expected rate of profit is between 12 percent and 16 percent of the capital invested.^8 Conse quently INDECO borrowed heavily as shown in table 41, which relates INDECO's long-term indebtedness to its assets for a ten-year period (1973-82). The peak in INDECO's borrowing was reached during the period 1979 to 1982 when its long-term and short-term loans (including bank overdrafts) amounted to an all-time record high of Kl,524.7 million. The bulk of this amount was spent on expansion and modernization, and diversification of the means of production, which included K228.2 million (15 percent) spent on expansion of a fertilizer factory by Nitrogen Chemicals of Zambia Limited.*9 in this connection, tables 42 and 43 show the extent to which INDECO extracted surplus-value in relation to its total assets and turnover from 1970 to 1982. However, as both tables show, INDECO's overall profita bility measured in terms of profits after tax as proportions of total assets and turnover drastically deteriorated between 1975 and 1978, and also in 1981 and 1982. The group's turn over for 1975 decreased by 12 percent from K332.4 million in ^ See United National Independence Party, Summary of the Economic Situation in Zambia, Report No. 1 (A); Presented by His Excellency the President to the United National Indepen dence Party National Council on 30 June, 1975 (Lusaka; United National Independence Party, 1975), p. 16. 49gee Industrial Development Corporation, Annual Report [1979-82]. 256 TABLE 41 INDUSTRIAL DEVELOPMENT CORPORATION; LONG-TERM INDEBTEDNESS AND TOTAL ASSETS, 1973-82 Long-term Percentage of Year Total Assets Indebtedness Total Assets 1973 223.2 110.9 49.7 1974 247.8 119.3 48.1 1975 189.6 91.0 47.9 1976 201.1 103.5 51.5 1977 233.2 131.0 56.2 1978 358.4 252.9 70.6 1979 378.7 294.9 77.9 1980 435.8 343.9 78.9 1981 492.4 343.6 69.8 1982 592.3 343.9 58.0 SOURCE; Industrial Development Corporation, Annual Report, 1982 (Lusaka; Industrial Development Corporation, 1982), p. 40. NOTE; Ail figures in millions of Kwacha. 257 TABLE 42 INDUSTRIAL DEVELOPMENT CORPORATION; TOTAL ASSETS AND NET PROFIT,& 1970-82 Net Profit as Percentage Year Total Assets Net Profit of Total Assets 1970 119.9 9.3 7.8 1971 145.9 11.3 7.7 1972 167.9 14.3 8.5 1973 223.2 15.3 6.9 1974 247.8 17.8 7.2 1975 189.6 2.8 1.5 1976 201.1 3.7 1.8 1977 233.2 3.9 1.7 1978 358.4 1.2 0.3 1979 398.7 20.7 5.2 1980 435.8 15.8 3.6 1981 492.4 6.6 1.3 1982 592.3 13.0 2.2 SOURCE; Industrial Development Corporation, Annual Report [1970-82] (Lusaka; Industrial Development Corpora tion, 1982). NOTE; Ail figures in millions of Kwacha. ^Stated after income tax, withholding tax, and extra ordinary charges or credits. 258 TABLE 43 INDUSTRIAL DEVELOPMENT CORPORATION : TURNOVER AND NET PROFIT, 1970-82 Net Profit as Percentage Year Turnover^ Net Profit^ of Turnover 1970 123.8 9.3 7.5 1971 183.1 11.3 6.2 1972 247.1 14.3 5.8 1973 288.0 15.3 5.3 1974 332.4 17.8 5.4 1975 292.4 2.8 1.0 1976 308.0 3.7 1.2 1977 348.0 3.9 1.1 1978 397.9 1.2 0.3 1979 406.0 20.7 5.1 1980 465.7 15.8 3.4 1981 526.9 6.6 1.3 1982 604.9 13.0 2.1 SOURCE; Industrial Development Corporation, Annual Report [1970-82] (Lusaka; Industrial Development Corpora tion, 1970-82). NOTE; All figures in millions of Kwacha. ^Turnover represents the invoiced value of sales of goods and services to customers outside the INDECO group and includes excise duty in respect to each year (K125.2 million in 1982). ^Stated after income tax, withholding tax, and extra ordinary charges or credits. 259 1974 to K292.4 million. During the same period (1974-75), the group's total assets dropped by 23.5 percent to K189.6 million from K247.8 million in 1974. The losses that started in 1970 were moderated by grants, investments, and loans made by the government. Between 1970 and 1982, INDECO received a total of K3.6 million recurrent expenditure, and K4.1 million in capital grants. During the same period, government investments in INDECO totaled K12.8 million. It also extended long-term loans (at subsidized government rate) amounting to K6 million. In 1975, government grants and subsidies for recurrent expenditure totaled K12 million, and grants for capital expenditure amounted to K3.3 million. In the same year, government investments in INDECO companies amounted to K3.5 million. Between 1978 and 1982 INDECO received a total of K13.7 million in government subsidies. In addition to grants and subsidies, INDECO also benefited from depreciation of fixed capital^® as shown in table 44. S^As we explained in ch. IV, depreciation or amortiza tion of past expenditures is the process of allocating the cost of an asset to the period of benefit— the depreciable life. Straight-line method is used by all parastatal compa nies. This results in equal periodic charges. The principal annual rates used for this purpose are capital works in progress (nil), leaseholds under 40 years (over remaining period of lease), leaseholds over 40 years (2 percent), plant and machinery (10 percent), motor vehicles (25 percent), furniture and equipment (10-25 percent). See Industrial Development Corporation, Annual Report, 1982, p. 23. 260 TABLE 44 INDUSTRIAL DEVELOPMENT CORPORATION; DEPRECIATION ALLOWANCE AND TOTAL ASSETS, 1970-82 Depreciation as Depreciation Percentage of Year Total Assets Allowance Total Assets 1970 119.9 6.8 5.7 1971 145.9 6.6 4.5 1972 167.9 8.3 4.9 1973 223.2 10.3 4.6 1974 247.8 ___a — — — ' 1975 189.6 ___a — — — 1976 201.1 ___a — — — 1977 233.2 14.3 6.1 1978 358.4 15.8 4.4 1979 398.7 17.9 4.5 1980 435.8 20.5 4.7 1981 492.4 23.6 4.8 1982 595.3 23.7 4.0 SOURCE; Industrial Development Corporation, Annual Report [1970-82] {Lusaka; Industrial Development Corpora tion, 1970-82). NOTE; Ail figures in millions of Kwacha. ®Datum is not available. 261 On its part, INDECO turned to a policy of rationaliza tion of operations aimed at improving the corporation's operational efficiency and profitability. A new organiza tional structure was developed under which INDECO began to hold shares directly in operating companies, by phasing out the intermediary subgroup holding companies. The aim was to cut down on overheads and to minimize duplication of such functions as personnel services, marketing, purchasing, and accounting operations. Pertinent to our thesis here is the fact that although INDECO is a corporation owned and con trolled by a socialist state, its operations, with regard to accumulation, are typical of capitalist business enterprises. INDECO must accumulate or die. As we observe INDECO in action, we see it engaged in processes that facilitate the reproduction of capitalist relations of production. Due to these capitalist innovations and unprecedented expansion of its means of production, INDECO dominates the manufacturing industry in Zambia. The general trend in the level of manufacturing performance in the country can be discerned from the operations of INDECO, which together with its subsidiaries account for over 75 percent of the indus trial activity of the aggregate economy. Twenty-six of its thirty-seven subsidiary companies are engaged in manufactur ing and assembling. They produce a wide variety of products including articles of food and beverages, fertilizers and stock feeds, edible oils, detergents and toiletries, natural and synthetic textiles, medical and industrial gases. 262 pharmaceuticals, explosives, glass products, plastics, dry cells, cement, bricks and builders' hardware.INDECO has as a result become an important, growing source of government revenue. Table 45 shows the importance that INDECO assumed as a source of government revenue, especially between 1978 and 1982. Importantly, this has helped to minimize government dependence on the copper industry for revenue. During the period 1978 to 1982, when the copper industry (including minor minerals— platinum, silver, etc.) experienced constant downturn in sales receipts and the mining industry was unable to contribute to government revenue, INDECO contributed KlOl million (18.2 percent) in 1978 and K152.4 million (18 percent) in 1982. In 1979 there was a negative flow of K-9.8 million brought about by subsidies paid out by government to the mining companies (particularly to cover losses due to lower copper prices)On the other hand, in 1979 INDECO Slgee Government of the Republic of Zambia, Office of the President, National Commission for Development Planning, Economic Report, 1980 (Lusaka; Government Printer, 1981), pp. 94-110; and Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December 1982 (Lusaka; Bank of Zambia, 1982), pp. 42-47. S^For five years (1978-82), copper prices showed wide fluctuations. Between 1981 and 1982, the average cash price showed a decline of 10 percent from a level of Kl,514,42 per ton (L872.08 per ton) in 1981 to Kl,373.96 per ton (£846.34 per ton). See Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December [1978-82] (Lusaka; Bank of Zambia, 1978-82). 263 TABLE 45 INDUSTRIAL DEVELOPMENT CORPORATION; CONTRIBUTION TO GOVERNMENT REVENUE, 1970-82 INDECO Government Contribution Percentage Year Revenue (Taxes)^ Contributed 1970 437.2 6.5 1.5 1971 307.3 9.6 3.1 1972 298.9 11.4 3.8 1973 386.3 12.0 3.1 1974 628.2 8.4 1.3 1975 449.2 4.0 0.9 1976 455.6 ___b — — — 1977 500.1 6.9 1.4 1978 556.2 103.7 18.6 1979 592.8 122.2 20.6 1980 767.7 125.6 16.4 1981 811.6 136.3 16.8 1982 857.1 157.5 18.4 SOURCE; Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December [1970-82] (Lusaka; Bank of Zambia, 1970-82); and Industrial Development Corpo ration, Annual Report [1970-82] (Lusaka; Industrial Develop ment Corporation, 1970-82). NOTE; All figures in millions of Kwacha. ^Contribution to government revenue made in the form of taxes comprised income tax at varying rates (1978 at 50 percent; 1979 and 1980 at 48 percent; 1981 at 50 percent; and 1982 at 45 percent) of taxable profits, excise duty and sales tax, and withholding on dividends receivable. ^Datum is not available. 264 contributed K119.1 million, or 20.1 percent. In 1980 and 1981 the mining industry respectively contributed K41.7 million (5.4 percent) and K1 million (0,13 percent). During the same period the contribution made by INDECO was respec tively K122 million (16 percent) and K132.1 million (16.3 percent). The growing dominance of INDECO companies in the manu facturing industry is also demonstrated by the indicator of employment (table 46), which shows that for the period 1973 to 1982, approximately 50 percent of Zambia's total labor force in the manufacturing industry was employed in INDECO companies. In this regard, INDECO is used by the state as a tool for implementing the second part of its broad policy of indigenization of the economy as it continues to Zambianize the ownership of the means of production. It effectively Zambianized managerial positions in INDECO companies to manage and participate in the use of assets. INDECO made substantial financial resources available for manpower devel opment, mainly for training in management, accountancy, and technical fields in overseas institutions in addition to local training. For example, in 1975 a total of 569 Zambians received training at a total cost of K1.2 million. Between 1979 and 1982 a total of 501 Zambian employees received training at a total cost of K3.7 million. Thus the state has used (as it continues to use) INDECO and its subsidiaries to implement the second part of its national policy, namely the indigenization of the labor 265 TABLE 46 EMPLOYMENT IN ZAMBIA'S MANUFACTURING INDUSTRY AND INDECO MANUFACTURING COMPANIES, 1973-82 INDECO as % of Year Zambia Total INDECO Companies Zambia's Total 1973 43,600 22,000 50.5 1974 44,070 25,080 56.9 1975 44,330 22,149 50.0 1976 43,080 21,277 49.4 1977 46,450 20,580 44.3 1978 50,120 24,970 49.8 1979 45,510 24,727 54.3 1980 46,800 23,207 49.6 1981 48,460 24,330 50.2 1982 48,070 24,017 50.0 SOURCE: Industrial Development Corporation, Annual Report [1973-82] (Lusaka: Industrial Development Corpora tion, 1973-82); Bank of Zambia, Report and Statement of Accounts for the Year Ended December 31st [1973-82] (Lusaka: Bank of Zambia, 1973-82); and Monthly Digest of Statistics 17 (April-June 1981). NOTE: All figures in millions of Kwacha. 266 force, especially managerial, supervisory, and technical positions that were exclusively occupied by expatriate employees. Although Zambia still lacks all the required expertise to manage her growing and diversified industries and continues to employ expatriate managers, engineers, and other technicians, INDECO is used to demonstrate concretely that the state's ardent desire for indigenizing all facets of the economy cannot be compromised. As will be seen, the extent to which the state has pushed its policy of "self management" has profound implications for class formation in Zambia, where the parastatal sector bulks so large in the economy. The Matero Declaration and Nationalization of the Mines All we obtained on Independence was the right to charge a royalty on the value of the minerals which were extracted from our soils. However, in order to charge the royalty we had to wait for the pleasure of the mining companies to develop a mine. Since they had the mining rights in perpetuity they were not particularly in a hurry to embark upon further development. The central problem that led to the nationalization of copper mines in Zambia was stated by President Kaunda in his address to the United National Independence Party (UNIP) as the government's intention to assume full control of the nation's e c o n o m y .^4 since independence the prime source of ^President Kenneth D. Kaunda, cited in Government of the Republic of Zambia, Towards Economic Independence (Lusaka: Government Printer, 1969), p. 30. S^ibid., pp. 30-31. 267 conflict between the state and mining companies had been the locus of control. What caused concern with direct invest ments^^ by foreign companies, as opposed to similar invest ments by national companies, was that the power of decision over matters of national importance lay, or was thought to lie, in foreign states, including the one that had colonized Zambia. It is, of course, not without precedent that a national company may take decisions that its own state or other citizens of that state consider to be undesirable. ^6 But when the power to say no or maybe is in a foreign country, there is a sense of lack of control over matters of national importance, such as profit and investment policies. President Kaunda's concern was not without substance given the role the mining companies played in sustaining processes of proletarianization of Africans throughout Zambia's colonial history. They supported and concretized (through working conditions) the relation between capital and labor, based on the ideology of race superiority, with the ^^The term direct investment refers to the purchase of land and its natural resources (plantation of mines) and the purchase or construction of income-producing real capital (e.g., oil well rigs or factories) in foreign countries. Direct investment results in the ownership and management (control) of means of production by nationals of one country in another. Direct investment contrasts with portfolio investment, which occurs when nationals of one country buy shares in foreign businesses owned and managed (controlled) by nationals of another country. ^^See, for example. Jack N. Behrman, "The Multinational Enterprise and Nation-States: The Shifting Balance of Power," in The Multinational Enterprise in Transition: Selected Readings and Essays, ed. A. Kapoor and Phillip D. Grub (Princeton, NJ: Darwin Press, 1972), pp. 411-25. 268 net result of the rough division of the working class into black and white. For this reason, the question of control thus became a point at which the basic sentiments of nation alism were themselves threatened. After independence it became clear to the postcolonial state that profit and investment policies of stockholders in Britain, South Africa, and the United States did not comport with economic goals of the nation. Copper ore extracted in Zambia was transported to Britain and the United States for refining. Also, management felt that conditions in Zambia were not sufficiently good to justify further investment. It was plain to the state that these policies did not only operate against the declared policy of Zambianization of industries and creation of employment opportunities for Zambians,but threatened the existence of the new state as they set a limit on the sovereign state's power to formulate social and economic policies. The conflict between the mining companies and the post colonial state was expected. The new regime differed from the colonial states that preceded it not only in the nature of its political support but in its view of the goals of For a detailed examination of government planning vis- à-vis mining companies' policies pertaining to Zambianization of senior positions and improvement of working conditions for Zambian workers in the mining industry, see Government of the Republic of Zambia, Report of the Commission of Inquiry into the Mining Industry (the Brown Commission), 1966 (Lusaka; Government Printer, 1966); and The Progress of Zambianization in the Mining Industry (Lusaka; Government Printer, 1968). 269 economic policy and the means by which they might be attained. For ideological and political reasons, the new government was pledged to end race discrimination, which implied that there would have to be major changes in employ ment patterns and wage structures on the Copperbelt. The new policy stressed not just growth in the national income but the need for as wide a section of the population as possible to share in the benefits of that growth. As a means to this end it was necessary to adopt a strategy of active deployment of all the country's natural resources, of which the most important happened to be copper. Given these aims and commitments, public policy had to go well beyond the assumption— accepted on the whole by preceding colonial governments— that what was good for the mining companies (provided it did not come into direct conflict with the interests of any important group of white settlers) was good for the country. The postcolonial state was conscious that its whole program of social and economic development rested on the financial base provided by copper. For this reason, it was obviously anxious that the industry should generate as much wealth as possible. The state wanted to get into a position where it could feel that it had the ability to make the industry move in the desired direction. Thus "the virtual lack of mining development since independence" was given by President Kaunda as the main reason for the government's takeover of 51 percent of the equity shares of the copper mining industry. 270 President Kaunda attacked the mining companies in this connection in the Mulungushi Declaration. But this was expected since Zambian economic reforms that left out the copper mining companies would have been Cinderella without the Ugly Sisters. However, they only played a walk-on role in the Mulungushi theater. Copper mines occupied a strategic position in the country's economy, and this dictated that the government should move cautiously. In 1968 copper mines provided 96 percent of Zambia's visible exports and contrib uted 60 percent of government recurrent revenue. President Kaunda alluded to the economic centrality of copper mines in his Mulungushi speech when he said that the government had no intention of nationalizing the mining industry: "They are too big business for u s . "5® Prior to the decision to nationalize the copper mines, the Zambian government had been preoccupied with the question of maximizing the national income benefits, mainly from mineral royalties,59 copper export, and mineral taxes. This central objective was composed of subsidiary objectives involving foreign exchange capital movement and investment, employment and fiscal revenue, and general economic growth. 58gee Government of the Republic of Zambia, Zambia's Economic Revolution, p. 50. 59The original meaning of royalties is delivery of a specified part of the mined resource in kind. This has been replaced to a large extent by an ^ valorem cash levy. Most modern mining agreements include an "FOB selling price" as a basis for the calculation of royalties. 271 However, the accomplishment of these objectives depended largely on the government's ability to influence mining companies to produce more copper and, importantly, to invest in mining development projects that would permit added production. The extent to which investment policies of mining companies had emphasized autonomous investments between 1956 and 1969 is depicted in tables 47 and 48. These tables show that mining companies invested relatively less (except in 1968 and 1969— after the Mulungushi Declaration) in mine development. Although the government was concerned with lack of investment expenditures for developing new mines, it had no control over the rate of copper ore extraction and mine development. The mining companies still held mineral and mining rights in perpetuity. The government had no legal power to take away the mining rights and offer them to companies that were willing to commence new mining develop ment programs. The best government could do was to enter into negotiations with the mining companies— Anglo-American Corporation and Roan Selection Trust Corporation— which between them had owned seven copper mines. However, these negotiations yielded no positive results. On their part, the companies demanded that royalty regulations and exchange control and corporate tax laws be amended to their satisfac tion. The government, on the other hand, was not prepared to cede. E“ 272 TABLE 47 GROSS FIXED CAPITAL FORMATION IN THE MINING INDUSTRY, 1954-64 Mine Development as Gross Fixed Percentage of Gross Capital Mine Fixed Capital Year Formation^ Development Formation 1956 21.6 6.6 30.6 1957 21.8 4.9 22.5 1958 14.2 3.9 27.5 1959 12.3 4.1 33.3 1960 13.1 3.1 23.7 1961 17.9 4.4 24.6 1962 15.6 4.5 28.8 1963 14.1 ■ 4.0 28.4 1964 13.5 4.9 36.3 SOURCE; Government of the Republic of Zambia, Central Statistics Office, National Accounts and Balance of Payments of Zambia, 1954-1964 (Lusaka: Government Printer, 1965) . NOTE: All figures in millions of Kwacha. ^The gross fixed capital formation covers expenditures on mine development, building and works, plant, machinery, and equipment. 273 TABLE 48 GROSS FIXED CAPITAL FORMATION IN THE MINING INDUSTRY, 1965-69 Mine Development as Gross Fixed Percentage of Gross Capital Mine Fixed Capital Year Formation® Development Formation 1965 25.0 4.7 18.8 1966 27.1 7.7 28.4 1967 34.3 8.0 23.3 1968 33.9 22.4 66.1 1969 66.1 35.8 54.2 SOURCE: Government of the Republic of Zambia, Central Statistics Office, Statistical Year-Book, 1971 (Lusaka: Government Printer, 1971). NOTE: All figures in millions of Kwacha. ^Covered in the gross fixed capital formation are expenditures on mine development, building and works, trans port equipment, machinery, and other equipment. 274 The talks were discontinued, and all controversies came to an end. The government, through the Presidential Decree of August 11, 1969 (the Matero Declaration), recovered the mineral and mining rights (i.e., the ownership of all mineral rights reverted to the state) and nationalized the mines. The government acquired 51 percent of the shares in all mining companies. The terms of the government takeover were negotiated by the Industrial Development Corporation (INDECO), which was to pay only for the value represented by the book values in the audited accounts as of December 31, 1969. The mining companies sought to obtain the optimal agree ment on giving up their interests to the government. In exchange for 51 percent of their operating assets, the companies obtained the right to transfer their corporate domicile and to externalize their nonoperating assets, thus freeing a significant part of each company's total worth from Zambia's exchange controls. That is, the companies were able to repatriate their liquid cash assets without being subjected to exchange control. Anglo-American Corporation took advantage to the extent of K27.5 million and Roan Selection Trust K17.9 million, together with pension funds and other funds accumulated in Zambia. Some of the mechanics of the takeover agreement included the formation of the Roan Consolidated Mines (since renamed Zambia Consolidated Copper Mines Limited), in which the government acquired 51 percent of the shares— the equity 275 thought necessary for effective control. In the same vein, the assets and liabilities of the Anglo-American group of companies were vested in Bancroft Mines Limited, which was subsequently renamed Nchanga Consolidated Copper Mines Limited, in which 51 percent of the shares was acquired by the government. The 51 percent of the equity shares acquired by the government were initially vested in the Zambia Industrial and Mining Corporation (ZIMCO), whose issued capital is held 100 percent by the state. They were finally held by the Mining Development Corporation (MINDECO), established in 1972, whose issued capital is held 100 percent by the state through ZIMCO. The total value of the companies' assets was currently estimated at about £500 million. The book value of assets affected by the takeover was placed at £240 million. Payment for the acquired 51 percent in the Roan Consolidated Mines and in Nchanga Consolidated Copper Mines was effected by the issue of ZIMCO bonds in the case of Roan and ZIMCO loan stock in the case of Nchanga. The government agreed to pay Roan Selection Trust K84.2 million (US $117.8 million) and Anglo- American Corporation K125.8 million (US $178.7 million). This had to be paid even if the copper price fell to zero and whether or not the mines were producing saleable copper as in the case of the mine disaster at Mufulira in 1970. Compensation payments were made twice yearly, to Roan 276 Selection Trust for eight years and to Anglo-American for twelve years. The payments were met from dividends received by the state, through ZIMCO, on its 51 percent equity shares. Payments were made in negotiable US dollar bonds bearing annual interest of 6 percent, and were fully and uncondition ally guaranteed by the Zambian government.^0 Also, besides guaranteeing the free remittance of all interest and princi pal payments on the ZIMCO bonds (other than to residents of Rhodesia), the Mines Acquisition (Special Provisions) Act of 1970 specifies that for as long as the ZIMCO bonds are outstanding all dividends declared by Roan Consolidated Mines and Nchanga Consolidated Copper Mines to persons who are not residents of Zambia will be freely remitted. Also, under the Master Agreement covering the takeover, the mining companies still had a blocking veto. Most impor tant in this regard were provisions in the articles of asso ciation of the two newly created corporations to succeed Anglo-American Corporation and Roan Selection Trust. The articles specify that future dividends must be paid in an aggregate amount equal to the consolidated net profits of the operating company after deduction therefrom only of appro priations in respect to capital expenditure, expenditure for 5®For a detailed discussion of the takeover agreement between ZIMCO and the mining companies, see Mark Bostock and Charles Harvey (eds.), Economic Independence and Zambian Copper ; A Case Study of Foreign Investment (New York: Praeger, 1972), pp. 219-55; and Donald Rothchild, "Rural- Urban Inequalities and Resource Allocation in Zambia," Journal of Commonwealth Political Studies 10 (1972):223. 277 exploration and prospecting, and of reserves for necessary working capital. The articles continue to specify that for the purpose of computing consolidated net profits the actual capital explorations and prospecting expenditures shall not be deducted and any previously appropriated monies no longer required shall be added to the sums available for dividends. The articles also gave unusual neutralizing powers to minority shareholders with respect to a number of special matters that were especially crucial to the role of the state as a vehicle of capital accumulation. On such matters major ity votes of both "A" and "B" directors®^ were required, with a proviso that an affirmative vote shall not be unreasonably withheld having regard to the interests of the operating company and its shareholders. Included among these special matters were disposal of a substantial part of the assets of Zambia Consolidated Copper Mines (previously Roan Consoli dated Mines) and Nchanga Consolidated Copper Mines; or the assignment of any grants, concessions, or mining rights; the engaging in any activity substantially different from that performed prior to the takeover; the issue of share capital or the borrowing of funds by the issue of securities; the making of any loan to, guarantee for, or investment in, another company or the sale of shares in a subsidiary; and ®^For Zambia Consolidated Copper Mines Limited, seven "A" directors represent the government and five "B” directors represent the former shareholders of Roan Consolidated Mines; for Nchanga Consolidated Copper Mines, six "A" directors represent the government and five "B" directors represent the former shareholders of Anglo-American Corporation. 278 the sale of products other than for cash, at other than a normal price, and in any other than freely convertible currency. Furthermore, the articles stipulated that both sets of directors must separately approve appropriations in respect to capital expenditure or expenditure for exploration and prospecting as well as any act, dealing, transaction, or investment that, in the opinion of "B" directors, is not on commercially competitive terms or directed toward the optimi zation of production and profit. Arbitration, if required, is to be undertaken through the medium of the World Bank's International Convention on the Settlement of Investment Disputes (ICSID) between states and nationals of other states, which was ratified by Zambia in the Investment Disputes Convention Act of 1970.^2 Under the agreement each group of the minority share holders was given management, consultancy, and marketing contracts for a minimum period of ten years. Subsidiaries Anglo (Anmer Sales) and Amax (Ametalco) did all Zambia's copper sales on world markets. These contracts were highly lucrative. Each group was paid a total fee of 1.25 percent of total turnover of revenue from copper, and 2 percent of profits calculated after mineral tax but before income tax. See M. L. 0. Faber and J. G. Potter, Towards Economic Independence; Papers on the Nationalization of the Copper Industry in Zambia (Cambridge: Cambridge University Press, 1971), pp. 91-127. 279 These service contracts too gave the minority shareholders considerable freedom in day-to-day operations as well as substantial influence on investment and financial decisions. In the same year, the taxation of mining was also changed from a combination of royalties, export taxes, and profits taxes to a system based entirely upon profitability. In addition, as an incentive for investment, the new tax allowed all capital expenditures to be deducted in full in the year in which they were incurred. The tax environment was guaranteed for the duration of the ZIMCO bond compensa tion payments in respect to each minority shareholding company, twelve years for Anglo-American Corporation and eight years for Roan Selection Trust. The latent effect of the terms of the 51 percent®^ deal with the mining companies was that Zambia found itself committed to an unduly heavy outflow of foreign exchange resulting both from the terms of takeover compensation and from the management fees and sales commissions that had to be paid to the companies in foreign exchange, which amounted to K17 million for both companies for 1973-74. At the time of mining takeover, the new state attached more importance to establishing a good working relationship with the foreign partners it still needed to develop the mining industry than ^ By March 1981 the state had acquired a total of 60 percent each of Nchanga Consolidated Copper Mines and Roan Consolidated Mines; see Zambia Industrial and Mining Corpora tion Limited, 1981 Annual Report (Lusaka: Zambia Industrial and Mining Corporation Limited, 1981), p. 39. 280 to striking the hardest conceivable bargain in terms of foreign exchange. It was decided that the cost to Zambia was not heavy in relation to the industry's importance in the economy. Also, the complexity of mining operations and lack of both financial and technical resources to operate the mines prevented the government from fully exercising its prerogatives of sovereignty. The net effect, as we have seen, was a de facto compromise of state sovereignty, namely partial nationalization (51 percent) of mining companies. Exogenous factors may also help to explain the govern ment's compromising attitude during the mining takeover negotiations. Table 49 suggests that Zambia's reliance on exports (predominantly copper) and imports (mainly to capi talist industrial economies of Western Europe, Japan, and the United States) as the mainstay of the country's economy tended to make Zambia's postcolonial state reformist rather than revolutionary. Thus, the extent to which the Zambian economy is intertwined with international capitalism caused the state to be more cautious in redefining Zambia's rela tionship with the mining companies. It is not surprising, therefore, that mining companies did not challenge the legality of the 51 percent nationali zation. Instead, they readily announced their intention to cooperate with the government. The nationalization was overtly favorable to them. The British South Africa Company, which continued to own the mines until 1964, had continued to receive rents and royalties totaling about B80 million. Up 281 TABLE 49 ZAMBIA'S WORLD TRADE, AND EXPORTS AND IMPORTS TO AND FROM INDUSTRIAL COUNTRIES, 1965-82 Exports Imports Total World Industrial Industrial Year Trade Countries Trade Countries 1965 532.6 494.3 (92.8)* 294.7 181.8 (61.7) 1966 690.8 659.9 (95.5) 343.9 256.5 (74.6) 1967 533.5 516.2 (96.8) 259.7 221.7 (85.4) 1968 760.7 725.1 (95.3) 504.6 414.1 (82.1) 1969 1,073.1 1,003.4 (93.5) 480.2 380.4 (79.2) 1970 1,000.9 886.1 (88.5) 524.7 411.4 (78.4) 1971 679.3 529.6 (77.9) 477.9 339.5 (71.0) 1972 758.5 586.8 (77.4) 545.3 361.6 (66.3) 1973 1,136.4 910.6 (80.1) 530.9 344.4 (64.9) 1974 1,406.6 1,158.7 (82.4) 787.4 522.2 (66.3) 1975 811.5 689.2 (84.9) 928.7 650.4 (70.0) 1976 1,043.8 834.9 (79.9) 654.8 436.9 (66.7) 1977 897.3 786.2 (87.6) 671.6 471.4 (70.2) 1978 813.0 668.5 (82.2) 607.8 423.5 (69.7) 1979 1,375.7 1,074.4 (78.1) 753.0 474.6 (63.0) 1980 1,534.5 1,223.4 (79.7) 915.4 659.7 (72.1) 1981 1,050.6 793.9 (75.6) 793.7 505.1 (63.6) 1982 907.2 651.2 (71.8) 750.0 434.4 (57.9) SOURCE: International Monetary Fund, Direction of Trade Statistics Year-Book [1963-84] (Washington, D.C.: International Monetary Fund, 1963-84). NOTE: All figures in millions of US dollars. ^Figures in parentheses are percentages of Zambia's exports and imports to and from Western industrial countries in relation to Zambia's world trade. The data are intended to portray the magnitude of Zambia's reliance on these countries' markets for exports and imports. 282 to 1964 the main capital consisted of 530 million invested at the initial stages, profits reinvested as capital, as well as 513 million borrowed from the United States Government and 566.5 million borrowed from Japan. As we have seen, at the time of takeover the mining companies were given an asset value of 5240 million. Yet taxes had been paid to the Federation (mainly to benefit Southern Rhodesia) and to the United Kingdom, where the headquarters of the mining compa nies were situated and where half of the total tax was paid. According to Sonny Bolden, over 5400 million had left Zambia as profits and another 5400 million as taxes since the 1920s^4— undoubtedly a fantastic return on the original investment of 530 million. It is enough to make the pirates of the sixteenth century blush. Although the contractual scheme provided for majority equity ownership, and changed the framework of concession- type revenues, payments, and risk allocation, great propor tions of profits that accrued to the state were paid to the foreign minority equity partners. These payments seriously affected the state's ability to mobilize domestic capital for investment in new projects as they drained such for payment abroad. The situation was to continue until the 51 percent mining takeover commitment was discharged in full. Sonny Bolden, "Zambia's Lost Millions," The National ist, 1 September 1969, cited by U. O. Umozurike, "Nationali zation of Foreign-owned Property and Economic Self- Determination," East African Law Journal 6 (1970):79-99. 283 However, an important part of the takeover agreement was the relinquishment by the copper mining companies of more than 65,000 square miles of land over which they had all prospecting rights. Roan Selection Trust kept 5,000 square miles and Anglo-American Corporation 4,476 square miles. Under the posttakeover laws— the Mines and Minerals Act of 1969 (Chapter 3)— they were required to start operations on these within three years, with the state acquiring 51 percent of equity shares. The opening up of these large areas for exploration by companies other than Roan Selection Trust and Anglo-American resulted, as the government hoped, in a number of new foreign companies exhibiting interest in prospecting. These included American, Canadian, French, Italian, Japanese, Romanian, and Yugoslav companies. Also, a high-powered UN team of geologists, financed equally by the United Nations and the Zambian government for a total of K2 million, started an intensive mineral s u r v e y . ^5 The extent to which the state owned and controlled the means of production in the mining and mining-related industries in 1982 is shown in table 50. In August 1973 the government announced the immediate redemption of all outstanding ZIMCO bonds issued to minority copper shareholders at the time of the takeover of the copper mining companies. The redemption had to be financed out of costly Eurodollar borrowings. Furthermore, to increase the government's effective control of mine finances and GSpor details see Africa Contemporary Record; Annual Survey and Documents, 1970-1971, vol. 3, pp. B-221-24. 284 TABLE 50 STATE OWNERSHIP AND CONTROL OF THE MEANS OF PRODUCTION IN THE MINING AND MINING-RELATED INDUSTRIES, 1982 Percentage of Equity Company Shareholding 1 . Zambia Consolidated Copper Mines Ltd. 60.3 2 . Zambia Engineering Services Ltd. 60.3 3. Roan Consolidated Drilling Co. Ltd. 60.3 4. Roan Consolidated Mines House Properties Ltd. 60.3 5. Roan Consolidated Mines Trustee Ltd. 60.3 6 . Roan Selection Trust Management Services Ltd. 60.3 7. Copper Industry Service Bureau 60.3 8 . Copperbelt Power Co. Ltd. 60.3 9. Mines Air Services Ltd. 60.3 1 0 . Mining Timbers Ltd. 60.3 1 1 . Mulungushi Investments Ltd. 60.3 1 2 . Ndola Lime Co. Ltd. 60.3 13. Zambia Appointments Ltd.* 60.3 14. Maamba Collieries Ltd. 100.0 15. Mokambo Development Co. Ltd. 51.0 16. MINDECO Lumwana Ltd. 60.0 17. MINDECO Small Mines Ltd. 100.0 18. Metal Marketing Corporation of Zambia (MEMACO) Ltd. 100.0 19. MEMACO Services Ltd. 100.0 2 0 . Reserved Minerals Corporation Ltd. 100.0 SOURCE; Zambia Industrial and Mining Corporation, Annual Report, 1982 (Lusaka: Zambia Industrial Mining Corpo ration, 1982), p. 43. ^Jointly owned by the state with Roan Consolidated Mines and Nchanga Consolidated Copper Mines. Was incorpo rated in the United Kingdom in 1980 to provide recruitment services for technical and professional personnel for both mining and nonmining companies in the ZIMCO group. 285 direction, the state abrogated (with compensation of K60 million) the existing management and marketing contracts and assumed these functions itself. The state was now able to appoint Zambian managing directors for each company, and to draw state-directed plans for the Zambianization of the mining industry. The Metal Marketing Corporation of Zambia (MEMACO) was established and incorporated in Zambia in 1974 with a subsid iary company in England and agents in France, India, Italy, Japan, West Germany, and South Africa to handle all Zambia's metal sales. MEMACO is state owned and controlled through the Zambia Industrial and Mining Corporation (ZIMCO), which holds 100 percent of the issued share capital. The author ized share capital of the corporation in 1982 was K5 million, divided into 5,000,000 shares of K1 each. Table 51 shows the extent to which MEMACO has become a viable source of capital accumulation for the state. By paying off the ZIMCO bonds, the state was in a posi tion to alter the tax regime. The tax treatment of capital expenditures reverted to the takeover system of depreciation allowances generally based on the expected life of the asset. This formula increased the amount of mining income that was subject to taxation. A 20 percent withholding tax was introduced, and the government was able to end the generous capital allowances granted to the mines and to restrict the flow of dividends of foreign shareholders. The redemption of the ZIMCO bonds also paved the way for 286 TABLE 51 METAL MARKETING CORPORATION OF ZAMBIA (MEMACO) LIMITED; TOTAL SALES, TURNOVER, GROSS PROFITS, TAXATION, AND NET PROFITS, 1978-82 Total Metal Gross Net Year Sales* Turnover Profits Taxation Profits 1978 704.2 5.7 3.5 1.8 1.8 1979 766.1 6.7 3.9 1.8 2.0 1980 1,199.9 11.5 7.5 3.6 3.9 1981 1,154.4 10.5 6.0 2.9 3.2 1982 937.2 8.6 3.2 1.8 1.4 SOURCE: Metal Marketing Corporation of Zambia, Annual Report [1978-82] (Lusaka: Métal Marketing Corporation of Zambia, 1978-82). NOTE: All figures in millions of Kwacha. *Total sales are based on métal prices quoted on the London Metal Exchange for copper, lead, and zinc. These are Zambia's principal minerals. 287 the state to pursue an unfettered aggressive accumulation strategy by instituting a major centralization of mining capital. In March 1982 Nchanga Consolidated Copper Mines Limited and Roan Consolidated Mines Limited were merged into a new company, Zambia Consolidated Copper Mines Limited, with authorized share capital of 90 million shares divided into 54 million "A" ordinary shares of KIO each held by the state through ZIMCO, and 36 million "B" ordinary shares with par value of KIO each held by shareholders of former mining companies and private investors (table 52). Of the 90 million ordinary shares, 53,825,808 "A" and 35,470,620 "B" ordinary shares were issued and respectively paid for a total of K538.3 million and K354.7 million.The merger agreement created the world's second most productive mining group at approximately 600,000 tons per year.^? To gain effective control in future mining enterprises, the Mines and Minerals Act No. 33 of 1976 was enacted by the Zambian Parliament making mandatory domestic participation a precondition for the establishment of any mining enterprise by a foreign investor. The Act fixes the terms of the domestic capital participation required. The state acquires See Zambia Consolidated Copper Mines Limited, 1983 Annual Report (Lusaka: Zambia Consolidated Copper Mines Limited, 1983), p. 28. G^codelco in Chile is the largest producer at around 900,000 tons per annum. See U.S. Department of Commerce, International Trade Administration, Foreign Economic Trends and Their Implications for the United States (Washington, D.C.: International Trade Administration, 1982), p. 5. 288 TABLE 52 ZAMBIA CONSOLIDATED COPPER MINES LIMITED: DISTRIBUTION OF ISSUED AND FULLY PAID "A" AND "B" ORDINARY SHARES FOR THE YEAR ENDED MARCH 31, 1982 Percentage Number of of Total Shares Shares Equity Shares "A" Shares Zambia Industrial Mining Corporation Ltd. 53,825,808 60.3 "B" Shares Zambia Copper Investments Holdings Ltd. 24,329,833 27.3 Roan Selection Trust International Ltd. 6,192,424 6.9 Public* 4,948,363 5.5 TOTAL 89,296,428 100.0 SOURCE: Zambia Consolidated Copper Mines, 1982 Annual Report (Lusaka: Zambia Consolidated Copper Mines, 1982). *0f the 4,948,363 "B" ordinary shares held by the public. Customers' Company, Inc. holds 3,785,489 (76.5 percent) on behalf of Morgan Guaranty Trust Company of New York, the depository of American depository receipts. 289 a minimum of 51 percent of the equity shares in any new mining company. Also, since the redemption of the ZIMCO bonds it is public investment policy not to enter into management contracts with foreign investors. The Zambia Industrial and Mining Corporation and State Control of the Economy In this section we analyze the role of the Zambia Indus trial and Mining Corporation (ZIMCO) Limited as the principal state agent that mobilizes capital and other resources for investment in the parastatal sector, and as a coordinating mechanism through which the state effectively consolidates its control of state-owned enterprises that cover industrial and commercial firms: mines, energy, tourism, trade, trans port and communications companies, hotels, construction, as well as real estate companies. These enterprises are distinguished from the rest of the government. They operate on commercial profit-seeking lines. Their revenue comes from the sale of good and services, and they are self-accounting. They control the country's largest revenue-earning entities (energy, mining, manufacturing, and transport companies) and have a separate legal identity. Although in some cases the analysis is extended to the accumulation function of some of the subholding companies, it essentially remains an aggregate analysis. As such, it is not possible to determine precisely the extent to which the levels of capital accumulation reflect the economic desira bility of investments in particular projects undertaken by 290 operating companies in terms of percentage returns on the original outlays. The purpose is to establish the degree to which the interventions of the state established its predomi nance in the commanding heights of the economy— hence the magnitude of capital accumulation by the state. This mode of analysis enables us to understand the growth of the existing pattern of state control of Zambia's economy. In this connection, it becomes easy for observers of the Zambian economy to appreciate that there is a .substan tial difference between the status quo before and after nationalization of the major means of production. In the former case, control of the economy by foreign capital was complete and the condition was closer to neocolonialism. In the latter, the power of foreign capital is indirect and limited, partly by the formal powers taken by the state and partly by the sociopolitical aspirations and class impera tives of the national ruling class. Secondly, it enables us to understand how the system of parastatalism operates, which is the key to a better understanding of Zambia's system of state capitalism. ZIMCO, the mammoth state-owned and -controlled apex- holding company, had a share capital of K500 million in 1982, and embraced 120 state-owned and -controlled subsidiaries and associate companies. For the same period it reported a turnover of K2.2 billion (68.8 percent of GDP at current prices), assets totaling K3.1 billion, and a total employment 291 of 122,871 persons (31 percent of total wage employment). It fî Q was incorporated as a liability company on March 31, 1970, under the provisions of the Companies Act (Cap. 686 of the Laws of Zambia). ZIMCO has since incorporation been reorganized in order to improve its efficiency by streamlining the operations of its subsidiaries and by diversifying its investments®^ so as to broaden the base for accumulation (see table 53). The broadening process continued in 1971 with the crea tion of the State Finance and Development Corporation (which grew very quickly with the takeover of all insurance business and administrative control of the Zambia Building Society), the takeover and amalgamation of the Commercial Bank of Zambia with the National Commercial Bank. The road transport companies of the Industrial Development Corporation (INDECO) Limited were spun off to the National Transport Corporation, ®®By 1971 ZIMCO's total assets were valued at K713 million, of which the copper mines constituted 75 percent. State-controlled assets at independence in 1964 stood at K234 million. The total value of ZIMCO's assets constituted about 71 percent of the total value of state-controlled assets, which totaled approximately Kl,009 million. See "Director's Reports" in Zambia Industrial and Mining Corporation, Annual Report, [1971 and 1982] (Lusaka: Zambia Industrial and Mining Corporation, 1971 and 1982); and Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December, 1982 (Lusaka: Bank of Zambia, 1982). ®^During the fiscal year 1977/78, of the total capital investments of K335 million, 73 percent was in the nonmining sector. This contributed to the improvement of production and provision of economic services in the agricultural sector. The turnover for the Rural Development Corporation grew from K16.3 million in 1978 to K30.2 million in 1982, an increase of 185.3 percent. 292 TABLE 53 ZAMBIA INDUSTRIAL AND MINING CORPORATION; SUBHOLDING COMPANIES AND PERCENTAGE OF ZIMCO EQUITY SHAREHOLDING AS OF MARCH 31, 1983 Percentage of Equity Industry and Subholding Company Shareholding Agriculture 1. Rural Development Corp. of Zambia 100.0 Manufacturing and Construction 2. Industrial Development Corp. Ltd. 100.0 Mining 3. Zambia Consolidated Copper Mines Ltd. 60.3 4. Maamba Collieries Ltd. 100.0 5. Metal Marketing Corp. of Zambia Ltd. 100.0 6 . MINDECO Lumwana Ltd. 60.0 7. MINDECO Noranda Ltd. 51.0 8 . MINDECO Small Mines Ltd. 100.0 9. Mokambo Development Co. Ltd. 51.0 Energy 10. BP (Zambia) Ltd. 50.0 11. Lublend Ltd. 60.0 12. TAZAMA Pipelines Ltd. 67.0 13. Zambia Electricity Corp. Ltd. 100.0 14. Zambia National Energy Ltd. 100.0 Finance 15. Zambia National Building Society Ltd. (Administered)* 293 TABLE 53— Continued Percentage of Equity Industry and Subholding Company Shareholding 16. Zambia National Commercial Bank Ltd. 99.8 17. Zambia National Insurance Brokers Ltd. 90.0 18. Zamba State Insurance Corp. Ltd. 100.0 Trading 19. National Import and Export Corp. Ltd. 100.0 Communications 20. Posts and Telecommunications Corp. Ltd. 100.0 Transport 21. Contract Haulage Ltd. 100.0 22. United Bus Co. Ltd. 100.0 23. Zambia Airways Corp. 100.0 24. Zambia Railways 100.0 Hotels 25. National Hotels Development Corp. Ltd. 100.0 Real Estate 26. ZIMCO Properties Ltd. 100.0 27. ZIMCO Services Ltd. 100.0 SOURCE; Zambia Industrial and Mining Corporation, Annual Report, 1983 (Lusaka; Zambia Industrial and Mining Corporation, 1983). *The Building Societies Act of 1968 empowers the Zambian government to regulate the operations of the build ing societies. The act gives the power to the governor of the Bank of Zambia to prescribe liquidity ratios to the building societies. 294 and INDECO properties went to the newly created National Hotels Corporation Limited, which now holds majority interest in all major hotels in Zambia. Also in 1974, more holding companies were added: Zambia National Energy Corporation (former INDECO oil-refining companies, oil products, and their transport); Zambia Electricity Supply Corporation Limited, which includes the Kafue power complex in its assets; INDECO's wholesale and retail distribution subsid iaries were spun off to the National Import and Export Corporation Limited; and Zambia Fishers and Fish Marketing Corporation Limited. The reorganization trend continued. In 1978 the Rural Development Corporation, Zambia Airways Corporation, Zambia Railways, and Posts and Telecommunica tions Corporation were brought under the ZIMCO umbrella. As was mentioned at the beginning of this chapter, the question of control of state-owned enterprises is central to the goal of indigenization of the economy in postcolonial Zambia. The system of control is aimed at counterbalancing the autonomy of state-owned enterprises. This is crucial for the role of the state as the main source for capital forma tion. Unless the state monitors the performance of its enterprises and makes the main decisions on investment and debt, its macroeconomic management is prone to be undermined. Thus, through ZIMCO and its subholding companies the govern ment designed a system of control that allows for coherent direction of operating companies. The system holds manage ment accountable for results while giving it the power to 295 achieve them. These institutional arrangements help to reduce arbitrary intervention by the state. The organizational structure of ZIMCO reflects the hegemonic position of the Party (UNIP) in the structure of capital accumulation (see figure 1). The Party's Central Committee, relevant government ministries (cabinet ministers and permanent secretaries),' the governor of the Bank of Zambia (the central bank), and managing directors of para statal subholding companies, labor leaders, and representa tives of the Zambian business community sit on ZIMCO's board of directors. President Kaunda (chairman of ZIMCO's board of directors from its creation to June 30, 1976) described the board of ZIMCO as a cross between a limited liability company, a subcommittee of the cabinet, and a miniature of the National Convention.^® By setting ZIMCO at the top of the pyramid of the parastatal sector, the Party wanted to ensure that political considerations stay in focus in all economic decisions made in this sector. Following President Kaunda's relinquishment of the chairmanship of the ZIMCO board, the prime minister (government leader in Parliament) became chairman and his vice-chairman is the UNIP Central Committee member who chairs the Party's Economics and ^®The establishment of ZIMCO was sanctioned by UNIP's National Council in 1969. The National Council is the high est policy-making body of the United National Independence Party. See President K. D. Kaunda, Zambia's Economic Strat egy; Address to the 17th National Council of the United National Independence Party, 19 December 1982 (Lusaka: Government Printer, 1982) , pp. 28-30. 296 (0 03 (U •d •H w t3 M (d Ol (3 4-» u o g to CO c PQ •H 0) g •H S T3 g id (d •H u 4J (0 g >-4 ■a g ë (d (0 •H E n) U O C -H C5 -H H 4J ■d D P iH O g W M Ma VI 8 297 71 Finance Sub-Committee. Two other seats are reserved for the administrative secretary the Party and the president's special economic adviser. Thus, top government, parastatal, and political leadership is represented. The United National Independence Party exercises a dominantly supervisory presence. All board members are directly or indirectly appointed by President Kaunda, who is the head of the Party and state. Members who are appointed to the board by virtue of their official positions in the Party, the civil service, and parastatals are in the first place appointed to those positions by President Kaunda. Labor leaders and businessmen and women he appoints to various boards of ZIMCO's subholding companies are appointed on the basis of their loyalty to the Party. This points to the centrality of politics in Zambia's relations of production. In order to understand the nature of state intervention in the economy we cannot isolate poli tics from the fundamental relations of production. However, this does not keep objectives of state-owned enterprises fuzzy. They are expected to pursue commercial goals and to maximize profits. Through the ZIMCO board of directors and boards of subholding companies, operating companies are given a clear sense of priorities. ^^The prime minister remained chairman until the begin ning of the 1982-83 fiscal year, when President Kaunda resumed the chairmanship, and the prime minister became vice- chairman. This symbolizes the importance attached by the state to the role of ZIMCO as an instrument for achieving economic objectives. 298 The ZIMCO board of directors and subholding companies are used to create a buffer between parastatal management and the central bureaucracy.^^ But importantly they are required by the state to analyze trade-offs with a view to profit maximization.To underscore the profit-making policy for the parastatal companies, government-imposed price fixing was relaxed, and subsidies were scaled down to eventual elimina tion. In 1975, total subsidies to parastatal companies amounted to K82.8 m i l l i o n , 74 while in 1979 only K30.4 million was allowed. The state now insists that parastatal companies 7^This distinguishes parastatal companies from statutory boards and enterprises (which are also operating companies). Government has direct control over statutory enterprises, but exercises only indirect control over ZIMCO operating compa nies through the holding companies. Thus, overall ZIMCO enterprises, incorporated under the Companies Act, have a much wider range of possibilities in the kind of economic activities they can choose to engage in. Activities in which statutory corporations may or may not engage are more nar rowly defined by the enabling acts creating such statutory corporations. 73in a policy statement. President Kaunda (then chairman of the ZIMCO board of directors) stressed that as business organizations, parastatal companies must operate in a busi nesslike manner, become ever more efficient and profitable, and stand on their own in a ruthlessly competitive economy; see Zambia Industrial and Mining Corporation Limited, Annual Report, 1971. 74of this total subsidy, K12 million was paid to INDECO to help cover losses due to price controls, which affected three subsidiaries in grain milling and edible oil processing industries. INDECO's profitability declined from 8 percent in 1974 to 1.5 percent in 1975. The ZIMCO group after-tax return on total assets dropped by more than half, from 19.1 percent in 1974 to 8.6 percent in 1975. President Kaunda very sharply criticized parastatal manufacturing companies for their inefficiency. He praised companies with larger minority shareholdings and expatriate management for succeed ing in maintaining more efficient (profitable) operations. 299 operate on a profit. Conclusion In this chapter we examined the nature of the postcolo nial state in Zambia as the main vehicle for developing indigenous capital and creating conditions (new structure) for its accumulation. In this respect, we have documented various measures taken by the state under the two major economic reforms (the Mulungushi and Matero declarations). The documentation of the role of the postcolonial state as the principal source of investment funds has been guided by our central thesis, namely that the activities of the state relating to the promotion or consolidation of the general conditions for the valorization of capital cannot be fruit fully analyzed outside the domain of class interests. Thus, it has been demonstrated that the Zambian state is not a "neutral" national instrument. It systematically intervenes in the economy in order to protect class interests. The primary purpose of the economic reforms was to promote and protect the interests of the indigenous capital, albeit predominantly state capital, in its assault on the barriers of indigenous accumulation. However, notwithstanding the importance of the fact that state intervention takes place in order to benefit certain classes, it is equally vital to stress the fact that the state in Zambia is far from being a homogeneous entity, in the sense that it is not likely to side with one capital per 300 se in the event of intercapital dispute (whether it involves foreign or local capitals). Importantly, the point being stressed here is that in the analysis of the role of the postcolonial state as a source for capital accumulation, and the only viable force for indigenizing the "once foreign dominated economy," we avoid placing an unjustified emphasis on perceiving the state as a complete instrument of "fractional" interests at the expense of its functions as determined by the "general, nonfractional" requirements of capital accumulation. Our analysis shows that it is only in relation to the "general" role, however, that we can understand the state's posture toward various class forces as defined by their relative strength of organization. From this perspective it may be easier to understand the manner in which the Zambian state is able to accommodate various "fractional" pressures and demands, than from the perspectives that emphasize fractional hegemony75 and those that assume the existence of some undifferentiated "national interest."7^ Our theoretical position does not ignore the importance of class forces, but stresses that the interaction of these forces and their influence on the state can be better understood within the context of the overall logic of capital accumulation. 75por example, see Shaw, Dependence and Underdevelop- ment, pp. 3-4; and in the same regard on Kenya, see Leys's latest view in "Capital Accumulation, Class Formation and Dependency." 7Ggee Harvey, "International Corporations and Economic Dependence: A View from Zambia," pp. 176-77. CHAPTER VI THE POSTCOLONIAL STATE AND THE NEW STRUCTURE OF CAPITAL ACCUMULATION; THE SIGNIFICANCE OF THE COPPER INDUSTRY, 1964-82 The Special Place of the Copper Industry in the Zambian Economy Share of Copper Industry in the Economy In the preceding chapter we examined the general inter action of the copper industry and the rest of the Zambian economy from the time of independence up to the time when the copper mining companies were partially nationalized, thereby enabling the state to acquire derived control by means of Articles of Association leading to majority control of the boards of these companies. It was shown that the overall growth of the Zambian economy is derived from the overall buoyancy of the revenue from the copper industry. That is, pointing to the fact that the copper mining industry has a pivotal role in the Zambian economy. Special attention is, therefore, devoted to the discus sion of the position occupied by the copper industry in the political economy of Zambia because the ascendancy of capi talist relations as the predominant form of production can be better understood by paying particular attention to the aggregate role of the copper industry in the economy. 301 302 This chapter examines the important links between accu mulation of capital in the copper industry and accumulation of capital in various sectors of the Zambian economy follow ing nationalization of the copper industry. Importantly, the analysis attempts to show the extent to which accumulation in the copper industry is central to the ability of Zambia's postcolonial state to function as the main source of invest ment capital. This fact is considered especially crucial in that state policy toward foreign capital is shaped by the capacity of the state and domestic private sector to generate new investments. Needless to say, the greater the degree to which the state's investment goals can be financed by domes tically generated state savings or by capital generated by domestic enterprises, the less dependent the state will be on borrowing abroad to meet its investment goals. In turn, this will greatly enhance the capacity of the state to dispense with or control foreign.capital. The copper industry constitutes the framework within which the accumulation of capital takes place. It also dominates the ever-expanding parastatal sector. In 1981 and 1982 the assets of the Zambia Consolidated Copper Mines Limited respectively accounted for 46.7 percent (Kl.4 bil lion) and 48.4 percent (K1.5 billion) of the parastatal sector's assets, which respectively stood at K3 billion and K3.1 billion. The fundamental role of the copper industry has been to generate foreign exchange and government surpluses. As a 303 result of declining copper revenue in the 1970s, from 1970 to 1979 real per capita GNP declined by 1.9 percent each year, compared with a 2.2 percent increase in the 1960s. In 1981 real GDP fell by nearly 2 percent. Further, the performance of the manufacturing sector was severely constrained by the scarcity of foreign exchange, which necessitated strict controls on issues of import licenses. Consequently, there was a general shortage of inputs, which further caused most industries to operate at well below capacity. Physical output in manufacturing fell during 1977 as was evidenced by the existence of severe shortages of many essential commodi ties. The value added by the manufacturing sector to the GDP at 1965 constant prices fell by 5.5 percent (K5.9 million) from K107.9 million in 1976 to K102 million in 1977. During the 1970s the relative share of manufacturing in real GDP registered a downward trend.^ All these phenomena point to the fact that the copper mining industry plays a critical role in the. economy of Zambia vis-â-vis the role of the state in capital accumulation. For the sake of clarity of exposition and analytical convenience, we attempt to quantify the general impact of the copper industry in the following areas of the economy. ^See Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December [1968-82]. 304 Contribution of Copper to the Value of Mineral Production Reference to table 54 shows that the importance of mineral production to the overall economy of Zambia highly depends on copper production. The table clearly shows the preponderance of copper in the mining industry. The value of copper in relation to the total value of mineral production for the period of eighteen years averages more than 90 percent. Copper Revenue and the Government Budget The share of copper revenue accruing to the treasury as budgetary support is especially conspicuous between 1964 and 1974 (table 55) by its annual magnitude. As shown in table 55, copper revenue represents a large percentage of total current revenue accruing to the state. For this reason, the government budget is highly sensitive to changes in both copper production and prices. Increases in copper receipts have resulted in overall budget surpluses. Conversely, the government budgetary position remains under severe pressures during the years when copper receipts are low. This was the case for the period 1975 to 1982. The copper industry, which had accounted for K341 million, or 53 percent of total reve nue, in 1974 contributed nothing in 1977, 1978, and 1979. It contributed K41 million (6 percent of total revenues) in 1980, but made no contribution in 1981 and 1982. Necessarily, the government turned to nonmineral sources for revenues during this period. However, these alternative 305 TABLE 54 CONTRIBUTION OF COPPER TO THE TOTAL VALUE OF MINERAL PRODUCTION, 1965-82 Value of Copper Production as Total Value Value of Percentage of of Mineral Copper Total Mineral Year Production^ Production^ Production 1965 363.0 342.9 94.5 1966 457.3 439.4 96.1 1967 461.9 443.0 95.9 1968 532.8 513.6 96.4 1969 759.3 737.9 97.2 1970 673.5 648.0 96.2 1971 466.7 441.7 94.6 1972 514.6 479.9 93.3 1973 785.3 739.1 94.1 1974 936.2 876.7 93.6 1975 504.4 455.3 90.3 1976 687.2 633.7 92.2 1977 633.8 557.8 88.0 1978 642.7 557.4 86.8 1979 1,041.4 825.4 79.3 1980 1,153.3 942.8 81.7 1981 948.7 781.1 82.3 1982 860.7 710.6 82.6 SOURCE: Computed from Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December [1969- 306 TABLE 54— Continued 82] (Lusaka: Bank of Zambia, 1969-82); and Monthly Digest of Statistics 9 (June 1973). NOTE: All figures in millions of Kwacha. &The total value of mineral production includes (in addition to the value of copper production) values for zinc, lead, coal, and cobalt. ^Excluding book transactions related to the Kafue Hydroelectric Scheme, K85.2 million in 1973; Maamba Col lieries, K22.5 million in 1974; and TAZARA, K164.9 million in 1976. 307 TABLE 55 CONTRIBUTION OP COPPER INDUSTRY TO GOVERNMENT REVENUE, 1964-82 Contribution of Copper as Total Percentage of Government Contribution Total Government Year Revenue of Copper Revenue 1964 108.0 57.0 53.0 1965 189.0 134.0 71.0 1966 255.0 163.0 64.0 1967 276.0 146.0 53.0 1968 306.0 183.0 60.0 1969 401.0 237.0 59.0 1970 435.0 251.0 58.0 1971 309.0 116.0 38.0 1972 315.0 69.0 22.0 1973 385.0 108.0 28.0 1974 647.0 341.0 53.0 1975 448.0 59.0 13.0 1976 443.0 12.0 3.0 1977 500.1 ______a — —— 1978 557.5 ___a — —— 1979 592.8 ___a — — — 1980 719.0 41.0 6.0 1981 811.6 ___a — —— 1982 857.1 ___a SOURCE; Compiled from Zambia Mining Yearbook [1973-80] (Kitwe; Copper Industry Service Bureau, 1973-80); and Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December [1977-82] (Lusaka; Bank of Zambia, 1977-82). NOTE; All figures in millions of Kwacha. ^During these years mining companies accumulated large opera tional losses and subsequently made no contributions to government revenues. 308 sources of revenue were adversely affected as a result of the depression in the economy, emanating largely from the col lapse in copper prices, which greatly reduced the profita bility of most industries. Consequently, proceeds from company taxation were low. In addition, reduced imports arising from foreign exchange constraints accompanied by a decline in production of domestic goods led to the poor inflow of receipts from both customs and excise duties. This led to a policy of inducing a fall in capital outlays by holding back on investments in new infrastructural projects. Also, as a result of shortages of foreign exchange the levels of capital expenditure by government ministries were drastically reduced due to difficulties encountered in importing capital goods, raw materials, and other inputs needed for their development projects. However, current expenditure continued to rise at high rates each year (1976- 82) as shown in table 56 and figure 2. As a result of these movements in expenditure and reve nue, the government was unable to balance the budget during this period. Consequently, the budget was a prime source of inflationary pressures in the economy since the deficits had been financed largely by borrowing from the banking sector. For example, the 1977 overall deficit on government accounts of K214.3 million was financed entirely by domestic borrow ing, which amounted to K260.5 million. In addition, the government borrowed K17.5 million from external sources compared with K14.9 million in 1976. The uptrend in external 309 m in 00 CT> 00 rH CN » « OO t " I r~ 00 VO CM r o VO 00 CM 00 M I ro o o cn «S' 00 00 G 'H § •H ‘H rH rH r4 fs •H OE in-H • •H r4 03 G rH • > C -H O O e V£> P •H PG rH X rH • •H LO G e « >1 '—■ CN G % G • 'H !—1 P CN P P CN e G G X: G Ph E N G G P VX> P •H P O P en E 0 P >i G P G tsi G G G) T3 •H A G G G E •H P G O G G g 0 ü G P •H •H N G P rH 03 G P G ■H 3 G 0 •H m Eh Oi U E G 1 GJ O P I P G PO vo CN P G in fc K millions 1600 m Mineral Revenue 1400 - Current Expenditure Capital Expenditure 1200 - 1000 - 800 - 600 - 400 - 200 1976 1977 1978 1979 1980 1981 1982 Fig. 2. Government current revenue and expenditure, 1976-82. SOURCE: Calculated from table 56. 312 borrowing continued (reaching an accumulated total of K909.4 million in 1982). The same trend obtained in respect to domestic borrowing (although was downward between 1979 and 1981), registering an accumulated total of K979.9 in 1981 (table 56). The subdued state of the economy (resulting from dete riorating copper prices) continued to have depressive effects on the government budgetary performance. The overall fiscal deficit continued to widen. The deficit recorded in 19 79 was K363.6 million. It increased by 153.4 percent in 1980 to K921.5 million. The deficits for 1981 and 1982 respectively stood at K472.5 million and K557.8 million. Contribution of the Copper Industry to Gross Domestic Product The importance of the copper industry to the process of accumulation (i.e., the processes of value expansion and value formation) can be gauged by examining its contribution to the GDP. In this respect, table 57 shows that the copper industry made a significant contribution for each of the years 1964 to 1982, except for the period 1975 to 1980, when its contribution was less than 20 percent. A substantial increase in the world price of copper was the main factor behind increases in Zambia's gross domestic product since 1964 until 1975, when, for the first time, the average cash price per ton of electrolytic copper wirebar on the London Metal Exchange declined by 40 percent, from Kl,326.14 313 TABLE 57 CONTRIBUTION OF COPPER INDUSTRY TO THE GROSS DOMESTIC PRODUCT AT MARKET PRICES, 1964-82 GDP at Copper Copper Industry's Current Industry's Contribution as Year Values Contribution Percentage of GDP 1964 474.0 215.0 45.4 1965 611.0 246.0 40.3 1966 742.0 342.0 46.1 1967 842.0 334.0 40.0 1968 1,062.0 411.0 39.0 1969 1,314.0 637.0 48.5 1970 1,279.0 457.0 36.0 1971 1,204.0 297.0 25.0 1972 1,334.7 318.0 24.0 1973 1,585.0 511.0 32.2 1974 1,893.0 607.0 32.0 1975 1,583.4 204.0 13.0 1976 1,827.4 330.0 18.0 1977 1,951.5 231.0 12.0 1978 2,202.6 272.0 12.3 1979 2,597.6 470.0 18.0 1980 2,986.3 520.0 17.4 1981 3,040.4 1,093.3 36.0 1982 3,221.4 977.1 30.3 SOURCE: Compiled from Zambia Mining Yearbook [1973- 80] (Kitwe: Copper Industry Service Bureau, 1973-80); Monthly Digest of Statistics for the quarters ending October 1973-June 1981; and Bank of Zambia, Report and Statement of Accounts for the Year Ended December 31 [1975-82] (Lusaka: Bank of Zambia, 1975-82) . NOTE: All figures in millions of Kwacha. 314 (5871.40) per ton to K793.75 (5 5 5 6 .8 0 ).^ Although all other sectors (especially the manufactur ing, construction, and financial sectors) benefited to some extent from the decline in the share of GDP produced by the copper mines, they only benefited marginally due to indirect influence of the copper industry in the country's industrial production, which depends heavily on imported inputs and spare parts, and capital goods. Low copper prices on the world market brought serious shortages of foreign exchange between 1975 and 1982. Consequently, such manufacturing companies as (among others) Kafue Textiles of Zambia, Metal Fabricators of Zambia Limited, Consolidated Tyre Services, and Livingstone Motor Assemblers faced critical shortages of spare parts due to lack of foreign exchange, which was necessary to import spare parts and raw materials required for production. The net effect was that the increase in value added by the manufac turing sector in 1975 of 8.4 percent was substantially below the rate of increase of 14.4 percent in 1974. Despite this, for the first time this sector contributed more to the GDP at current prices than the mining sector. But this was due more to the steep decline in the contribution of the mining sector to GDP than to the increase in the manufacturing sector. The value added by the construction sector at current prices experienced a considerable increase from 4.2 percent in 1974 2gee Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December, 1975, pp. 24-25. fe. 315 to 13.3 percent in 1975. However, like the manufacturing sector, it experienced input (building materials) problems due to lack of foreign e x c h a n g e . ^ Share of Copper Industry in Employment The degree to which employment is influenced by the copper industry becomes clear when employment statistics in this industry are analyzed in relation to total employment in the mining sector and other productive sectors of the Zambia economy. Reference to table 58 shows that the copper industry is the major employer of labor in the mining sector, averaging 89 percent for a period of fourteen years (1969- 82). The importance of the copper industry as an employer of labor is also derived from the fact that the mining sector is the largest single employer of labor among production sectors, with an annual average of over 60,000 workers between 1972 and 1982, followed by manufacturing and con struction industries, with annual employment figures averag ing 40,000 for the same period. The significance of the copper industry as employer of labor remains pronounced when analyzed in relation to total employment in the formal sectors of the Zambian economy. Table 59, which analyzes the share of the copper industry in the total employment of the formal sector, shows that the copper industry accounted for an annual employment average of 15 percent for the period 1969 to 1982. ^See Industrial Zambia (1980), pp. 49-53 316 TABLE 58 EMPLOYMENT IN THE COPPER INDUSTRY AND EMPLOYMENT IN THE MINING INDUSTRY, 1969-82 Copper Industry Employment as Total Mining Copper Percentage of Industry Industry Total Mining Year Employment Employment Employment 1969 55,850 48,227 86.4 1970 57,640 48,469 84.1 1971 58,160 49,748 85.5 1972 60,650 50,845 84.0 1973 61,740 52,792 85.5 1974 65,110 56,128 86.2 1975 64,750 57,487 89.0 1976 64,360 57,142 89.0 1977 64,800 59,055 91.0 1978 62,770 56,682 90.3 1979 60,730 55,525 91.4 1980 62,800 57,743 92.0 1981 61,740 60,803 98.5 1982 60,270 58,795 97.6 SOURCE; Compiled from Zambia Mining Yearbook [1973- 80] (Kitwe; Copper Industry Service Bureau, 1973-80); Bank of Zambia, Report and Statement of Accounts for the Year Ended December 31 [1977-82] (Lusaka: Bank of Zambia, 1977- 82); Monthly Digest of Statistics for the quarters ending December 1970-December 1981. 317 TABLE 59 EMPLOYMENT IN THE COPPER INDUSTRY AS PERCENTAGE OF ZAMBIA'S TOTAL EMPLOYMENT, 1969-82 Copper Industry Employment as Zambia's Total Copper Percentage of Total Industry Zambia's Year Employment Employment Employment 1969 328,290 48,227 15.0 1970 342,970 48,469 14.1 1971 365,550 49,748 14.0 1972 377,000 50,845 13.5 1973 390,540 52,792 13.5 1974 393,280 56,128 14.3 1975 393,490 57,487 14.6 1976 368,790 57,142 15.5 1977 372,630 59,055 16.0 1978 368,460 56,682 15.4 1979 374,800 55,525 15.0 1980 389,040 57,743 15.0 1981 391,890 60,803 15.5 1982 396,220 58,795 15.0 SOURCE: Compiled from Zambia Mining Yearbook [1973- 80] (Kitwe: Copper Industry Service Bureau, 1973-80); Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December [1977-82] (Lusaka: Bank of Zambia, 1977- 82); Monthly Digest of Statistics for the quarters ending December 1970-December 1981. 318 Contribution of the Copper Industry . to International Trade Zambia's Contribution to World Copper Production The centrality of the copper industry to Zambia's econ omy has been variously stressed in the previous sections. In this section we generally examine the role played by the copper industry in integrating the Zambian economy with international capitalism. Both the supply and demand of copper on the international markets have profound conse quences for the role of the state as the dominant source for investment capital. As has been argued and shown above, the downswing of the copper cycle that began in 1975 brought with it serious financial crises, which adversely affected various sectors of the economy. The downtrends of copper prices exerted pressures in Zambia's balance of payments. In 1975, the country's overall current balance of payments deficits totaled K147.9 million compared with a surplus of K18.6 million in 1974. The deterioration in the external accounts was largely attributed to low prices of copper on the international markets. The situation continued, except in 1979, when a surplus of K158.4 million was recorded. The deficits for 1980, 1981, and 1982 were respectively K219.7 million, K341.4 million, and K287.8 million. The pertinent point underlying these statistics is that the rates of accumulating capital in Zambia cannot be considered in isolation. It is important to include in our analysis Zambia's 319 participation in international class conflict,^ mainly through the instrumentality of copper, which is the country's major product on the international markets. Table 60 provides a general picture regarding Zambia's contribution to the world's copper production. On the other hand, figure 3 analyzes Zambia's contribution to the world's copper produc tion in relation to the other major world copper-producing countries. Contribution of the Copper Industry to Export Trade The importance of the copper mining industry to the process of accumulating capital in Zambia is also reflected in the magnitude of its contribution to the country's domes tic export trade. In this respect, whatever happens to the world copper market decides the level of economic performance (capital accumulation) of the country. For example, in 1970 copper exports accounted for 95.7 percent (K639.8 million) of the export receipts, which stood at K668.6 million (table 61). For each year between 1971 and 1968, the copper exports amounted to more than 90 percent of the country's values of exports. Between 1979 and 1982 the average of copper's export values was 87 percent of the country's exports. Zambia is a member of the Inter-Governmental Council of Copper Exporting Countries. This block of Third World producers accounts for a combined 27.3 percent of the world refined copper export. See Bank of Zambia, Report and State ment of Accounts for the Year Ended 31 December, 1978 (Lusaka; Bank of Zambia, 1978), p. 24. 320 TABLE 60 CONTRIBUTION OF ZAMBIA'S COPPER PRODUCTION TO WORLD COPPER PRODUCTION, 1964-80 Zambia's Production World Zambia's as Percentage of Year Production^ Production^ World Production 1964 4,849 632 13.0 1965 5,065 696 13.7 1966 5,299 623 11.8 1967 5,077 663 13.1 1968 5,474 685 12.5 1969 5,949 720 12.1 1970 6,370 684 10.7 1971 6,442 651 10.1 1972 7,045 718 10.2 1973 7,502 707 9.4 1974 7,669 698 9.1 1975 7,348 677 9.2 1976 7,873 709 9.0 1977 7,968 656 8.2 1978 7,851 643 8.2 1979 7,569 588 7.8 1980 7,837 596 7.6 SOURCE: George Thomas Kurian, Encyclopedia of the Third World, rev. ed., vol. 3 (New York: Facts on File, 1984), p. 2007. NOTE: All figures in thousands of metric tons. ®Mine production in terms of recoverable copper content. Zambia's copper ore reserves are among the richest in the world. It has about one-fifth of the world's known reserves, some 880.3 million tons of high-grade ore ranging from 2.41 percent to 4.6 percent. E" 321 15 13 12 11 10 1964 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 Fig. 3. Zambia's Contribution to world copper production, 1964-80. SOURCE: Calculated from table 60. 322 TABLE 61 CONTRIBUTION OF COPPER TO DOMESTIC EXPORT TRADE, 1970-82 Value of Copper Total Value Exports as of Domestic Value of Percentage of Year Exports^ Copper Exports All Exports 1970 668.6 639.8 95.7 1971 474.0 444.2 93.7 1972 537.7 49.6 91.6 1973 739.5 699.9 94.6 1974 900.4 838.5 93.1 1975 518.0 472.0 91.1 1976 748.8 688.6 92.0 1977 705.4 645.9 91.6 1978 657.6 597.7 90.9 1979 1,087.3 897.2 82.5 1980 977.5 850.7 87.0 1981 924.5 807.8 87.4 1982 957.6 856.1 89.4 SOURCE: Computed from Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December [1975- 82] (Lusaka: Bank of Zambia, 1975-82). NOTE: All figures in millions of Kwacha. ^Totals do not take into account any adjustments and for this reason they differ from the totals in respect to Zambia's balance of payments for each of the years in the table. Reexport totals are also not included. 323 Contribution of the Copper Industry to Foreign Exchange We have already emphasized the fact that the copper industry plays a critical role in the Zambian economy. This sector has remained the single largest earner of the coun try's foreign exchange, accounting for over 90 percent of total export receipts. The implications of the levels of foreign exchange for capital accumulation in all sectors of the Zambian economy have already been pointed out. The copper industry is an important source for Zambia's primary liquidity. This function of the copper industry bears a direct relationship to the state's role as the main source of investment capital. This is because the two main sources of primary liquidity in Zambia are the balance of payments and the government. As we have already shown, these are closely interlinked. When foreign assets increase due to increased copper export proceeds, government revenues also increase, given a certain time lag, as the latter is to a large extent dependent on copper revenues. Again, as we have shown, when export proceeds decrease, government revenue also tends to decline. The role played by the copper industry in earning foreign exchange becomes clear when Zambia's balance of payments are examined. For example, from the end of 1968 up to the third quarter of 1970 the main source of primary liquidity was the foreign sector. As a result of an increase in copper export proceeds and stagnant demand for imports. 324 foreign assets rose by K273 million. At the same time the net government position with the Bank of Zambia (foreign assets plus deposits less securities) improved from K71 million to K227 million. Conversely, from the third quarter of 1970 up to the end of 1971, the adverse development in the balance of payments due to the drop in copper export proceeds, together with an increase in both import demand and the value of imports (especially oil) reduced primary liquidity by K236 m i l l i o n . ^ Other major causes of decline in primary liquidity earned by the copper mining industry starting in the mid- 1970s, with losses recorded in 1975/76 and 1978/79, were the increase in production costs and high transport costs. High production costs were due to multiple causes. The grade of ores had declined and their accessibility had become more difficult as the copper machinery, materials, and expatriate labor added to the cost of producing copper. Transport costs had been rising since 1964, as table 62 shows. High trans port costs were worsened by political conflicts in the south, which led to the Unilateral Declaration of Independence by the Rhodesian white settler government in 1965 and the blockage of the Zambian border in 1973. This action forced Zambia to reroute its exports through the long and expensive route of Tanzania. The hostility that ensued forced Zambia to reorient its trade routes away from the south. The border ^See Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December, 1971. 325 TABLE 62 TRANSPORT; AVERAGE COST PER METRIC TON OP COPPER, 1964-80 Average Cost Percentage Increase Year per Metric Ton^ (1964 = 100) 1964 45.8 100.0 1965 47.1 103.0 1966 55.3 121.0 1967 62.3 136.0 1968 63.2 138.0 1969 64.2 140.0 1970 62.5 136.0 1971 64.7 141.0 1972 68.4 149.0 1973 68.3 149.0 1974 78.8 172.0 1975 87.2 190.0 1976 86.0 188.0 1977 87.6 191.0 1978 97.6 213.0 1979 108.7 237.0 1980 138.6 303.0 SOURCE; Compiled from Zambia Mining Yearbook [1973-80] (Kitwe: Copper Industry Service Bureau, 1973-80). ^Calculated in Kwacha f.o.r. mine station to c.i.f. United Kingdom and world ports. 326 with Rhodesia remained closed until October 1978. Since world prices of copper have a very profound influence on accumulation of capital of Zambia, vis-a-vis the state's ability to facilitate mobilization of investment capital, it is only appropriate to conclude our analysis with a survey of exogenous factors that affect copper prices on both the London Metal Exchange (LME) and the Commodity Exchange, Inc. (COMEX), which is located in New York. These are the two world markets on which Zambia's copper is quoted. The London Metal Exchange is generally considered to be the most important of the two in terms of turnover, physical deliveries, and its influence in the pricing of copper in general. Most of the copper pricing formulas that are found on long-term contracts are related, in one way or another, to LME prices. In addition, the principal function of the LME is to provide facilities for "hedging," or insuring against unfavorable price movements, through the mechanism of forward price. This fact is of great importance to Zambia and other copper producers; given the extreme volatility of the market (a volatility that is intensified by the floating exchange rates), hedging must be considered essential. In October 1965, Chile, Zaire, and Zambia, whose copper price moved in much the same way as the United States produ cers' price, abandoned the so-called producer pricing and 327 went over to the LME three-month forward price.^ This fact, however, should not import the idea that the LME is a perfect market. As is expected, the market imperfections (caused by such unpredictable events as flooding of mines, strikes, revolutions, and wars) caused the demand for copper to move up and down in a way quite unforeseeable when contracts were drawn up some months or years earlier. These price destabilizing factors are complemented by actions of international capitalists, namely merchants who buy and sell copper outside the principal producer-consumer channels. Although for the most part they do not invest in production facilities, they hold or finance stocks. Mer chants tend to make extensive use of independent refineries. They also buy a great deal of scrap for refineries handling secondary materials. Many of the physical deliveries on the LME result from the transactions of merchants. By the same token, merchants carry out arbitrage opera tions on a worldwide basis in relation to the selling and buying of copper. These operations affect prices of copper on both the forward and spot markets. Of course, the choice between the two markets depends on the actual interest rates prevailing in each market. The activities of merchants have a significant bearing on Zambia's trade for copper as their net effect is the distortion of the true situation of the ®For an authoritative discussion of copper production, and a survey of copper prices during the decade 1965-74, see Sir Ronald L. Prain, Copper; The Anatomy of an Industry (London: Mining Journal Books, 1975). 328 market, and thereby distortion of the price system. Zambia's ability to earn foreign exchange on the inter national markets for copper is also affected by actions of foreign capitals in respect to buffer stocks or stockpiling. * Major copper-consuming countries, such as the United States, maintain "strategic stockpiles."^ The effectiveness of the American stockpiling strategy was observed when it prevented copper prices from increasing beyond the record heights attained during the Vietnam war. In addition to stockpiling, the world copper price, on the demand side, is affected by speculation and panic buying by consumer nations, as was the case for Japan during 1972 to 1975. On the supply side copper prices are affected by the presence of large numbers of scrap producers, who often accumulate substantial inven tories of copper that have the potential to add a destabil izing element to copper prices. This was the case in 1965 when high prices (on both LME and COMEX) resulted in greatly increased amounts of scrap being brought to market. The consequence of this action is that during a downswing in copper consumption, it is deliverers of secondary rather than primary copper who are favored by consumers. Since demand for copper is derived from demand, it is largely conditioned by the levels of industrial production or ^The United States keeps an official level (750,000 tons in 1975) at which the stockpile is supposed to be maintained. For a record of stocks of refined copper maintained in the United States and outside the United States see Commodity Research Bureau, Inc., 1984 Commodity Year Book (New Jersey; Commodity Research Bureau, Inc., 1984), p. 117. 329 income. This phenomenon was especially observed during the slowdown in world economic growth, highlighted by the steep recessions of 1974-75 and 1980-82. These recessionary trends (especially in the industrialized countries) depressed prices of copper. The general behavior of the copper market is that when economic growth slows down, so does demand for copper. The general trend was that there was a boom in copper prices from 1972, with the price peaking in April 1974 at $3,034 per ton; then it suddenly fell to $1,290 before the end of the year.® The problem for accumulating capital in Zambia was that the prices of imports continued to rise, especially through the decade 1970-80 (see table 63), while copper export markets and prices declined. The volume of imports Zambia could buy fell by 45 percent. Plummeting copper prices, which in 1976 actually dropped below produc tion costs, were mainly responsible for the overall economic change that Zambia experienced in the 1970s. From having a consistent payments surplus, Zambia was forced into the ranks of deeply indebted nations. One other important factor regarding copper price fluc tuations deserves mentioning. Since copper is an interme diate input into many consumer goods, it is almost impossible for copper producers to have commanding knowledge of all substitutes in order to know their producers and users for See World Bank, Commodity Trade and Price Trends (Washington, D.C.; World Bank, 1975); and Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December, 1974 (Lusaka: Bank of Zambia, 1974). 330 TABLE 63 INDEX OF ZAMBIA'S IMPORT PRICES, 1970-80 Import Prices Year (1970 = 100) 1970 100 1971 105 1972 111 1973 126 1974 157 1975 194 1976 217 1977 249 1978 307 1979 381 1980 502 SOURCE; Government of the Repub lic of Zambia, General Statistics Office, National Accounts (Lusaka: Government Printer, 1982). 331 the purpose of negotiating market stabilizing policies. The extent to which the factors discussed in this section affected prices on both the LME and COMEX respec tively for the periods 1971 to 1982 and 1950 to 1981 is shown in tables 64 and 65. Table 64 explains the movement of average cash prices in pound sterling and the Kwacha. Table 65 portrays the movement of copper prices in US dollars on the LME and COMEX and compares current prices with 1981 constant prices in both markets. On the other hand, the extent to which declining copper prices and escalating import prices caused depletion in Zambia's foreign exchange for the period 1970-82 is shown in table 66. Analysis of tables 65 and 66 for the decade 1970- 80 suggests a correlation between declining copper prices and levels of available foreign exchange. Measured in 1981 dollars, the price of copper on both the LME and COMEX dropped by 68 percent in 1970, and continued to decline until 1980 when it increased 3.6 percent on both markets. In the same respect Zambia's foreign exchange continued to decline from US $480.1 million in 1970 to US $42.2 million in 1980, which represented approximately 9 percent of the level of the 1970 foreign exchange. The importance of copper to the entire mechanism of accumulation of capital has also been shown in relation to the relationship between imported producer goods (broadly including raw materials and other manufacturing inputs) and value-added in local production. This relationship has come 332 TABLE 64 LONDON METAL EXCHANGE AVERAGE OF MONTHLY PRICES FOR COPPER ELECTROLYTIC WIREBARS, 1971-82 Average Cash Price per Metric Ton Year L Sterling^ Kwacha^ 1971 444.36 764.62 1972 427.82 764.29 1973 727.10 1,155.44 1974 871.40 1,326.14 1975 556.80 793.75 1976 781.68 1,007.28 1977 750.70 1,015.91 1978 708.98 1,090.82 1979 935.90 1,571.30 1980 941.41 1,718.89 1981 872.08 1,514.42 1982 846.34 1,373.96 SOURCE: Compiled from Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December [1971-82] (Lusaka: Bank of Zambia, 1971-82). ^Until December 4, 1971, the Kwacha was pegged to the pound sterling at Bl = Kl.714285. From December 4, 1971, the Kwacha had been pegged to the US dollar at $1 = KO.714286, implying a new parity with sterling of LI = Kl.86122. Consequently, from December 1971 the conversion of LME copper prices from sterling to Kwacha has been made on the basis of monthly averages of daily closing middle rates for pounds sterling and US dollars on the London foreign exchange market. 333 TABLE 65 WORLD COPPER TRADE; YEARLY AVERAGE PRICE TRENDS, 1950-81 London Metal Exchange^ New York Market^ Year Current 1981 Constant Current 1981 Constant 1950 493 2,221 468 2,108 1951 607 2,299 534 2,023 1952 715 2,638 534 1,970 1953 664 2,564 635 2,452 1954 686 2,701 655 2,579 1955 968 3,737 827 3,193 1956 906 3,419 922 3,479 1957 605 2,184 652 2,354 1958 545 1,860 568 1,939 1959 655 2,356 687 2,471 1960 677 2,375 707 2,481 1961 633 2,221 660 2,316 1962 644 2,284 675 2,394 1963 646 2,267 675 2,368 1964 968 3,349 705 2,439 1965 1,290 4,373 772 2,617 1966 1,530 5,066 797 2,639 1967 1,138 3,719 843 2,755 1968 1,241 4,324 923 3,216 1969 1,466 5,073 1,048 3,626 1970 1,413 4,429 1,272 3,987 334 TABLE 65— Continued London Metal Exchange^ New York Market^ Year Current 1981 Constant Current 1981 Constant 1971 1,080 3,121 1,134 3,277 1972 1,071 2,818 1,116 2,937 1973 1,786 3,934 1,298 2,859 1974 2,059 3,664 1,690 3,007 1975 1,237 1,921 1,401 2,175 1976 1,401 2,139 1,517 2,316 1977 1,309 1,841 1,451 2,041 1978 1,365 1,621 1,444 1,715 1979 1,985 2,109 2,034 2,162 1980 2,183 2,107 2,257 2,179 1981 1,742 1,742 1,846 1,846 SOURCE; World Bank, Commodity Trade and Price Trends {Washington, D.C.; World Bank, 1982). NOTE; All figures in US$ per metric ton. ^Electrolytic wirebar, settlement price. ^Electrolytic wirebar, domestic refinery producer price. 335 TABLE 66 RELATIVE DECLINE IN ZAMBIA'S FOREIGN EXCHANGE, 1970-82 Percentage Millions of Relatives Year US Dollars® 1970 = 100 1970 480.1 100.0 1971 235.9 49.1 1972 158.2 33.0 1973 185.5 38.6 1974 150.1 31.3 1975 123.6 25.7 1976 70.4 14.7 1977 52.5 10.9 1978 35.3 7.4 1979 74.4 15.5 1980 78.2 16.3 1981 38.5 8.0 1982 42.2 8.8 SOURCE: International Monetary Fund, Interna tional Financial Statistics Yearbook, 1984 {Washing ton, D.C.: International Monetary Fund, 1984). ^The US dollar is the intervention currency of Zambia, and the rates of the Bank of Zambia {the central bank) for the US dollar are based on the daily calculation of the US$-SDR rate. Authorized banks are free to deal in other currencies at rates based on daily rates provided by the Bank of Zambia, or on the basis of cross rates with the US dollar prevailing in international foreign exchange markets. 336 to be dictated by the levels of available foreign exchange, which in turn depends on the price of copper. The mining companies are sufficiently influential to be able to place strong demands for available foreign exchange, so that fluc tuations in copper production depend more on technical factors and company policies rather than on foreign exchange shortages. But in the nonmining industries fluctuations in producer imports have tended to result, after a short time lag, in corresponding fluctuations in value-added. This conclusion does not purport to denying the part played by other factors, such as those related to transport problems and the high inflation of import prices. However, between 1975 and 1976, for example, a drop in producer imports was followed by decreases in value-added in both manufacturing and total gross domestic product. Similarly, between 1976 and 1977, a rise in producer imports was followed by an increase in value-added in manufacturing.® The importance of the copper industry as the main source of foreign exchange has been discussed in connection with employment. From this discussion it is reasonable to conclude that the vulnerability of the secondary sector in foreign exchange shortages has become clear. The period between 1975 and 1978 was particularly noted for scrambles for import licenses and disruptions in planning, as well as ®See Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December, 1979 (Lusaka; Bank of Zambia, 1979). 337 closures and layoffs in various industries that depended on imported inputs and spare partSi This was followed by substantial decline in total formal sector employment. This sector lost 19,400 jobs between June 1975 and June 1976, as well as a further 6,900 during 1977. Together they represent a loss of 7 percent of total employment.^® Finally, it is pertinent to examine the broad implica tions for state ownership of the mining companies in relation to production, production relations, and accumulation. State policies and actions have a profound bearing on production levels, largely through their impact on capital expenditures and operational costs. With regard to capital investments, the state has a voice as majority shareholder in selecting new development projects to be undertaken, and can also influence these choices by several of its mining policies, especially those pertaining to licensing and extraction. The state also affects the cost and availability of finance. It effectively precludes the raising of equity capital (by neither raising its own equity participation nor allowing others to do so, in order to maintain its majority share holding) . State policies also affect accumulation in other respects, among them those pertaining to taxation and divi dends. In 1973 they restricted retention of earnings to as as low as 16 percent of profits before depreciation. Other ^®See Monthly Digest of Statistics 15 (January-March 1979). 338 state policies that have a major impact on accumulation in the mining industry relate to foreign exchange. Exchange policies effectively link the creditworthiness of the mining companies to that of the country (by requiring that all foreign exchange earnings be converted to Kwacha). The implication of this policy for accumulating capital on the international markets was discussed in relation to high values of imports. The availability and terms of finance are thus affected according to the international credit standing of Zambia. This is to conclude that capital accumulation in Zambia also varies with the country's international credit standing. Conclusion Iri this chapter we have variously quantified the extent to which the copper industry is central to the political economy of Zambia. The characterization of the copper industry as the mainstay of the Zambian economy is supported by the fact that there is a correlation between the buoyancy of the copper revenue and that of the whole economy. Gross domestic product and external trade figures have shown the magnitude of the influence of the copper mining industry in the Zambian economy. The significance of the copper mining industry is empha sized in our discussion of the GDP. When calculated in current prices, it reflects much more available proportional contributions by various industrial sectors, due mainly to 339 large fluctuations in the price of copper. When copper prices were higher on world markets, the boom of Zambian capitalism continued to be sustained during the first nine years of independence (1964-73). During the first four years the rate of economic growth was between 8 and 10 percent. This rate of growth was maintained despite the adverse effects of the Rhodesia Unilateral Declaration of Indepen dence in November 1965. Between 1965 and 1974, the formal sector employment grew at a rate of 3.6 percent per annum. The boom reached its peak in 1972-73. During the first quarter of 1973 and in April the price of copper rose by approximately 60 percent as compared with the last quarter of 1972. It continued to rise until it reached an all-time high of Kl,760 (Bl,135) per metric ton on December 5, 1973. The GDP rose by 11.4 percent from 1971 to 1972 and by 24.1 percent from 1972 to 1973, while total industrial production increased by 31.5 percent and 48.4 percent in the respective intervals. While all sectors of the economy contributed to the improvement in the GDP, value-added by the mining industry in 1973 grew by 75.3 percent. The contribution of the mining sector to total GDP measured in real terms was 39.8 percent in 1973. One point worth noting in connection with this aspect of the conclusion is that regarding the importance of the copper mining industry to the mechanism of accumulation of capital in Zambia. Since copper has the single largest weight in the calculation of the GDP deflator, a change in the copper price in any one year invariably 340 affects the rate of increase of GDP at current market prices and values recorded in that year. The importance of the copper mining industry to the process of capital accumulation is demonstrated in the anal ysis of Zambia's foreign trade. The copper mining industry contributes more than 90 percent to the country's export trade. In this respect we have argued that the relationship between Zambia's imports and exports can be better understood by examining the price trends on the world copper markets. We have argued and shown that the principal determinant of both imports and exports has been the fluctuating price of copper. In this respect we have endeavored to show that the extent to which Zambia enjoyed a favorable balance of trade was a function of the levels of the proceeds from copper exports. As the copper market declined, Zambia's balance of trade declined proportionately. Due to the trade surplus, Zambia had been able to main tain balance of payments surpluses on current account in all the years since independence. The trade surplus reached a peak of K248 million in 1966, primarily because of the record level.of export earnings stemming from the unusually high world market prices of copper. Thus, although 1966 witnessed a rise of 17 percent in imports, the balance of payments surplus on current account was substantial at K53 million. It was on account of these sizable surpluses that Zambia was able to maintain a liberal system of import licensing and 341 exchange control, permitting dividend payments and profit remittances abroad of a considerable magnitude. Zambia continued to enjoy trade surpluses until 1974, when imports increased by 44.2 percent over the 1973 level due to the increased price of oil, which accounted for K29.4 million, or 19.1 percent of the increase in imports, which had risen by K154.3 million. Finally, the centrality of the copper mining industry to Zambia's capacity to accumulate capital was shown in our analysis of its budgetary support. For example, between 1965 and 1970, government capital expenditures increased by 154 percent in current terms and 90 percent in real terms. Since 1975, capital outlays had been caught in the budgetary squeeze arising from generally low mineral revenues and rapidly rising recurrent expenditures; capital expenditures in current prices and in real terms had been lower than the average level reached during the 1968-70 period. As a conse quence, in real terms they fell both as a proportion of the GDP and of gross fixed capital formation— from 1965/66 to 1970, the share of government capital expenditures in the GDP fell from 14 to 10 percent, and gross fixed investment from 51 to 37 percent. The situation continued until 1982, except in 1980, when the copper industry contributed K41 million, or 6 percent of total revenues for that year. As a result of this, overall deficits on government accounts increasingly became financed by internal and foreign borrowing. Thus from a level of 342 $154.6 million at the end of 1965, external debt outstanding and disbursed (excluding undisbursed) of the government and parastataIs (with government guarantee) rose to $1,183.6 million at the end of 1976. The point underlying this conclusion is that excessive dependency of the Zambian econ omy on the copper mining industry puts the industry in a position (as we have seen) where depressed prices of copper on the world markets precipitate crises of accumulation. CHAPTER V II THE POSTCOLONIAL STATE, INDIGENOUS CAPITAL ACCUMULATION, CLASS FORMATION, AND REPRODUCTION OP CAPITALIST RELATIONS Introduction The overall dynamic of state intervention was discussed in detail in chapter V, where it was shown that Zambia's postcolonial state posses wider powers and initiatives to intervene in the economy than the colonial states that preceded it. It has intervened in the process of class formation to ensure that particular places in the division of labor have been assigned to Zambian nationals rather than non-Zambian. The state has intervened in the class struggle to ensure that certain economic concessions are made avail able to Zambian nationals only, and, above, all, it was shown that the state intervened to ensure it acquires controlling shares of all major means of production. Consequently, the Zambian state plays a key role in dispensing the national wealth (mainly from copper), and (as was shown in chapter IV) the way it is spent determines the levels of economic activity and incomes generated in all sectors of the economy. The extent to which the state inter venes in the economy transforms preexisting social relations. As has been shown, state massive ownership of the means of 343 344 production has promoted capitalist accumulation and capital ist class formation. This chapter.discusses specific steps taken by the state to facilitate indigenous accumulation of capital,^ and to create conditions under which the national bourgeoisie have emerged. The role played by the state in establishing conditions for indigenous accumulation, and thereby putting in motion the mechanisms for class formation, is analyzed within the overall thesis of our study, namely that the state is a class instrument as has been shown by its insertion in the capital ist mode of production following the economic reforms. We take a theoretical position that the state is not a neutral instrument or umpire. That is to say, the state machine is manifestly not neutral. This theoretical premise makes it possible to determine which class or classes are behind state capitalism in Zambia, and why they prefer this route to private accumulation. It is in this context that we may understand the fundamental contradictions inherent in Zambia's indigenization policies,^ ^The term indigenous accumulation of capital as used in this chapter refers to accumulation of capital by the national bourgeoisie, as distinct from accumulation by the state through state-owned and controlled enterprises, which was the subject of chapter V. The term general accumulation is used to refer to accumulation by all capitals (i.e., state, foreign, and national private capitals). ^Indigenization policies in this context, and as will be used in this chapter, refer to government interventionist policies that specifically reserve the ownership of a 345 which only offer limited possibilities for private accumula tion. That is, while the state fosters the emergence of the national bourgeoisie it also simultaneously frustrates their full development. It is also considered theoretically impor tant to stress that it is only in terms of the general requirements of capital accumulation that the relation of the state to underlying class forces can be adequately under stood. It is believed that this theoretical approach will make a contribution to the improvement of the overall terms in which the debate on the study of Zambia's political economy has been cast.^ State Control of the Economy and Development of Indigenous Bourgeoisie State Control of the Economy and the Emergence of the National Bourgeoisie The broad policy action to be carried out by the post colonial state in relation to the development of indigenous capital was expounded by President Kaunda in his treatise on category of enterprises to indigenous Zambians (preponder antly Africans) exclusively. Typically, the government compels foreign owners of retail stores, small service establishments, and simple factories to cease operations, or to sell a share of the enterprise to local nationals, thus transferring ownership and control from foreigners to the local nationals. In Zambia the indigenization action included restricting geographical and business areas to Zambians. 3por example, among others seen Ann Seidmann, "The Distorted Growth of Import-Substitution Industry: The Zambian Case,” Journal of Modern African Studies 12 (1974):601-31? and Shaw, Dependence and Underdevelopment, pp. 3-4. 346 humanism, in which he states that the policy of the Party and government had been to encourage some Zambians to become entrepreneurs and own property.^ This policy was given official sanction in the government's White Paper on indus trial policy issued about the same time as independence, which specified that promotion of Zambian entrepreneurship in both commerce and industry was to be one of the functions of the Industrial Development Corporation (INDECO), a 100 percent state-owned and -controlled corporation.® This section analyzes how an embryonic Zambian bour geoisie began to emerge following the Mulungushi Declaration, which marked the beginning of a series of economic reforms aimed at the indigenization of the economy. The analysis involves examination of the nature of indigenous capital and the role played by the postcolonial state to foster develop ment of indigenous bourgeoisie, and furthering the growth of indigenous capital. The relation of the state and indigenous capital in postcolonial societies has engendered a wide debate centering ^See Kenneth D. Kaunda, Humanism in Zambia and a Guide to Its Implementation (Lusaka; Government Printer, 1967), p. 49. Humanism is the official ideology of the Zambian State, which is opposed to "exploitation of man by man." The nature of state intervention and the extent to which the state intervenes in the economy is affected by the ideology of humanism as articulated by President Kaunda and propagated by the Party (United National Independence Party). ®See Government of the Republic of Zambia, Outline of the Government * s Industrial Policy. 347 on the exact nature of this relationship.® What has become clear from the debate is that this relationship is variable, depending on the degree to which the indigenous capitalist class was present at the time of independence. The overall consensus is that insofar as the indigenous capitalist classes in Africa have emerged at all, this has been largely due to government intervention. This, it is generally argued, involves the government's taking deliberate legislative action in order to carve out a special niche for the indigenous capitalist class and to protect it from foreign competition. Thus, Colin Leys in his earlier work on Kenya argued that the inability and unwillingness of the government to dislodge foreign capital altogether meant that local businessmen could only transcend their peasant status through being granted protected spheres in which to operate. ®The following works are especially pertinent to this discussion, as they deal with the general relation of state and class in postcolonial social formations: R. Cohen, "Class in Africa: Analytical Problems and Perspectives," in The Socialist Register, 1978, ed. Ralph Miliband and John Saville (London: Merlin Press, 1978); Langdon, "The State and Capitalism in Kenya"; Leys, "The Overdeveloped Post-Colonial State"; M. Mwamdani, Politics and Class Formation in Uganda (New York: Monthly Review Press, 1976); James Petras, "State Capitalism and the Third World," Development and Change 8 (no. 1, 1977); John S. Saul, "The State in Post-Colonial Societies: Tanzania," in The Socialist Register, 1974, ed. Ralph Miliband and John Saville (London: Merlin Press, 1974); Issa Shivji, Class Struggles in Tanzania (New York: Monthly Review Press, 1976); Swainson, "The Rise of a National Bour geoisie in Kenya"; M. Hussein, Class Conflict in Egypt, 1945- 1970 (New York: Monthly Review Press, 1973), p. 103; and J. P. Perez Sainz, "Towards a Conceptualization of State Capi talism in the Periphery," The Insurgent Sociologist 9 (Spring 1980):59-67. ^Leys, Underdevelopment in Kenya, pp. 148-69. ET" 348 Leys has since taken a new position in the debate by arguing that the Kikuyu (majority tribe in Kenya) capital gained hegemony in the power bloc within a few years of independence and subsequently imprinted its class project on policy.® This can be interpreted to mean that direct class pressure was largely responsible for legislation favoring the indigenous bourgeoisie. However, the appropriateness and accuracy of'this and other interpretations of the Kenyan case have been questioned.® Another study that is relevant to the present analysis is on Tanzania by M. Von Freyhold,^® which suggests that the Tanzanian state bureaucracy is character ized as having functioned as a governing class, albeit in subordination to foreign capital. On account of this Von Freyhold concludes that indigenous capital remains an unlikely candidate for some years to come for claiming a role as a ruling class. The relationship between the postcolonial state and indigenous capital cannot be generalized from these cases for the simple reason that it is far more complex due to a number of interacting variables. This fact is suggested by these ®Leys, "Capital Accumulation, Class Formation and Dependency." ®The controversy centers on the question of the extent to which indigenous capital in Kenya does in fact display greater political clout than foreign capital and whether it is even an active influence on the state. Similarly, see Langdon, "The State and Capitalism in Kenya." ^®See Von Freyhold, "The Post-Colonial State and Its Tanzanian Version." 349 cases in that they suggest a pattern of variation involving two phenomena, namely the degree to which a state exhibits relative autonomy from local classes and the extent to which local class forces (irrespective of their level of dominance) are a factor in determining patterns of state intervention. Largely, the extent to which the indigenous owning class stamps its influence on state policy is a function of its numerical strength (and political cohesiveness) vis-à-vis that of the bureaucratic class that controls the postcolonial state. This fact is considered cardinal in analyzing the relationship between the state and the indigenous capitalist class. To this must be added the imperatives of capital accumulation. It is these factors that ultimately shape the nature and direction of class struggle, which in turn deter mines the relationship between the indigenous owning class and the state. Thus, Kennedy reports that in Ghana, where initially the indigenous owning class was neglected or opposed by a state seeking to establish a high level of autonomy from private capital, it was (as it continued to grow and consolidate its class position, though it remained incapable of directly ruling the state) instrumental in the formulation of economic reform policies that set aside a portion of the economy for exclusive participation by citi- zens. 11 ^^See Paul Kennedy, "Indigenous Capitalism in Ghana," Review of African Political Economy 8 (January-April 1977): 21-38. 350 From these cases it is also clear that like theories of the postcolonial state, theories of the emergence of the national bourgeoisie vis-à-vis its relationship with the state are not only unsatisfactory but problematic. This relationship can be better understood within the overall context of the dominant economic role of the postcolonial state. Thus, in Zambia the postcolonial state has assumed the role of meshing differing modes of production and regulating economic opportunities to promote indigenous capitalism. This fact points to yet another fact, namely that the form the relationship between the state and the indigenous bour geoisie has taken is a product of historical conjectures. At independence, not only were colonial formal controls eliminated, but also settler capital ceased to occupy the hegemonic position it had gained during the Federation of Rhodesia and Nyasaland (1953-63). Both settler and foreign capital suffered a loss of direct control over the process of policy formation. Settler capital, which for ten years had enjoyed direct influence over the state through the political process, ceased to exercise such influence. Thus, the Inde pendence Act (1964) released the state apparatus from the capitalist class as a whole. However, while both settler and foreign capital were removed from positions of direct political influence over the state, indigenous capital initially was incapable of 351 1 0 replacing it. None of its fractions was able to gain a position of political dominance. This relative weakness of indigenous capital made the postcolonial state enjoy a wider degree of autonomy. It was on this account that the state in a populist style responded to the claims of a wider range of indigenous class interests. These measures included the passing of the Economic Reform Act (1968), which included provisions of the economy for the exclusive participation of private indigenous capi tal. To implement the 1968 to 1970 economic reforms, the state actively sponsored indigenous private enterprises. During this period, apart from playing a crucial part in the process of capital accumulation and in restructuring the relation between capital and labor, the state played a gener ating role in the formation of classes and class alliances. State Intervention and Expansion of Capitalist Relations of Production in Agriculture The purpose of this section is to attempt an analysis of the impact of state investment policies and other policy choices in the agricultural sector in relation to the expan sion of the capitalist relations of production. In doing this, efforts are not only directed at showing the growing ^^Although subsequent to independence African business men formed the Zambia African Traders Association (ZATA) to represent their interests, its impact was minimal and its representations were often ignored by the government. For an earlier memorandum urging the government to accept responsi bility toward indigenous business, see Zambia Mail, 30 April 1968. 352 commercial nature of agriculture, as this is an inadequate basis for characterizing it as capitalist. This is because the principal characterization of a mode of production refers not to the manner in which products are exchanged but to the manner in which they are produced and the form in which the surplus labor embodied in them is appropriated. This means that our analysis must importantly take into account the articulated combination of the relations of production and the forces of production, with the former dominating the manner in which the relations of the latter are structured. It is, thus, the task of the analysis to show that as a result of state intervention capitalist relations of produc tion are not only growing quantitatively, but they are also responsible for the reproduction of petty-bourgeoisie rela tions of production in certain types of agriculture. In other words, it is the intention of the analysis to show that the state not only established conditions for capital accumu lation in the agricultural sector but in certain respects it also contributed directly to the creation of the new capital ist classes. Despite the importance attached to agriculture as the country's greatest potential, in the early years of indepen dence it was the economy's stepchild. The mining industry 1 3 and mining-related industries received most investment.^ In ^^However, the government had the advantage in the immediate postcolonial period of sizeable surpluses from copper production. From 1967 to 1970 the government never received less than K150 million in revenue from mining, and 353 the whole of the Second National Development Plan period (1972-76), direct government investment in agriculture was never greater than 4 percent of total government investment and, except as shown in table 67, until 1977 when government direct expenditure on agriculture increased to nearly 14 percent (and remained above 12 percent between 1977 and 1982), on balance interests of nonagriculture urban-based industries overwhelmed interests of the agriculture industry. The figures that appear in table 67 do not include recurrent expenditure (composed of personal emoluments, recurrent departmental charges, grants, subsidies, and special expenditures) and loans and investments.^^ For the period 1970 to 1980 recurrent expenditures relating to agri culture totaled K795.6 million. Of this figure, K637.1 million, or 80.1 percent, was expenditure in respect to grants and subsidies to the National Agricultural Marketing Board (NAMBOARD) and cooperative unions.For the same in 1970 mining revenues were K250 million. See Monthly Digest of Statistics for the years 1968-71. ^^These consisted mostly of loans guaranteed by the Ministry of Finance to parastatal companies attached to the Ministry of Agriculture and Water Development, some of which are the Tobacco Board of Zambia, Rural Development Corpora tion, Cold Storage Board, Dairy Produce Board, National Agricultural Marketing Board, and others. ISpor the period 1975-80 NAMBOARD received a total of K432.1 million in grants and subsidies. This was 80.5 percent of the total of grants and subsidies for that period, which totaled K536.9 million. During the same period, agri cultural production cooperative unions received, as grants and subsidies, a total of K36.2 million, or only 6.7 percent of total grants and subsidies. 354 TABLE 67 EXPENDITURE ON AGRICULTURE AS PERCENTAGE OF TOTAL CENTRAL GOVERNMENT EXPENDITURE, 1972-82 Expenditure on Agriculture as Total Expenditure Percentage of Total Year Expenditure on Agriculture Expenditure 1972 432.7 17.8 4.1 1973 469.1 18.8 4.0 1974 531.3 18.1 3.4 1975 678.2 24.2 3.6 1976 685.2 27.2 4.0 1977 706.2 98.2 13.9 1978 668.8 81.5 12.2 1979 809.5 144.4 17.8 1980 1,135.2 260.7 23.0 1981 1,277.7 159.8 12.5 1982 1,400.5 231.0 16.5 SOURCE; International Monetary Fund, Government Finance Statistics Yearbook [1973-84] (Washington, D.C.: International Monetary Fund, 1973-84). NOTE: All figures in millions of Kwacha. ET 355 period, expenditures relating to loans and investments aggre gated to K149.7 million. A careful examination of expenditure composition in respect to the above figures can help to convey the picture as to some of the attributes for continued declining agri cultural output. The analysis shows that the bulk of the available funds was not devoted to production. The budgetary support for both recurrent and capital expenditures totaled Kl,083.4 million. Of this figure, 73.4 percent (K795.6 million) accounted for recurrent expenditures while only 26.5 percent (K287.4 million) was allocated for capital expendi tures or expenditures in respect to productive forces. Because agricultural investment policy choices following independence disproportionately favored the sphere of circu lation, the agricultural sector fell badly behind the targets set up in the First National Development Plan (1966-70), exceptions being sugar, cotton, groundnuts, and poultry, which showed remarkable improvement. Production of sugar was especially exceptional. Its production in 1970 exceeded the plan target, thus providing the only bright spot in an other wise somber picture. Output in the agricultural sector continued to decline. Virginia tobacco production of 11,100,000 pounds in 1969 was 25 percent less than in 1964, and in 1970 dropped again to 10.600.000 pounds. Cattle sales had fallen from 67,500 in 1964 to 39,000 in 1969, and milk output also fell from 4.300.000 gallons in 1964 to 3,000,000 in 1969. The 1969 356 maize harvest had fallen 11 percent from the 1964 level. In 1970 the crop estimates for maize production amounted to just over 2,000,000 bags. Consequently, it was apparent that the amount of maize needed to be imported would be far in excess of the 782,064 bags imported during 1969 at a cost of K3 million. The cost of maize imports for 1970 stood at K8 million. The immediate reason for this decline in food produc tion^® was the continued loss of the many experienced commer cial expatriate farmers who had emigrated since independence. The situation was worsened by lack of efficient marketing facilities and transport. To these factors is added contra dictions of government investment policies, which during the first decade of independence favored the mining industry and other urban-based industries. Invest patterns that emerged from these policies appear in table 68, which shows the sectoral distribution of gross fixed capital formation during the First and Second National Development Plan periods. Although considered a major sector in terms of population ^ The broad pattern of agricultural development since 1964 had been a decline in European or expatriate commercial agricultural production. In 1964 there were 182,000 Euro pean-farmed acres under crops, but the number had fallen sharply since then. The estimated livestock population in 1977 was 1,860 cattle, 50,000 sheep, 292,000 goats, 200,000 pigs, and 15,376,000 poultry. See "Quarterly Economic Review of Zambia: Annual Supplement, 1982," The Economist Intelli gence Unit (1982):10-12. E“ 357 TABLE 68 SECTORAL DISTRIBUTION (PERCENTAGE) OF GROSS FIXED CAPITAL FORMATION DURING THE FIRST AND SECOND NATIONAL DEVELOPMENT PLAN PERIODS: 1966-70 AND 1972-76 Sector FNDP SNDP Directly Productive Sectors Mining 26.4 29.0 Others Agriculture^ 6.6 5.2 Manufacturing 10.6 10.8 Electricity, gas, and water 7.3 5.4 Construction 6.4 1.7 Services and Infrastructure 42.7 47.9 Transport and communications • 9.3 12.7 Wholesale and retail trade 4.3 6.5 Real estate 6.6 9.5 Public administration 12.8 7.9 Education 5.7 4.7 Health 1.5 1.5 Others 2.5 5.1 SOURCE: Government of the Republic of Zambia, Third National Development Plan, 1979-1983 (Lusaka: Government Printer, 1979), p. 2. ^Agriculture includes forestry, livestock, and fisheries. 358 concentrations,^^ the agricultural sector was allocated a total of 11.8 percent for both plans, compared to a total of 55.4 percent allocated to the mining sector. This further accentuated the existing profoundly uneven capitalist devel opment between the urban and rural sectors. The cost of imported foodstuffs more than doubled from K14 million in 1964 to K30 million in 1969, and continued to rise as shown in table 69, which analyzes the general trend of the value of food imports from 1964 to 1981. The table shows relative changes in value of food imports from 1964 (1964 = 100). From the percentage relatives shown in the table, it is readily apparent that the value of food imports increased markedly between 1964 and 1981. For instance, the value of food imports in 1969 was nearly 213 percent as great as, or 113 percent greater than, the 1964 value of food imports. The value of food imports in 1981, on the other hand, was approximately 364 percent as great as, or 264 percent greater than, the 1964 value of food imports. The high value of food imports adversely affected the rates of capital accumulation by proportionately raising the cost of the production of labor (feeding), and in turn forcing wages to rise. Also, as shown in table 69, the high value of food 1 According to the August 1980 census, the rural popu lation accounted for 57 percent (3,239,389) of the country's population, which stood at 5,679,808. The total population of urban areas constituted 43 percent (2,440,419) of Zambia's population. See Monthly Digest of Statistics 23 (January 1980);2-3. 359 TABLE 69 VALUES AND VALUE RELATIVES OF FOOD IMPORTS, 1964-81 Value Relatives Year Value of Food Imports^ (1964 = 100) 1964 14.3 100.0 1965 16.5 115.4 1966 19.8 138.5 1967 21.4 149.7 1968 24.1 168.5 1969 30.4 212.6 1970 31.6 221.0 1971 49.6 346.9 1972 38.4 268.5 1973 25.3 176.9 1974 44.9 314.0 1975 36.8 257.3 1976 26.6 186.0 1977 29.6 207.0 1978 32.3 225.9 1979 39.1 273.4 1980 39.5 276.2 1981 52.0 363.6 SOURCE: Government of the Republic of Zambia, Economic Report, 1973 (Lusaka: Government Printer, 1974); and Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December [1975-82] (Lusaka: Bank of Zambia, 1975-82). ^Food includes beverages and tobacco. In mil lions of Kwacha. 360 imports added steam to the foreign exchange draining forces. Attention must also be drawn to one of the most impor tant contradictions that run through most agricultural policy choices in Zambia. This is the choice that arises between concentrating investment resources and other supporting programs on commercial and emergent farmers or on the masses of the peasantry. State policies favor commercial and emer gent farmers (large- and small-scale farmers). In short, the state pursues a capitalist avenue to agricultural develop ment . This policy has had the effect of contributing to the process of peasantization, which was developed by the settler state of the Federation of Rhodesia and Nyasaland (1953-63). The process of peasantization has reached a stage where we can discern three fractions of the class of peasantry, namely "improved farmers," "emergent farmers," and "subsis tence farmers." Foreign exchange reserves, which stood at K270 million in 1970, had dwindled to a meager K8 million by October 1975 (about 3 percent of the 1970 level), and only recovered to K12 million (4.4 percent of the 1970 level) by February 1976. See John Matthews, "Zambians Forced into Agriculture," Afri can Development, October 1976, pp. 1013-15. ^^For a debate about the peasantry as a social class in African social formation, see Review of African Political Economy 10 (September-December 1977):l-75. The fundamental problem with the approaches of the two schools of thought engaged in the debate is that they situate the definition of the African peasantry outside the concept of the mode of production. This mystifies both history and reality. Class analysis must be related to a given mode of production and a historically determined social formation. 361 0 n Improved farmers are peasants who own land and farm implements, and employ wage-labor, but who do not have large enough amounts of capital to be classified as commercial farmers. As such, this class does not ordinarily qualify for commercial bank loans. Instead, improved farmers were largely beneficiaries of the agricultural loans that were made available to Africans after independence, mainly through the Credit Organization of Zambia. Improved farmers, who constituted 3 percent of the class of peasantry in 1970, cultivated more than 30 acres per household during the 1969- 70 season.21 The emergent farmers constituted 47 percent of the class of peasantry. They own land and farm implements, but depend on family labor to work their farms. Sometimes emergent farmers employ seasonal workers, especially for land clearing and at the harvest. Thus, the relations of production with regard to this fraction of the peasantry can be described as of a petty-bourgeois character. In the 1969-70 season emer gent farmers cultivated between 2.5 and and 4.5 acres per household. 2®The concept of land ownership used here relates to the pre-1975 land reform laws, which abolished freehold titles. 21#e endeavor to differentiate the peasantry in terms of relations of production patterns that emerge as we analyze the 1970 Agricultural Census of 750,000 households in the noncapitalist sector by Zambia's Department of Agriculture. Analysis of the census data shows that there were 22,500 (3 percent) households in the fraction of improved farmers, 352,500 (47 percent) households in the fraction of emergent farmers, and 375,000 (50 percent) households in the fraction of subsistence farmers. 362 The remaining bulk of the peasantry, which in 1970 constituted 50 percent of the class of peasantry, is offi cially referred to as a class of subsistence farmers. In the 1969-70 season, this fraction cultivated less than 2.5 acres per household. Subsistence farm units' special characteris tic is that they have only tenuous connections with the P o existing distribution and marketing network. Thus the subsistence sector operates largely within the watertight confines of the noncapitalist sector— producing only occa sional marketable surpluses and creating only small value- added for the periphery through the marketing and processing of the subsistence commodities. The class of subsistence farmers is composed of many fractions (among them rural school leavers) whose common base is a long history of marginalization started by colonial economic policies and continued by postcolonial agricultural investment policies, especially during the first ten years of independence. Thus, from the above facts it is reasonable to say that the class of peasantry owes its origin to the pene tration of the capitalist mode of production. On the other hand, according to the 1970 Agricultural Census, in the commercial sector or capitalist enclave, which in 1970 consisted of 645 African small-scale farmers and 433 ^ In the 1969-70 season, only 40 percent (300,000 house holds) of the surveyed 750,000 households in the entire class of peasantry had sold any produce through the established marketing network. 363 European (expatriate) large-scale farmers, and 20,000 employed workers, 70 percent of the land area was farmed in units of over 5,000 acres. Historically, the influence of European commercial farmers skewed the availability of agri cultural resources to their own benefit. The African small- scale farmers benefited only secondarily due to the proximity (along the rail line) of the location of their farms in relation to the European farms. Although following indepen dence there were political pressures to diversify resources, government policy remained ready to make short-term conces sions to commercial farmers to ensure immediate food sup plies. Consequently, the tendency for commercial farmers to enjoy credit, fertilizer subsidies, and other advantages persisted. The contradictions inherent in government agricultural economic policies latently contributed to the process of "depeasantization" (separation of the peasants from their dependence upon the land for their subsistence). Thus a significant proportion of the subsistence farmers became separated from their means of reproduction and were forced to seek wage-earning employment (sale of their labor-power) in order to subsist. The point being stressed here is that the nature of state intervention in the agricultural sector put to work (even if indirectly) the process of transformation. A significant proportion of the peasantry was transformed into a source of farm labor. Exploitation in this sector took place by means of generalized production of agricultural 364 commodities, primarily for the internal market but also for export, and appropriation of surplus-value embodied in them. Surplus labor was thus being appropriated indirectly through the sale of labor-power as a commodity. Table 70 shows the total wage-labor with respect to each year for the period 1970-82. The table also shows agricul tural wage-labor as a proportion of wage-labor in all indus tries with respect to each year. It is apparent from the table that the growth of employment in the agricultural sector was marginal. For this reason, many peasants were forced to migrate to the urban areas in search of employment in the cities— forming the so-called marginal population of Zambia's growing squatter compounds and shanty towns sprawl ing on the outskirts of towns and cities throughout the country. This fraction of the peasantry, which is becoming the largest in the rural areas, became one of the major sources from which the urban reserve army recruited its members. Here again, we see that the state acts as an agent of class formation while performing an economic function. Consequently, commodity relations and acquisition of a cash income have become conditions of reproduction for a significant percentage of the class of peasantry. Thus, the penetration of the capitalist mode of production in the agricultural sector created a market for consumption of manufactured goods. That is to say, it expanded the arena of capital accumulation. 365 TABLE 70 WAGE-LABOR IN AGRICULTURE AS PERCENTAGE OF TOTAL WAGE-LABOR IN ALL INDUSTRIES, 1970-82® . Agriculture as Percentage of Year All Industries Agriculture All Industries 1970 342,970 34,610 10.0 1971 365,550 39,320 10.8 1972 367,930 31,140 8.5 1973 373,440 31,730 8.5 1974 384,890 33,610 8.7 1975 393,490 36,100 9.2 1976 368,790 32,500 8.8 1977 370,450 30,800 8.3 1978 367,010 31,610 8.6 1979 374,800 31,810 8.5 1980 388,990 32,560 8.4 1981 391,890 34,160 8.7 1982 396,220 34,020 8.6 SOURCE: Monthly Digest of Statistics for 1973, 1978, and 1981; and Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December, 1982 (Lusaka: Bank of Zambia, 1982). ^Figures for years 1970-80 relate to averages for the quarters ending 31 December, and figures for 1981 and 1982 relate to averages for the quarters ending 30 June. 366 Finally, we conclude this section by examining other state interventions that facilitated the expansion of capi talism and formation of classes in Zambia's rural areas. First, the state intervened to participate in direct produc tion of crops and livestock through the 100 percent state- owned and -controlled Zambia Agricultural Development Limited, incorporated in 1979. The company has a total of thirty farms in all the nine provinces. In 1980 the company sold 9,000 head of cattle worth about K2.5 million and produced 6.9 million pints of milk worth K1.3 million. In the 1980-81 season, company farm units increased production of various cash crops. The company had 3,372 acres under crop during the season, of which 2,025 acres were under commercial maize; 655 acres under seed maize; 321 acres under commercial wheat; and the remaining 371 acres under soybeans, seed wheat, sunflower, and cotton. Livestock production also increased at various company ranches and dairies. The production of the company in the 1981-82 season included 12,832 bags of maize, 1,754 bags of wheat, 1,395 bags of seed maize, 852 bags of seed sunflower, 11,924 head of cattle, and 640 pigs for slaughter. The company's sales of fresh milk increased by 6.3 million pints recorded in 1981 to 6.8 million pints in 1982, which was over 30 percent of officially marketed fresh milk in the country. 367 Reorientation and Establishment of Financial Institutions to Support Indigenous Accumulation While the Mulungushi Economie Reform of 1968, which was the government's second attempt to increase lending to Zambians, gave the Bank of Zambia de facto control over the total volume of credit (the money supply) as well as its direction, state efforts to foster the development of indig enous private enterprises still faced considerable difficul ties. Both Zambian individuals and privately owned companies still found it extremely difficult to obtain bank loans because of the expatriate nature of the banks and nonbank financial institutions. The policy of controlling non-Zambian borrowings did not work as had been envisioned under the Mulungushi Decree. Despite the fact that the banks had excess liquidity (that is, liquid assets as a percentage of liabilities to the public) between 1968 and 1970, which respectively stood at 46.1, 46.3, and 43.8 percent, to lend to emergent Zambian businessmen they did not do so because their lending policies were still directed from their overseas headquarters, whose policies were described by President Kaunda as excessively conservative.23 23In addition to their healthy liquidity ratios, commer cial banks' cash reserves held by the Bank of Zambia and banks abroad clearly indicate that there were no shortages of funds for loans during the period 1968-70. See Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December, 1972 (Lusaka: Bank of Zambia, 1972), pp. 73, 78; and United National Independence Party, Take Up the Chal lenge: Speeches Made by His Excellency the President Dr. 368 The immediate step, which constituted yet another inno vation aimed partly at increasing lending to Zambians, was the establishment of a state-controlled (98 percent) commer cial bank in 1969. This did not, however, help to resolve the problem. There was still no direct way in which the government could force the bank and nonbank financial insti tutions to liberalize their lending policies. Private Zambian enterprises were perceived by the banks as being of high risk and small for bank loans. Left with no other nonrevolutionary means through which credit facilities controlled by the commercial banks could be extended to Zambians, in November 1970 the government announced that the state would acquire 51 percent of the shares of all privately owned banks in Zambia. The takeover, as with the copper mines, would be based on the book value of the assets of each bank. This formula of takeover put the banks in a vulnerable position, since their physical assets are small in relation to their business. Under the takeover formula the government would issue new capital instead of paying for the 51 percent shares. The government also refused to enter into management contracts as was the case with the copper mining companies. Lack of agreement led to an impasse that consequently led the government to adopt a different strategy, which Kenneth David Kaunda to the United National Independence Party National Council, Mulungushi Hall, Lusaka, 7-10 Novem ber, 1970 (Lusaka; United National Independence Party, 1970), p. 64. 369 placed emphasis on the need to reorient the banks and develop Zambian-owned and -controlled financial institutions. This change of strategy reveals the power of finance capital. Its main source of power was its skilled manpower, which was still mainly expatriate and loyal to the banks. Thus, instead, all three foreign banks (Barclays Bank, Standard Bank, and National and Grindlays Bank) were under the new law required to incorporate in Zambia by January 1972 with a minimum paid-up capital of K2 million. It was also required that at least half the board members of each bank had to be Zambian citizens. In practice, the government retained the prerogative to make such appointments. However, although expatriate banks in Zambia became locally registered compa nies rather than just branches, they still remained foreign owned and controlled, and still maintain accounts overseas.24 The government, through its 100 percent owned financial holding company FINDECO, acquired 60 percent of the capital of the small Commercial Bank Zambia Limited to add to its 98 percent holding in the National Commercial Bank, and toward the end of 1972 the remaining 40 percent minority sharehold ing in the Commercial Bank Zambia was acquired by FINDECO, which then merged its two banking subsidiaries to form the Zambia National Commercial Bank Limited. Also, as mentioned 24por a detailed discussion of the question of directing commercial bank lending to the indigenous sector and away from the foreign sector, and the foreign ownership of commer cial banks, see Charles Harvey, "The Control of Credit in Zambia," Journal of Modern African Studies 2 (1973);383-92. 370 in chapter V, the Merchant Bank of Zambia was closed down on government instructions, and merchant banking was transferred to specialist departments of the main branch banks, which continued to offer facilities for short-term deposits and to accept and discount local bills. The next step was to create a state monopoly insurance enterprise, the State Insurance Corporation Limited. All foreign-owned insurance companies were ordered to close down to leave the field free to the 100 percent government-owned State Insurance Company. At the same time, all building societies were merged to form the Zambia National Building Society under 100 percent FINDECO control. These measures were complemented by monetary policy measures that had twin objectives, to increase lending to Zambians and Zambian enterprises and to protect national foreign exchange reserves. As a result of constant monetary policy pressure and the restriction on lending to non- Zambians and foreign enterprises, commercial bank credit to the Zambian sector improved. Table 71 shows the extent to which commercial banks functioned as purveyors of credit to the Zambian private sector by relating loans and advances to the private sector to total assets and liabilities of commer cial banks for the period 1970-82. The table shows high proportions of credit except for the period 1977-80, when the lending level was between 24 and 29 percent due to the slug gishness of economic growth. The extent to which the govern ment policy was successful in reorienting commercial banks 371 TABLE 71 COMMERCIAL BANKS' LOANS AND ADVANCES AS PERCENTAGE OF TOTAL ASSETS/LIABILITIES, 1970-82 Loans and Advances as Percentage of Total Assets/ Loans and Total Assets/ Year Liabilities Advances Liabilities 1970 292.6 103.0 35.2 1971 341.7 141.4 41.4 1972 367.3 157.8 43.0 1973 474.2 160.9 33.9 1974 604.3 270.6 44.8 1975 695.9 328.5 47.2 1976 882.5 324.7 36.8 1977 1,161.2 333.0 28.7 1978 1,251.0 301.6 24.1 1979 1,444.6 387.6 26.8 1980 1,549.0 402.3 26.0 1981 1,791.3 366.8 39.1 1982 2,262.0 747.7 33.1 SOURCE: Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December, 19.82 (Lusaka; Bank of Zambia, 1982). NOTE; All figures in millions of Kwacha. 372 toward lending to the Zambian sector will also be seen from the data in table 12, which proportionately shows the rela tionship between total deposits and total loans and advances from 1971 to 1981. The table shows that high percentages of deposits went to loans and advances. Also, through monetary policy measures commercial bank liquidity levels vis-à-vis the levels of credit availability to Zambians increased during period 1970-82. Whenever there was excess liquidity that could not be absorbed by the Zambian sector the central bank, among measures, increased p C the official reserve ratios, cash or liquid assets, or both; or altered the definition of liquid assets in such a way that some assets previously counted as liquid could no longer be included in the official ratio. This measure had the effect of directing bank lending to the indigenous sector since for the banks the government actually enforced the holding of government debt (treasury bills) by requiring official liquidity ratios that excluded other types of investment. At the same time, since commercial banks maintained sizeable balances abroad in relation to their assets and 2®Basically, liquid assets refer to money. That is, money is perfectly liquid. Thus cash in the form of notes and coins is 100 percent liquid by definition because it can be spent at will. Bank deposits are liquid since they can be converted into cash on demand— hence the term demand depos its . Consequently, two elements are basic to the liquidity of assets; the speed with which an investment can be converted into cash and the degree of certainty about the amount of cash that will be received. 373 TABLE 72 COMMERCIAL BANKS' TOTAL LOANS AND ADVANCES AS PERCENTAGE OF TOTAL DEPOSITS, 1971-81 Total Loans and Advances as Percentage Total Total Loans of Total Year Deposits and Advances Deposits 1971 283.1 141.4 49.9 1972 307.3 157.8 51.4 1973 368.1 160.9 43.7 1974 410.1 270.6 66.0 1975 430.4 328.5 76.3 1976 520.8 324.7 62.3 1977 1,161.7 333.0 28.7 1978 717.8 301.6 42.0 1979 765.4 387.6 50.6 1980 810.3 431.6 53.3 1981 843.1 699.8 83.0 SOURCE: Quarterly Financial and Statistical Review (Bank of Zambia) 12 (December 1982). NOTE: All figures in millions of Kwacha. 374 liabilities, as shown in table 73, the central bank encour aged them to borrow abroad so as to have enough liquidity to meet the demand for credit. This policy measure had the effect of running down commercial bank balances held by banks abroad, as shown in table 74. It also prevented depletion of the country's foreign exchange reserves. Importantly, the effectiveness of these policy measures as instruments for controlling operations of foreign-owned banks and for increasing their participation in the Zambian economy can be gauged from the operating ratios of commercial banks (prepon derantly foreign-owned)', 2® which appear in table 75. The table shows the relationship between commercial banks' levels of liquidity and levels of demand for credit. The decline in commercial banks' liquidity levels is a reflection of increased demand for credit. Conversely, a tight credit policy results in increasing commercial banks' liquidity. Thus the role played by the state to ensure availability of bank loans for indigenous enterprises is central to accu mulation of capital since bank loans constitute the dominant source of corporate short-term finance. For this reason, their cost and availability play a pivotal role in corporate short-term money markets. The commercial bank sector also 2®As of December 31, 1982, there was one 100 percent state-owned and -controlled commercial bank, namely the Zambia National Commercial Bank. The group of foreign-owned and -controlled commercial banks comprised the following banks; Barclays Bank, Standard Chartered Bank (has a 10 percent local equity), Bank of Credit and Commerce, Citibank, Meridian Bank, National and Grindlays Bank, and Equator Bank. E:'" 375 TABLE 73 COMMERCIAL BANKS; BALANCES HELD IN BANKS ABROAD AS PERCENTAGE OF TOTAL ASSETS/LIABILITIES, 1965-82® Balances as Percentage of Total Assets/ Total Assets/ Year Liabilities Balances Abroad Liabilities 1965 100.7 10.1 10.0 1966 136.6 16.7 12.2 1967 465.2 15.1 9.1 1968 212.3 4.8 2.3 1969 263.1 10.1 3.8 1970 292.6 17.5 6.0 1971 341.7 ' 9.7 2.8 1972 367.3 5.8 1.6 1973 474.2 5.5 1.2 1974 604.3 11.8 2.0 1975 695.9 4.6 0.7 1976 882.5 9.7 1.2 1977 1,161.2 6.1 0.5 1978 1,251.0 26.1 2.1 1979 1,444.6 75.0 5.2 1980 1,549.0 44.4 2.9 1981 1,791.3 82.2 4.6 1982 2,262.0 23.9 1.1 SOURCE; Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December [1965-82] (Lusaka: Bank of Zambia, 1965-82). NOTE; All figures in millions of Kwacha. ^Includes the Merchant Bank. The Merchant Bank of Zambia was closed in 1970 on government orders, and merchant banking is now carried out by specialist departments of the main branch banks. 376 TABLE 74 COMMERCIAL BANKS: AMOUNTS OWED TO BANKS ABROAD AS PERCENTAGE OF BALANCES HELD IN THE BANKS ABROAD, 1965-82® Amount Owed as Percentage of Total Balances Total Amounts Balances Year Held Abroad Owed Abroad Held Abroad 1965 10.1 1.9 18.8 1966 16.7 7.0 41.9 1967 15.1 7.5 49.7 1968 4.8 4.2 87.5 1969 10.1 4.4 43.6 1970 17.5 1.2 6.9 1971 9.7 2.4 24.7 1972 5.8 4.0 69.0 1973 5.5 1.4 25.5 1974 11.8 2.3 19.5 1975 4.6 5.1 110.9 1976 9.7 7.1 73.2 1977 6.1 13.9 227.9 1978 26.1 10.4 39.9 1979 75.0 5.0 6.7 1980 44.4 31.1 70.0 1981 82.2 21.5 26.2 1982 23.9 59.0 246.9 SOURCE: Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December [1965-82] (Lusaka; Bank of Zambia, 1965-82). NOTE; All figures in millions of Kwacha. ®Includes the Merchant Bank. The Merchant Bank of Zambia was closed in 1970 on government orders, and merchant banking is now carried out by specialist departments of the main branch banks. 377 w (0 m m O 4J Xi "H WOO) 4J tP O GOO* 0 00 PN VO (N p' TT m IT) CM (U -U O ECO rH rH OV 00 00 0 m VO in 4J 0 rH rH rH 0) U rH (U M O > 0) 4J G CM O H Eh nJ 0) CN oim 00 CO G O 0) I 3 (0 4J o rH Æ to o> X 3 O rH to W +1 04 rH rH ro 00 rvj rH rH 0 p- 00 tU G to Q) <0 -O rH CM -P m < rH O •H to EH CQ ttJ M LO to m +) g I to 0 •H o (0 to g 0) 0 to Cn O4 o v rH T p p > CTl m in CM VO t o è 0 <0 CU u •p Q 00 0 rH in VO CM CM CO 0 CO CO G G m in in T p VO p - VO in in in in o (0 0) i H > 0 ttJ ■o U 4J < 0) 0 CM Eh C5 a t o t o ( u m o +J tjl'rl -n) 0) (tJ 4J rH I CO +J -H Æ t o G rH 3 00 Tp rH TP CM VO CO 00 in CM (U -rt O4 U X» t o P> r~- t o in CM p~ p - CO rH 00 •O M (0 tl) << CO Tp in CO in r~ . 0 in VO in •iH QJ tH Æ rH 3 CM A -P cr • H t o M H O PI (0 O -P p 0 rH CM CO Tp in VO P» CO cn 0 It) p~ t^ P~ P~ P> P» p~ P* r~ CO (U ov OV o \ o \ a \ cn (TV CO (3 Mh co 0 •p m X ) •H co (D co 73 • p en o (U G (3 O i T|* rH g (U HJ (D •H EGO m M •P (D CO ü rH (3 CD M (3 N > û) -P G CM 0 H EH 0) H-> M (D O •O (nMH m I—t CO G 0 CO O 3 3 -P co co rH X3 CD •rH 4J CM ü en CO G (0 X 3 o 3 G co H p CM rH œ O O (U G CD ü •rH ü P CD Q TJI Tj< -P G O U 00 vo < (3 3 P rH en > CO 3 3 MHlO •rH T3 >0 rH CM P 0 |fM I—i 0) < rH o X) •H co Eh + ) O • g CQ 3 •H CM • p " p -P The second strategy aimed at making funds available for lending to indigenous enterprises and the national bourgeoi sie was for the state to enter the field of finance capital, in which it became dominant (as of December 31, 1982) as it became the largest owner of financial institutions. Of the country's twenty financial institutions, thirteen, or 65 percent, were 100 percent owned by the state; 1. The Bank of Zambia (central bank) 2. Agricultural Finance Company Limited 3. Development Bank of Zambia 4. Industrial Finance Company 5. National Savings and Credit Bank of Zambia 6. Widows and Orphans Pension Fund 7. Zambia Agricultural Development Bank Limited 8. Zambia Civil Service Pension Fund 9. Zambia National Building Society 10. Zambia National Commercial Bank Limited 11. Zambia National Provident Fund 12. Zambia National Insurance Brokers Limited 13. Zambia State Insurance Corporation Limited 380 g. P W 3 73 q 3 P rH G CO 3 *H G 3 3 3 g +J 3 P Ü r o V£> e n m . OO O O P' 00 in G -H 0 O W G • ' p p P &H G 3 00 CT> 00 VD Tf rH O 00 CM o 3 3 3 3 > CM rH 1—1 CM P H H CN tH rH rH M > U CM P O 73 0 3 O X < 0 CO CO 3 1CM X X 00 P CO < I G 3 EH O rH 3 "H O r~- 3 E P rH r~ 00 00 H Tf PO rH CM CO N* t n v o p~ 00 m o 3 r ~ P ~ P ~ P» P~ p» p» p- p~ p' 00 3 e n e n e n e n e n e n e n m e n e n e n >H rH rH rH rH p P P p P P P 381 3 tn P CQ 3 73 1 îr G 3 P P G CQ CQ 3 • p 73 -p 3 P G 3 3 3 m G 3 co X 3 P E P 3 P ü in o O P 73 3 X 3 G -H ü 0 CO G •H Eh G 73 CQ ü P P P EH G 3 Tt< Tf P G '-'•P 3 3 3 3 3 > 3 X 3 CQ > 0 (M P O 73 tn • CQ tn 0 3 O X < I •H P P 73 G 3 0 CO CQ P 3 O G P 3 X 3 0 P CP 0 >1 CQ X 3 O 3 •P P 3 -H — .73 ü X G P CQ -P X 3 0 -H P 3 P P CQ 73 P 3 P m G 3 I G 3 3 3 -P p 3 *H E 3 U >1 P 3 E P in en Pl P X 3 co 3 P G -H O 3 P CQ in 3 P O P P P en P| P 1 -P ü EH 3 3 00 eM 1 CQ P H P 3 > ü tn P CQ G •P P 0 3 P P 3 3 M P 3 0 CO G OPE p 3 X 3 X G p U t) 0 CQ G P 3 3 ü •H 3 q CO P 3 > CQ 3 P < P 3 O 3 p -H CQ 0 3 P tn G P 73 p CQ P 3 3 G P 3 CO 3 0 r-P e E E 3 •H tn G ü CQ 3 P P G CO g CQ 3 3 G p E 3 3 P CQ •H P O 3 in Tf G P P P 3 3 P >1 G X > ■H X 1 1 > G P 3 73 P eM X ü tn tn 0 G 0 3 O P < P TJ< 1 1 -H G G 0 < U CQ p 3 p 3 EH X 0 0 1 3 3 P 73 3 ^ P 1—1 I 3 CM 0 G P CM •g 73 VD P EH 3 CO 00 3 •* G PPM P- Eh CQ The state's main objective for entering the finance sector was to promote and foster both the money and capital markets.27 To accomplish this goal it established new finan cial institutions and federal governments toward this new strategy aimed at facilitating indigenous accumulation of capital. Importantly, the 1970 bank reform law provided an institutional setting for strengthening and increasing the use of the newly established stock market and gave authority to the Bank of Zambia to function as an investment bank to underwrite new government and municipal issues. Functioning as an investment bank. Bank of Zambia is primarily concerned with designing and underwriting new securities and selling them to ultimate investors. Special funds (including sinking funds) and merchant banking facilities were created (func tioning as adjuncts of the state-owned Development Bank of Zambia) to extend credit to small and medium-sized Zambian firms or to finance the acquisition of capital goods. In this respect, important components of the financial infra structure were the Agricultural Finance Company, the Indus trial Finance Company, the Development Bank of Zambia, the Zambia State Insurance Corporation, the Zambia National 27ouring the settler rule (1953-63) a money market, in the strict and technical sense of institutions specializing in the borrowing of temporary surplus funds at call or at very short notice and their employment in the discounting of bills or the holding of of other short-term marketable assets, did not exist in Zambia. Such a market was estab lished in Southern Rhodesia. For this reason, the liquid reserves and other surplus funds accumulated by banks and other large business concerns were largely employed in finan cial centers in Britain, South Africa, and Southern Rhodesia. 383 Building Society, and the Zambia National Provident Fund. The contribution made by the Agriculture Finance Company and the Zambia State Insurance Corporation to the process of indigenizing capital accumulation has already been discussed. For this reason, we will confine our analysis to the role played by the Industrial Finance Company, the Development Bank of Zambia, and the Zambia National Building Society. The Industrial Finance Company was established with authorized share capital of K2 million, and by 1975 issued capital stood at Kl million. The company increased its operation in the loans and hire purchase department, which was established to provide specialized medium- to long-term equipment finance. The Industrial Finance Company was estab lished to complement the newly created credit s y s t e m . 2® Under hire-purchase agreements the company finances sales of industrial plant and agricultural equipment. The state determines the minimum deposits, the maximum periods of repayment, and maximum rates of interest charged on hire- purchase. The minister of finance is empowered to change these requirements when necessary. As with the banks, the state may require the company to curtail its lending. In this 2®The Industrial Finance Company is restricted from deposit-taking activities because of the term risk involved in transforming short-term deposits into long-term fixed assets for leasing. This risk is particularly high since the Industrial Finance Company (as a leasing company) does not have access to the central bank rediscount facilities. 384 case, the minimum deposits on hire-purchase agreements are raised and maximum periods of repayments reduced. This points to the importance of the role played by the state in accumulation of capital. Through leasing facilities the state extended certain advantages to Zambian enterprises as compared to conventional bank lending, which relies primarily on the borrower's assets or capital base. In the case of leasing agreements, the lessor (the Industrial Finance Company) relies on the ability of the user (the lessee) to generate sufficient cash flow to make the lease payments. In Zambia, where the capital market is not fully developed, leasing constitutes an important form of medium- to long-term finance available for capital equip ment on suitable terms. The other advantage is that under leasing facilities the state provides close to 100 percent financing, whereas bank loans typically provide much less and often require collateral well in excess of the credit facility. The Development Bank of Zambia was established in December 1972 and began commercial operations in January 1974. The bank has mixed ownership (private and public; domestic and foreign). Its authorized capital of KlO million consisted of 600 class A (state-held) and 400 class B (privately and foreign-held) shares, each having a par value of KlO,000. In addition to holding equity shares, the government and state-owned financial institutions provide loans to the Development Bank of Zambia on such terms (long- 385 term nature and low interest rates) that the loans are considered part of the borrowing base or quasi-equity. Importantly, under this form of lending such loans are subordinated to all debts of the bank and to equity. The advantage of this technique of lending is that the loans' subordination to other bank debts permits lenders to lend without fear that such quasi-equity loans will constitute prior lien on the assets of the bank. Also, such loans' subordination to equity facilitates the sales of shares in the bank. Thus, since these state loans do not rank pari passu with equity capital, they serve to stimulate the stock of the bank. The Development Bank of Zambia's main functions are to mobilize long-term investment funds in the domestic and foreign capital markets, to offer long-term loans to Zambian enterprises, and to arrange equity participation in new projects (the bank makes equity investments itself). Through government efforts, the bank's domestic and foreign sources of capital became diversified. Also, in addition to organiz ing the domestic capital market, the government increased its size and efficiency. It enabled the bank to exploit the market's structure more effectively in order to accomplish the objectives for which it was established. By adding new domestic and foreign shareholders, besides building the capital base, the Development Bank of Zambia brought in added support and new business. 386 The state was especially successful in mobilizing foreign portfolio investments (see table 77), which brought in much-needed foreign exchange. The Century Packages Lim ited loan package of $2.6 million to establish a flexible packaging plant is a good example. The state, through the Development Bank of Zambia and the International Finance Corporation (IFC), a World Bank affiliate, organized an international financing syndicate for the project. The IFC investment consisted of $775,000 and an equity commitment of approximately $260,600, representing 25 percent of the company's share capital. Century Holdings Limited, owned by a group of Zambian businessmen, made a $601,400 equity investment in the project. Equity of $100,000 was also provided by the state-owned Zambia State Finance and Develop ment Corporation. The remaining $77,500 of equity was taken up by the technical sponsor. Packages Limited, an experienced Pakistani pulp, paper, and packaging materials producer in which IFC had invested before. A $775,000 loan from the Development Bank of Zambia completed the financing package for the project.29 Table 77 shows that major financial institutions in the member countries of the Organization for Economic Cooperation and Development (OECD) and the European Economic Community (EEC) subscribed to the bank's share capital to the extent of 29gee International Finance Corporation, 1975 Annual Report (Washington, D.C.: International Finance Corporation, 1975), pp. 13-18. 387 TABLE 77 PORTFOLIO INVESTMENTS BY FOREIGN COMPANIES IN THE DEVELOPMENT BANK OF ZAMBIA® AS OF MARCH 31, 1982 Subscribed Share Capital Subscribed as Percentage of Class "B" Ordinary Share Total Share Shareholders Capital Capital German Development Co. (DEG) Kl,500,000 13.6 European Investment Bank (EIB) 550.000 5.0 Barclays Bank of Zambia Ltd. 400.000 3.6 International Finance Corp. (IFC) 350.000 3.2 Standard Bank Zambia Ltd. 200.000 1.8 African Development Bank (ADB) 150.000 1.4 Bank of Tokyo 100.000 0.9 Grindlays Bank International (Zambia) Ltd. 100,000 0.9 Banca Nazionale del Lavoro 100,000 0.9 Bank of America 100,000 0.9 Beogradska Banka 60,000 0.5 Jugobanka 60,000 0.5 Den Norska Creditbank 50.000 0.5 Zagrebacka Banka 40.000 0.4 Privredna Banka 40.000 0.4 Ljubljanska Banka 40.000 0.4 Rijecka Banka 40.000 0.4 Dai-ichi Kangyo Bank Ltd. 20.000 0.2 Mitsubishi Trust & Banking Corp. 20,000 0.2 Fuji Bank Ltd. 20,000 0.2 388 TABLE 77— Continued Subscribed Share Capital Subscribed as Percentage of Class "B" Ordinary Share Total Share Shareholders Capital Capital Mitsui Bank Ltd. 20,000 0.2 Mitsubishi Bank Ltd. 20,000 0.2 Investiciona Banka 20,000 0.2 TOTAL K4,000,000 36.5 SOURCE; Development Bank of Zambia, Annual Report, 1982 (Lusaka; Development Bank of Zambia, 1982), p. 13. NOTE; Total subscribed share capital; Kll,000,000. ®The Development Bank of Zambia is owned and controlled by the state through the Ministry of Finance (majority shareholder; K4,500,000, or 40.9 percent). The Bank of Zambia, Zambia National Provident Fund, Zambia National Commercial Bank Ltd, Zambia National Building Society, and Zambia State Insurance Corporation Ltd. (all 100 percent state owned and controlled) control 13.6 percent (Kl,500,000) of total subscribed share capital. These, together with the Ministry of Finance, are Class "A" ordi nary shareholders. The Zambian State Insurance Corporation Ltd. is also a Class "C" preference shareholder with Kl,000,000 subscribed share capital (9 percent of total subscribed share capital). 389 36.5 percent of total share capital as class "B" ordinary shareholders. The bank also established an internationally funded fund, the Special Fund for Rural Development, to enable it to make medium- and long-term loans available from the Norwegian Aid for Develop, the Swedish International Development Aid, the Canadian International Development Aid, and other international aid agencies to allow it to make low- interest loans. In addition to mobilizing loan funds, the Development Bank of Zambia is concerned with analyzing long-term credit worthiness of Zambian enterprises seeking loans from the bank. The bank also plays an active role in identifying and promoting investment projects. Through its projects division the bank evaluates technical, economic, and financial viabil ity of all projects funded through loans from the bank. Loans and equity investments made by and through the bank for the period 1974 to 1982 are shown in table 78. Altogether, 220 investment projects were funded during this period for a total of K113.8 million. Thus, the establishment of the Development Bank provided the largest central core around which private indigenous capital was built. In its loan activities the Development Bank of Zambia makes efforts (as a matter of policy) to operate from a strong equity base to provide a cushion against possible defaults. A strong equity base is necessary also for the purpose of borrowing funds as lenders look for a strong equity base before they lend the *bank money. This is 390 MH o +> G 3 O O' *rH o OO o o O 3 I H H-> ■ « ■ I •p 3 3 0 G -P ü VD T—1 m CM CM in O iH CM 3 0 0 rH o 00 ü EH rH I p rH 1 TT 3 < Q P4 m 3 -% Pi 3 3 O îr 3 0 MH -H 00 CM O VD m rH VD 00 8 •p M CM M G rH CP CM CM in rH m 00 (Q 3 3 rH 00 rH I O G rH Tf Q S 3 < O ov 1 P) rH M EH +J u P MH O O 3 o; §œ G 3 3 « M O' O M O EH 3 PI -P O o o o O o O O 00 M +J -H 3 D G rH 0 r- 00 co X VD CM rH Ot 3 3 O' ro O X M ü -P M rH O S P O I X CO 3 EH Pm 3 g (0 •ri •H I 3 • O' 3 M 3 N O X MH - H O G MH X 3 °g. o 3 ü P H in VD 00 CM m LO O 3 P 3 oo o rH CM M > 3 IKl CM G •H CM •ië 3 rH 3 3 m 3 X è X 3 3 ^ 3 ■p • O 3 X m G — • 3 73 0 3 CM 3 X g oo M X CM I ü O' I O' O XG G EH G rH 0 •ri •ri •H 3 o\ 73 M 3 3 G Oi-P P G P 3 I 3 3 P 0 3 0 3 3 ° 3 •H X P X P O' 3 •H rH rH - 0 G cr G rH 3 0 3 MH •H 0 M i •H ü X P p 73 •iH CJ 3 E •H 3 *■ 3 X Pi N P 3 M X M X 3 D G O' 3 ! g O MH H < Q P rH P ü E X 3 O' •P 3 X 3 3 •H O' G CO O 3 o 3 C3 3 X H* -H P 3 •H 3 •P 3 3 •H P X t—1 X < 73 P 73 G G 3 3 3 3 EH G G O' G 3 •H 0 •H 3 •rH o 3 M rtj -ri S S E h Q K Pu EH m 391 especially so with respect to loans that are not guaranteed by the government. The bank is also engaged in indirect financing of investment projects. The techniques include revolving the bank's portfolio more quickly, bringing in partners (domestic and foreign) to share the funding of new projects, and assisting companies to finance themselves partially from domestic money and capital markets. In this respect, the bank helps to strengthen the domestic money and capital markets. The other important role that the Development Bank of Zambia plays in connection with lending funds to Zambian enterprises is with respect to foreign financing. The bank raises foreign exchange (borrows foreign currency) that Zambian enterprises cannot raise on their own. The extent to which the bank was successful in borrowing foreign currency for financing investment projects for the period 1977-82 is shown in table 79. Of the KllO million sanctioned by the bank in the form of loans, K56.3 million, or 51 percent, was in foreign financing. To protect itself against the foreign- exchange risks the bank limits its borrowing to the foreign- exchange portions of projects that generate sufficient foreign-currency income^® to service the debt. Thus, much of foreign financing takes place in the export industry. 2®Assets and liabilities expressed in foreign currencies are translated to Zambian Kwacha at rates of exchange ruling at the end of the financial year. 392 TABLE 79 DEVELOPMENT BANK OF ZAMBIA; FOREIGN CURRENCY FINANCING AND TOTAL AMOUNT OF LOANS SANCTIONED, 1977-82 Foreign Financing Total Amount Total as Percentage of of Loans Foreign Total Amount of Period Sanctioned Financing Loans Sanctioned 1977-78 10.9 5.1 46.8 1978-79 11.9 6.2 52.1 1979-80 22.5 11.4 50.7 1980-81 39.3 26.3 66.9 1981-82 25.4 7.3 28.7 SOURCE; Development Bank of Zambia, Annual Report [1977-82] (Lusaka; Development Bank of Zambia, 1977-82). NOTE; All figures in millions of Kwacha. 393 The importance of the role played by the state in providing loans to the national bourgeoisie is also reflected in the magnitude of the size of loans made available by the Zambia National Building Society from 1970 to 1982, shown in table 80. The table shows that significant proportions of the Society's assets were made available for loans. The bulk of the mortgage advances went to the construction industry. Zambianization, Access to State Resources, and the Growth of the National Bourgeoisie In the preceding sections we made efforts to show how the growth of indigenous capital followed certain internal momentum derived from the development of a capitalist mode of production, and how the emergence of new economic opportuni ties for Zambian entrepreneurs accelerated and shaped the pattern of classes in postcolonial Zambia. Specifically, we endeavored to show how the intervention of the state in the economy, namely deliberate policies by the government to provide loans for businessmen and to reserve certain areas of business in the private sector for Zambians, constituted a particularly important element of state aid for the embryonic indigenous bourgeoisie. In this section an effort is made to show how the Zambianization policy benefited the incumbents of high offices in the government, the party (UNIP), and parastatal companies. In other words, we intend to show that access to state resources has been an important factor in promoting the growth of a Zambian capitalist class. Indeed, access to 394 TABLE 80 ZAMBIA NATIONAL BUILDING SOCIETY LOANS AS PERCENTAGE OF ASSETS AND LIABILITIES, 1970-80 Total Assets/ Loans as Percentage of Year Liabilities Total Loans Assets and Liabilities 1970 68.5 50.0 73.0 1971 74.1 54.2 73.1 1972 77.2 57.1 74.0 1973 83.1 61.6 74.1 1974 88.2 65.8 74.6 1975 93.1 74.5 80.0 1976 96.6 79.2 82.0 1977 108.1 88.9 82.2 1978 114.0 92.4 81.1 1979 119.7 97.4 81.4 1980 119.9 97.5 81.3 SOURCE; Monthly Digest of Statistics 17 (April-June 1981). NOTE; All figures in millions of Kwacha. 395 public office has been characterized as a halfway house from which conditions are created for entry into business. Through Zambianization of expatriate positions in the civil service and the private sector, the state became both an instrument of accumulation and essential source of capital for Zambians seeking entry into business. Through the Zambianization program emerged a new small owning class that enjoyed a strategic affinity with the state and the state elite. Importantly, at the upper echelons of the new owning class the state elite constituted a signifi cant class of recruitment for the new bourgeoisie. Thus, those members of the Zambian owning class who entered large- scale capitalist operations in commerce, transport, engi neering and manufacturing, or combined a number of such interests, tended to be drawn disproportionately from the ranks of professionals and from the top layers of the Party, civil service, and parastatal companies. According to a study by Baylies and Szeftel, the partic ularly close association of the emergent bourgeoisie with the state apparatus is reflected not only in the background of the new bourgeoisie, but also in the fact that of all those who had held cabinet office from 1964, half had farms or business interests by 1976, and that another 10 percent had ^Igee Morris Szeftel, "Political Graft and the Spoils System in Zambia: The State as a Resource in Itself," Review of African Political Economy 24 (May-August 1982):20. 396 small holdings of less than 100 acres on state land.^^ The state acted as a source for accumulation in many respects. Even after the economic reforms were securely put in place, Africans lacked capital resources and so they directed their aspirations to accumulate capital toward the state (includes local government). Public office provides a steady high salary that can be used to accumulate the necessary initial capital for a business venture. Public office also provides managerial skills that provide the necessary knowledge and confidence for entry into the private sector. The prestige and contacts made when in office often provide access to property and capital not available to other classes of Zambians. During the first decade (1964-74) of independence the value of the state as a method of transferring surplus-value in the economy to members of an emerging indigenous capital ist class became apparent. As illustrated by cases mentioned below, the hijacking of public policy (mainly in land trans actions in which certain individuals were favored by the minister of lands and natural resources) by people in offi cial positions in order to divert resources for private accumulation was the common feature of the use of official positions to obtain access to the necessary resources. Simultaneously, a system of patronage developed as a device for rewarding certain members of the ruling party 22jbid., pp. 4-21. 397 (UNIP, the only party since 1972). The administration of loan funds constituted an important way in which the system functioned and through which loyalty to the Party was rewarded. Such rewards were funneled through business and farming loan funds established soon after independence. Disbursement of the Credit Organization of Zambia loans to cooperatives with almost no investigation or collateral •3 q illustrates how the system of patronage worked. Another example of patronage is found in the criteria (being active in the struggle for independence and being an active UNIP member) employed by the Industrial Finance Company (IFC) to approve loan applications. Lists of loan recipients for 1973 and 1975 revealed that 36 percent of them were either promi nent UNIP members, high-level civil servants, or parastatal company personnel. In addition, other studies showed that several shops were set up by local UNIP officials who received IFC loans. Among commercial farmers included in the above studies, almost 90 percent of loan beneficiaries had joined UNIP (often after switching from the African National Congress— the main opposition party before 1 9 7 2 ).^4 Even more important, access to public office permitted certain individuals to use their positions to accumulate ^2por a well documented case of the Credit Organization of Zambia see Charles Harvey, "Rural Credit in Zambia: Access and Exit," Development and Change 6 (1975):89-105. 34gee Carolyn L. Baylies and Morris Szeftel, "The Rise of a Zambian Capitalist Class in the 1970s," Journal of Southern African Studies 8 (1982):187-213. 398 private wealth. The much publicized case of the Lusaka City Council affairs, in which in 1968 the mayor had forced coun cil officials to reserve 103 residential plots for him until he decided whether or not to take up his options on the property; and the 1970 African Farming Improvement Fund scandals involving illegal loans made to two cabinet minis ters, senior Party officials, and senior servants are some of the examples of how access to public office enabled certain individuals to use their official positions to accumulate private wealth. The officials concerned were disciplined (including dismissal from office) by President Kaunda, while others were prosecuted. The political repercussion of these cases led to the appointment of commissions of inquiry, passing of the Leadership Code resolution (figure 4) by the National Council of the ruling United Independence P a r t y , ^5 and the establish ment of the Anti-Corruption Commission headed by a high court ^ See Government of the Republic of Zambia, Report of the Commission of Inquiry into the Affairs of the Lusaka City Council, November, 1968 (Lusaka; Government Printer, 1969); and Report of the Commission of Inquiry into the Allegations made by Mr. Justin Chimba and Mr. John Chisata [The Doyle Commission] (Lusaka; Government Printer, 1971). For other cases of corruption and use of official positions to accumu late capital, see Government of the Republic of Zambia, Annual Report of the Auditor-Genera1 [1970 and 1972] (Lusaka; Government Printer, 1970 and 1972); and Report of the Commission of Inquiry into the Affairs of Zambia Rail ways, March, 1978 (Lusaka; Government Printer, 1978). For the Leadership Code designed to stop corruption and misuse of public office and trust, see Government of the Republic of Zambia, The "Watershed" Speech; Address by the President to the UNIP National Council, 30 June-3 July, 1975 (Lusaka; Government Printer, 1975), pp. 11-27. 399 1. No UNIP leader or senior public servant should be associated in any way with the practices of capitalism and other forms of exploita tion. 2. No UNIP leader or senior public servant should receive two or more salaries. 3. No UNIP leader or senior public servant may rent a house owned by him whilst in Government house. 4. No UNIP leader or senior public servant should hold Directorships in private companies. 5. No UNIP leader or senior public servant may undertake any individ ual business venture whilst in the service of the Party and Govern ment. 6. No UNIP leader or senior public servant may hold shares in any private company. 7. No UNIP leader or senior public servant may give exclusive help to anyone out of public funds. 8. A UNIP leader must cultivate at least two acres of land in the rural areas as one of the most important qualifications for leader ship. 9. A UNIP leader or senior public servant must join a producers' cooperative, whether in the rural or urban areas. 10. A UNIP leader or senior public servant must choose either to remain in the Party or Government leadership or retire to engage in other pursuits in industry, business or farming. 11. For purposes of the leadership code, the term "leader" and "senior public servant" includes members of the United National Indepen dence Party, National Council, Ministers, Ministers of State, Dis trict Governors, Members of Parliament, senior officials of organi zations affiliated to UNIP, senior officials of parastatal orga nizations, civil servants in high and middle ranks and their wives and husbands as the case may be. All these people handle, in one way or another, state secrets which they can take advantage of in pursuit of their own interests at the expense of their fellow men who are not privileged to know Government policy. Fig. 4. Code of leadership SOURCE; United National Independence Party, Take Up the Challenge : Speeches Made by President K. D. Kaunda to the United National Indepen dence Party National Council, Mulungushi Hall, Lusaka, 7-10 November, 1970 (Lusaka: Government Printer, 1970), p. 52. 400 judge. Also, there were continuing reports of inefficiency, mismanagement, and corruption in the parastatal companies. This led to the appointment of a parliamentary committee on parastatal companies (the Kayope Commission), whose report revealed catastrophic failures in major parastatal companies and widespread misappropriation of funds. Thus, while the parastatal companies performed a substantial accumulation function for the state, they were also used by management for private accumulation. Importantly, these cases and the preceding material point to the class origin and character of indigenous capi tal. Equally important, the cases show the centrality of the state as an instrument of class formation. The state served as an important resource in the struggle to accumulate private capital by indigenous classes given the colonial practice of excluding indigenous peoples from the means for accumulating capital. Thus the state became the pivotal point in the process of the transformation of class rela tions. Official positions were used to acquire property, which generated an income based on the exploitation of the labor power.36 ^^Leys reports similar cases with respect to Kenya, where, as in Zambia, opportunities for the emergence of indigenous capital were severely curtailed by colonial prac tice and continued to be so in the context of economic domi nation by foreign capital. He describes instances where state-owned land was commandeered and expatriate farms and businesses forcibly expropriated by public officials— describing the process as a form of primitive accumulation. See Leys, "Capital Accumulation, Class Formation and Depen dency. " 401 However, notwithstanding the criteria for selecting loan recipients and the use of official positions, loan capital constituted a vital form of direct state assistance to the emerging indigenous owning class. Over 50 percent of commer cial farmers in the Southern Province (major province in agricultural production) were aided by loan funds when purchasing state land. A similar proportion continued to receive seasonal loans from the Agricultural Finance Company. Importantly for the state as a vehicle through which classes were formed, among Zambian Africans constituting a true bour geoisie during he first decade of independence, 41 percent had received loans, the majority from state financial insti tutions. Thus, it is not surprising that the indigenous capital ists continue to exhibit a high degree of dependence on the state. A substantial proportion of the national bourgeoisie with the most extensive holdings came from, or continued to occupy, the upper ranks of the Party, the civil service, and parastatal companies and, more importantly, many benefited as recipients of loan funds (their initial capital) from state institutions. This relationship was basic to the formation of the Zambian African bourgeoisie. A fraction of this class also (through the Zambianization policy) benefited from its links with foreign capital. Members of this fraction had share participation in at least three local companies. A few of them held directorships in multinational corporations. These included a former finance minister and after 1973 a 402 back-bench member of Parliament, former permanent secretary in the Ministry of Finance, and former managing director of a o 7 parastata 1 company. ' Of particular strategic importance in building private indigenous capital among Zambian directors of foreign compa nies were those appointed to the boards of commercial banks. Their appointment brought a degree of support and even alle giance for such foreign-owned companies and created a frac tion of compradors closely linked to the political system and prepared to be effective spokesmen of foreign monopoly capi tal. Also, because of public policy that required partial Zambianization of foreign-owned enterprises, African Zambians were in some cases given nominal ownership of the local subsidiaries of the international corporations. This fraction of the comprador bourgeoisie was recruited from the bureaucratic sections of the civil service and parastatal companies. The functions of the comprador frac tion are to manage, to secure the Zambian market for foreign monopoly capital, and to defend the interests of foreign monopoly capital in the Zambian economy. The comprador ^^According to the data in the 1975 company register, each of these persons was also associated with a number of companies. For example, the former permanent secretary was a director in nineteen companies, including four local subsid iaries of multinational corporations and five parastatal companies. In 1975 he established a company to manufacture wax paper and polyethylene, aided by a substantial loan from the International Finance Corporation of the United States. See Government of the Republic of Zambia, Company Register (Lusaka; Government Printer, 1975); and International Finance Corporation, 1975 Annual Report, p. 13. 403 fraction of the Zambian bourgeoisie has been effectively used by some of the international corporations as part of their strategy for accumulating capital in Zambia. However, what is important for the present analysis is that once more the state had promoted the interests of the indigenous bourgeoisie. The link was also used to strengthen indigenous capital, providing greater access to loan funds and bank overdrafts (several private companies of one indi vidual, for instance, acquired overdraft facilities after he joined the board of one bank). The appointments thus improved the position of indigenous capital in relation to the banks and foreign capital in general. State intervention in this respect made it possible for few Zambian Africans to enter into fairly large-scale ventures in association with international interests. The overall effect of the government's policy of indig- enizing the ownership of the means of production through state-sponsored loans to Zambians, Zambianization programs, and other policy initiatives that gave Zambians greater access to resources in the public and private sectors is reflected in the number of companies formed and owned by Zambian Africans in 1975, shown in table 81, which contains data on ownership, considered by sector and size of group, following the two major economic reforms. Thus, the table serves to quantify the role of the state as the vehicle through which accumulation of capital by 404 d CD ID tA Pu M fN IN O H M ID M M X w « g I £ \ 0 d fN IN Q IN m I • • I msi CO X o H U M œ !i I m i n Oi 10 I tH r - • • I 00 CTl O O lO IN o r« I I IN CD I ow >o 6 *3 § d . Z I M < E4 O CN OD i n O IN I I III m «n r~ I IP CD in CD CD la Q uja £ S’ o o« u u tl Ik Ü3 H M in o w IN § s u M | S & I a CO CD sssi làl S- £ 3 as 8 à 405 indigenous bourgeoisie occurred. Of all newly registered companies (424) that year, 162, or 38 percent, had a majority shareholding by African Zambians, while further 20 companies, or 5 percent, had half their shares indigenously owned— putting an overall total of indigenously owned and controlled companies to 182, or 43 percent. Sectorial analysis of company ownership by African Zambians was 27 in manufacturing (including butcheries); 25 in engineering, jobbing, construc tion, and motor repairs; 23 in transport; and 54 in commerce. Zambian (African) capital was most strongly represented in commerce and distribution, where it held half of all issued shares in 53 percent of all new companies; in manufacturing, where the figure stood at 46 percent; and in transport, where it was 70 percent. While these figures do not include the size of the companies or their relative contribution to the economy, the table makes clear the relative decline of new non-Zambian ventures in the private sector and shows clearly the process of formation of an indigenous property-owning class. Indigenous Private Accumulation and Contradictions of State Capitalism It is evident from the preceding section that partial nationalization of the major means of production was not the only measure intended to indigehize the economy; the private sector was also to be given a boost. At the outset, however, the attitude of the state toward the private sector was ambiguous. Private enterprises were viewed as bastions of 406 capitalism and a likely place for the class struggle to take place. From this perspective, it seemed fitting to impose the limit regarding private accumulation. On the other hand, indigenization of the economy necessarily required state intervention to develop indigenous private enterprises. The conflict between the two attitudes came out clearly in Presi dent Kaunda's speeches to the United National Independence Party's National Council in November 1970, which contained anti-private enterprise rhetoric.^8 While economic policies (especially forced indigeniza tion of the private sector) initiated by the state following independence evidently promoted indigenous capital and the state itself served as a locus of recruitment into private business, the role of the state has not been one of consis tent sponsorship of African entrepreneurship. The populist orientation of the state resulted in a number of policy pronouncements and actions that threatened the interests of the national bourgeoisie. Some of the actions included the elimination of freehold tenure, the stipulation that leaders should not simultaneously own property, and the suggestion of a cut-off point for the scale of indigenously owned enter prises, beyond which the property would be taken over by the state. These measures were designed to curb the emergence of 38gee United National Independence Party, Take Up the Challenge, pp. 35-56. 407 large indigenous capitalists.^9 However, no Zambian-owned company has been nationalized (apart from Mwaiseni Stores in 1969).^9 More threatening was the momentum of the state sector and the extent to which the parastatal companies were outcompeting and thereby thwarting the growth of indigenous capital. Thus, the monopolies exercised by the parastatal companies were perceived as inhibiting the growth of private indigenous capital. Although the parastatal companies were primarily intended to take up indigenous interests in large-scale enterprises and strategic sectors, leaving small-scale and less technically complex operations to private entrepreneurs, this formal division of labor was not observed by the state. The Industrial Development Corporation (INDECO) and other state-owned corporations were brought into potential and real competition with private indigenous capital as a result of unprecedented expansion of the parastatal sector and prefer ential treatment accorded the parastatal companies by the state. For example, they were given priority in licensing, foreign exchange allocations, and infrastructural services. They were also given priority in borrowing funds from the commercial banks (see table 82) and nonbank financial ^9gee President Kenneth D. Kaunda, Zambia's Economic Revolution (Lusaka; Freedom House, 1968), pp. 37-48. See also President Kenneth D. Kaunda, Humanism in Zambia and a Guide to Its Implementation, vol. 2. ^Ogee W. Tordoff, Politics in Zambia (Manchester; Manchester University Press, 1974), p. 391. 408 TABLE 82 COMMERCIAL BANK LOANS AND ADVANCES TO THE PARASTATAL COMPANIES AND STATUTORY ENTERPRISES, 1971-81 Loans and Advances to Parastatal Com Loans and Advances panies and Statu Total to Parastatal tory Enterprises Loans Companies and as Percentage of and Statutory Total Loans and Year Advances Enterprises Advances 1971 141.7 30.9 21.8 1972 157.8 81.5 51.6 1973 160.9 82.1 51.0 1974 270.4 130.8 48.4 1975 328.5 201.6 61.4 1976 324.7 201.5 62.1 1977 333.0 184.3 55.3 1978 301.6 153.2 50.8 1979 387.3 198.1 51.1 1980 431.6 200.2 46.4 1981 699.8 409.2 58.5 SOURCE: Quarterly Financial and Statistical Review (Bank of Zambia) 12 (no. 3-4, 1982):40. ^Loans refer to long-term bank lending of 4 years and over, while advances refer to short-term bank lending of up to 3 years. 409 institutions such as the Zambia National Providence Fund and the Zambia State Insurance Corporation Limited. While the national bourgeoisie appreciated the interven tionist nature of the state aimed at transferring the control of the economy to the state and private indigenous capital, they preferred state enterprises not to enter sectors in which they themselves operated or had the potential to operate. They criticized the state enterprise for being a "bamba-zonke" (catching everything). The case in point was the establishment of the 100 percent state-owned National Wholesale Corporation in 1966, which came into direct compe tition with the indigenously owned and controlled Zambian African Traders and Wholesale Company Limited. Officials of the Zambian African Traders' Association (ZATA) complained about what they saw as unfair competition by the state due to the difference in size between the two companies, and due to the fact that the state-owned company had strong financial and personnel support to outcompete the indigenously owned company. As if this was not enough, the government's next move was the formation of the National Import and Export Corpora tion (NIEC) and a ban on private wholesalers, with NIEC taking over their function in the economy as a whole. This policy, which gave NIEC complete monopoly in the distribution sector, together with the tempo at which the parastatal sector was expanding, was protested against by the national bourgeoisie, who proposed a much closer cooperation between 410 the state and private sector. ZATA strongly protested against the government's deci sion to allow the Consumer Buying Corporation of Zambia Limited (CBCZ) to establish a chain of shops throughout the rural areas and in some of the high-density housing areas in the cities from which it had been barred. At provincial conferences of ZATA and the Zambia National Chamber of Commerce and Industry (ZNCCI), resolutions were passed, respectively giving the government an ultimatum to hand over ZCBC and Mwaiseni shops within the provinces and urging it to discontinue forthwith establishing shops and supermarkets in the townships, as they forced small Zambian businessmen to go out of business. The government did not take such actions, and instead the president demanded an apology from the chairman of ZATA, which he r e c e i v e d . However, opposition to continued expan sion of the parastatal sector was raised more forcibly as the national bourgeoisie consolidated their alliance. They urged the government to end takeovers and to transfer companies in the brewing and transport industries to private businessmen. These demands coincided with economic problems that faced Zambia in the 1970s. The effect of these pressures was 41gee Zambian African Traders' Association, Minutes of Zambian African Traders Association Provincial Conference, Kasama, 21 September, 1968 (Lusaka: Zambian African Traders' Association, 1968). For resolutions passed by the Zambia National Chamber of Commerce and Industry provincial meetings in 1976 see Times of Zambia, 20 March 1976, and Zambia Daily Mail, 27 July 1976. 411 moderation of certain policies. This was reflected in the budget of 1977, which included a clear and strong plea for the entry of additional foreign c a p i t a l . ^2 A visible depar ture from the Mulungushi principles was observed in more forceful overtures toward foreign capital, which came later in 1977 with the passing of the Industrial Development Act. The act provided preferential treatment to new foreign inves tors with respect to government purchasing, priority in the granting of import licenses, custom duty rebates, relief from sales tax, and immunity from nationalization, except in very exceptional situations— such as when dictated by the highest considerations of public policy— though by and large the government had always been half-hearted in its attempts to bring in outside capital. The alliance of indigenous capitalist classes found support among back-bench members of Parliament (the majority of whom were men who sought election to the legislative body to protect their business interests'*^) appointed by President 42gee Government of the Republic of Zambia, Budget Address by the Minister of Finance (Lusaka: Government Printer, 1977). ^^Thus the link between private indigenous capital and the state was not just one of outward movement from the state apparatus to the private sector. The tendency was also for indigenous bourgeoisie to seek political affiliations or an active role in the political process to protect their busi ness interests. Business interests here refer to ownership of a shop or other small business as reported by the candi date, shareholding in a locally registered company as recorded in the Company Register, or ownership of state land as signified by information from cadastral strip maps. 412 Kaunda in 1977 to serve on the Parliamentary Select Commit tee, which studied the effects on the economy of current economic problems. The Select Committee's recommendations were wide-ranging, but among the most important were the proposals that the size of the state sector (statutory enter prises and parastatal companies) be reduced; that support be granted to private capital; that lending policies be reviewed; that the Leadership Code be reexamined; and that all subsidies be phased out within three years. These recommendations point to the extent to which the Zambian owning class was able to articulate its interests in Parliament, especially in relation to the implementation of the Leadership Code. Public debate on the question of the Leadership Code brought out the nature of class struggle that ensued in Parliament. Many petty-bourgeoisie enthusiastic cally welcomed the Code as they were all well aware of and resented the advantages afforded those closely associated with the state and felt the Code might ultimately eliminate unfair competition and undue advantage. On the other hand, those with larger and more successful enterprises were dubious of the Code's instrument to be used by the state to curb development of private enterprise.'*^ Modifications were made to the effect that a leader electing not to receive a 44por the debate in Parliament see Government of the Republic of Zambia, Hansard, 29-30 January 1974, cols. 615-16 and 650 (Lusaka: Government Printer, 1974). Also see Govern ment of the Republic of Zambia, The Leadership Code: Statu- tory Instrument No. 108 of 1974 (Lusaka: Government Printer, 1974). 413 salary for public duties continued to carry on business, own or occupy land, or receive emoluments from business interests so long as the president was satisfied that the case war ranted it. The implementation of the Code was postponed to June 1975, indicating the its unpopularity.^^ Concerted pressures by the alliance of the national bourgeoisie and their increased participation in the politi cal process (beginning with election of members of Parliament in Zambia's first election under the one-party state held in 1973)46 2ed to the general turn from expansive state capital and populist policies, and to giving support to private capital and affirmation of its role as essential to the development of the economy.^7 Although the state reversed itself on some of the poli cies of the state sector, this sector still remained dominant 45gee Government of the Republic of Zambia, The "Water shed" Speech, p. 12. In April 1975, UNIP's secretary-general reported that only 5,166 of an estimated total of 200,000 leaders had made declarations of their ownership as required under the Leadership Code. This points to the struggle between indigenous capital and the state. ^^Approximately 40 percent of the people who placed their names for nomination as parliamentary candidates had business interests, and of those elected 44 percent owned businesses or state land farms or had shares in local compa nies (the majority of them owned relatively small enter prises) . However, of all capital-owning members of Parlia ment, about 40 percent had large-scale or multiple enter prises or commercial farms. 47por a detailed report regarding the extent to which the Select Committee's recommendations were incorporated into policy, see Tony Southall, "Zambia; Class Formation and Government Policy in the 1970s," Journal of African Studies 7 (1980);38-90. 414 in all spheres of the economy. The change in certain poli cies is mainly attributed to the fact that Zambia faced severe economic difficulties in the '70s. Thus, the shifts in the relative power of the state with regard to various fractions of the national bourgeoisie reflected a worsening of the country's economic strength in relation to interna tional capital. The state was forced to take several initiatives in order to improve the situation, especially deterioration in the country's industrial production. Thus, the state borrowed heavily in order to pump foreign exchange into industry. On their own the national bourgeoisie were too weak to challenge the state. However, what is important for our thesis (that the state in Zambia is an important vehicle for class formation) is the fact that here we see a constitutive process at work that is manifested in the development of class-specific collective actions and institutions designed to protect the interests of the national bourgeoisie, albeit with a weak economic base. The Zambian case shows that the capability of a given class to defend its interest depends not only upon its degree of self-identity, but also upon its concrete economic loca tion and the organizational and power resources available to it. Also, what emerges from this analysis is the need to reexamine the crude notion of the state as a mere "instru ment" of the ruling class obediently acting at its dictates. 415 In order to understand the extent to which the state acts as the instrument of the ruling class, and the degree to which it autonomously acts independent of the ruling class vis-à-vis other classes, it is necessary to understand the specificity of the state. This is to argue that the nature and extent of state intervention in the economy depend on economic, political (and nature and intensity of class struggle), and social conditions (internal and external) in which it operates. Stated differently, the role of the state is decisively conditioned by a combination of internal forces and forces that are external to it. Thus, the state might be constrained to act in a certain way by the combined impact of internal and external forces. The state might also be constrained to act in the immediate interest of a particular class by the imperative requirement of capital for its reproduction and accumulation. The essence of this analysis is that while we acknowledge the theoretical validity of the proposition that the ultimate function of state intervention is in support of the dominance of the surplus-appropriating and property-owning class, this formulation does not adequately explain the dynamics of state intervention and its contradictions. That is to say, this formulation is not adequate enough to enable us to understand the true nature of state interventions and the nature of the process actually taking place and its principal contradic tions. While we accept the primacy of the ruling class in 416 relation to actions taken by the state, we argue that the circumference of the realities in which the state intervenes is very complex to be understood through this simplistic, albeit basic, formulation. To understand variations that characterize state interventions, it is necessary to bring into focus complementary theoretical perspectives. These are that unlike the robot, the state does not just respond to external pressures and is incapable of originating action. As has been argued by various w r i t e r s , ^8 the state is an autonomous structure with a logic and interests of its own not necessarily equivalent to, or fused with, the interests of the economically dominant class. This view takes into account the fact that the people who run the state believe that they themselves do have interests of their own. All these come into focus each time the state intervenes. This perspective enables us to take into account other very power ful impulses to state action generated from within the state by the people who are in charge of the decision-making power structure. These impulses cannot be taken to be synonymous with the purposes of dominant classes. The importance of the inter ests and impulses of the people in charge of the power structure were demonstrated in the Leadership Code case discussed above. It was for the pressure by a number of the 48on this perspective see, among others, Skocpol, States and Social Revolutions; Block, "The Ruling Class Does Not Rule" and "Beyond Relative Autonomy." 417 highest-level leaders in the Central Committee and Cabinet that President Kaunda agreed that circumstances warranted their retention of private property. The second perspective, which should prove useful in analyzing the state intervention and its principal contradictions, acknowledges the fact that the degree of autonomy that the state enjoys for most purposes depends above all on the extent to which class struggle and pressure from the working class or concerted alliance of various classes challenge the hegemony of the dominant class. In short, the autonomy of the state is relative'*^ to the nature and intensity of class struggle. Conclusion The indigenization of the economy that resulted from the 1968 Mulungushi Declaration and the 1969 Matero Economic Reforms opened a new chapter in the history of class forma tion in Zambia. For the first time a possibility for the development of the Zambian owning class was created. The tempo of the formation of the new class system increased with the unprecedented speed at which the new state intervened in the economy in the form of takeovers of the major companies in all industries, and the creation of monopoly-enjoying state-controlled conglomerates that have come to bulk large 49por a debate on the "relative autonomy" thesis, see Poulantzas, Political Power and Social Classes; Miliband, "Poulantzas and the Capitalist State," p. 85; and Ernesto Laclau, "The Specificity of the Political; The Poulantzas- Miliband Debate," Economy and Society 4 (February 1975);87- 110. 418 in the country's economic life. These state-owned companies established an economic base for the class already holding political power. Through political appointments this class has been substantially enlarged. It now controls the Party, state apparatuses (government departments and public corporations), and the parastatal sector. It uses this control to maintain its economic and political domination. Thus the effects of the broad economic reform measures coincided with the class interests of the postindependence "state functionaries"^® concentrated in the Party, government departments, public corporations, and parastatal holding and operating companies. This class has become the dominant fraction of the new ruling class. However, within this fraction the relationship between the local and expatriate management and the state is often 5®The term state functionaries as used in this study refers to government ministers; mayors and councillors; highly placed civil servants, such as permanent secretaries, directors, and others of similar rank; and managing direc tors, general managers, and managers of parastatal corpora tions who have used their strategic locations in the economy to accumulate large amounts of money that is later turned into capital. 51in contemporary Zambia businessmen, bureaucrats, leading politicians, and members of the learned professions constitute a new ruling class. For a survey of this class in the parastatal sector, and a plan to develop it nine years after the Mulungushi Declaration, see Government of the Republic of Zambia, Office of the Prime Minister, Final Report of the Zambia Managerial Manpower and Training Needs Survey of the Private and Parastatal Sectors (Lusaka: Govern ment Printer, 1977). 419 complicated and contradictory. The position of the Zambian general management is constantly being undermined by their inability to match the technical skills and experience of the foreign experts they have to work with. It is, therefore, to a large extent dependent upon the foreign experts, and on this account these two fractions form alliances. Similarly, the state has at times sought to curb the Zambian manage ment,52 but at the same time it depends on them as its representatives in the industries. This leads the establish ment of an alliance between these two fractions. Thus, class conflicts that arise within this class are resolved through a system of class alliances. This points to the class nature of Zambia's postcolonial state. Within this context the state exercises crucial economic functions that have led to the emergence of a new ruling class, distinct from the private owners of the means of production. This class participates in the system of the direct appropriation of surplus-value, which takes place within the framework of the state-owned property that domi nates the economy. What we see in Zambia as one of the by products of of state capitalism is that the strictly economic function of the state is the rise of a dominant fraction, the ruling class, which does not originate in the class of ^The most serious attempt by the state to curb the Zambian management fraction of the new ruling class came with the Mwanakatwe Commission in 1976, which rationalized para statal salaries and cut back certain of the fringe benefits of top management. 420 private owners of the means of production. Finally, in this chapter it has been argued that although the Zambian state is highly interventionist, this takes place within the realm of class interests. It has further been argued that in order to bring out the effects of state intervention it is necessary to go beyond mere institu tional consideration. The underlying argument is that every aspect of state intervention must be seen as a dynamic component of the system as a whole, having important effects on the mode of production and reproduction of classes. In this regard, the main purpose of our analysis has been to pierce beneath the veil of appearance and dispel the common illusion that state capitalism represents an attempt by the neutral state to overcome postcolonial problems of the accumulation process. This characterization of the Zambian state specifies the form of state capitalism found in Zambia, and hence deepens our understanding of the struggle against capital under its form of state capitalism. We are in this respect also enabled to understand the contradiction inherent in this mode of production. Thus, the conceptualization of state capitalism as an instrument of capital accumulation with a distinct internal class character enables us to avoid the error of conceiving the postcolonial state as the servant or agent of an economic class located abroad, or merely as a mediator between power international capital, on one hand, and a weak and dependent 421 local bourgeoisie on the other.53 The central point being made is that to understand the nature of state capitalism it is important to try to understand the dynamics of state action. Also, we have sought to bring out the fact that although the state is an instrument of fractional class interests, this is not to deny its other functions determined by the general, nonclass fractional imperatives of capital accumu lation. In this respect, we have endeavored to show the importance of including in the analysis of state capitalism the powerful impulses to state action generated from within the state by the people who are in charge of the decision making machinery. In this respect, as far as possible, our analysis has taken into account the political character of the forces that hold state power. The central point being stressed in this connection is that the impulses that propel state action cannot simply be taken to be synonymous with the exclusive purposes of dominant classes. Thus, the essence of our argument is that the postcolo nial state cannot be entirely subsumed under its accumulation function. This function must be understood in the context of the imperatives of capital accumulation and the relations of production. That is, the need to reproducing existing class 53por this theoretical stance see, for example, Colin Leys, The Political Economy of Neo-Colonialism (London: Heinemann, 1975); and for Leys's new position see his "Capi tal Accumulation, Class Formation and Dependence" and Freyhold, "The Post-Colonial State and Its Tanzanian Version." 422 relations in various forms, depending on the turn the class struggle takes. This qualifying statement refers to the fact that in the real world of capitalism the effect of interven tion in the economy is largely determined by the ebb and flow of class conflict and will vary with the economic and politi cal strength of the contending classes. The relative orga nizational strength of various internal classes plays an important role in influencing the nature of state interven tion vis-àvis relations with foreign capital. In this regard, our purpose has been to situate our analysis of the role of the Zambian state in accumulation of capital and the nature of the dominant state capitalism within this frame work. It is thus concluded that the system of state capitalism found in Zambia represents a distinct departure from the colonial system under which both the state and the dominant classes approximated their classical counterparts. As we have shown, Zambia's postcolonial state is essentially inter ventionist, for the purpose of owning and controlling the means of production in all major sectors of the economy. It makes investment decisions for the purpose of directly appro priating surplus-value. It is the largest owner of the means of production and the largest employer of wage-earning labor. Both these characteristics of Zambia's postcolonial state (as has been demonstrated) have significant bearing on class formation and class struggle. It is in these respects 423 that it radically differs from the colonial and federal states that preceded it. The situation in contemporary Zambia is that capitalist relations (initially imposed through imperialism) have become widespread and ascendant. The logic of capitalism under dominant state ownership of the means of production has become woven into the fabric of Zambian social relations. The capitalist pressures that compelled Africans to enter the labor market still exist. Pressures from capitalist sectors of the economy have affected wage labor and indigenous primary production alike, and the state plays a dominant role in their sustenance. CHAPTER VIII THE POSTCOLONIAL STATE AND INTEGRATION OF ZAMBIA INTO THE NEW INTERNATIONAL DIVISION OF LABOR; 1970-82 Introduction and Theoretical Perspective This chapter examines Zambia's changing patterns of integration into the international division of labor for the period following the two major economic reforms (1970-82), which substantially transferred the ownership and control of the means of production from multinational corporations to the state, and thus created a new economic structure domi nated by monopoly-enjoying parastatal companies under a system of state capitalism, which represents a distinct departure from the preindependence economic structure in which foreign ownership and control were predominant. Conse quently, the contradictions with foreign capital became significant. Thus, the postcolonial state could no longer be con ceived, as was possible with the colonial state before it, as the outright agent or instrument of the ruling class located abroad. This, mainly, is because of the dominance of the parastatal sector in the Zambian economy, which has created a new balance of power and new class forces that require new theoretical formulations beyond those of neocolonialism and dependency employed in some studies of Zambia's political 424 425 economy. For example, working from a dependency perspective, Shaw, among others, argues that the ruling class in Africa has formal charge over the national economy but lacks effec tive control because of joint ownership of the major means of production. He continues to argue that the state in Zambia has achieved only the Africanization of management but not real ownership or effective control, and that this collabora tion is fully consonant with the emergence of state capital ism as a dominant ethos.^ These formulations are manifestly the effect of turning attention away from the internal class relations of Zambia and focusing it on the métropoles, which are held responsible for preventing the rise of Zambian entrepreneurs outside the parastatal structure. These formulations locate class struggle on an international plane of the developing coun tries against the métropoles (including the metropolitan working class, as they are also seen as a beneficiary of the transfer of surplus) rather than that of a struggle of all proletarians and peasants against the bourgeoisie, whether it be metropolitan or peripheral. While this is essentially closely associated with the so-called "articulation debate," it is as a result of orien tation from the dependency perspective that Shaw and others See Timothy Shaw, "Dependence and Underdevelopment," Canadian Journal of African Studies 10 (1976):3-22. Also, for the neocolonialism perspective see Seidman, "The Dis torted Growth of the Import-Substitution Industry"; and Tordoff, Politics in Zambia. 426 allocate a high degree of dominance to foreign capital. The weakness of this perspective is that it allocates the causes of retardation of the development of the forces of production in the Third World in the sphere of circulation. What it lacks is the means of anatomizing dependent development in such a way as to answer the ensuing questions of class struggle, class alliances, and resulting programs (used by the state to intervene in the economy), which are basically those of class formulation.^ The main point we are trying to develop here, and which we see as pertinent to this analysis, is that the dependency perspective (as well as the world systems perspective) does not contain appropriate analytical tools to enable us to understand Zambia's integration into the new international division of labor. Analysts using these perspectives treat relationships between foreign capitals and host countries in a linear fashion. This makes them come to the conclusion that exploitation is always a function of external forces. Consequently, they work with the formula "foreign capital versus national capi tal," thereby dichotomizing the relationship between foreign 3por the theoretical criticism of dependency theory and the so-called articulation debate that ensued, see the following: Robert Brenner, "The Origins of Capitalist Devel opment: A Critique of Neo-Smithian Marxism," New Left Review 104 (July-August 1977):25-92; Aidan Foster-Carter, "The Modes of Production Controversy," New Left Review 107 (January- February 1978):47-77; and Jairus Banaji, "Modes of Production in a Materialist Conception of History," Capital and Class 3 (Autumn 1977):l-44. 427 capital and national capital. This distorts concrete capi talist relations, which necessitate cooperation between foreign capital and national capital in order to protect certain mutual interests relative to the reality of history. In this study we refrain from common erroneous assump tions, namely that any alliance between local and foreign capital inevitably involves total identification of interests O with the latter and complete subordination. This tends to be based on the idea that local capital lacks bargaining power whatsoever. The second assumption is that independent national capital cannot survive the assault of multinational capital. This tends to be based on the idea that national capital lacks a competitive edge in any important sector. These assumptions are challenged by historical industry studies.^ Thus, the premise on which we base our analysis of Zambia's integration in the new international division of labor is that such integration can be better understood in the context of accumulation, which is the result of the interaction of production and changing social relations. It is in the context of accumulation that the relationship between foreign capital and national capital on one hand, and ^Among others, see Leys, Underdeve1opment in Kenya. 4por an instructive study, see Peter Evans, Dependent Development; The Alliance of Multinational, State and Local Capital in Brazil (Princeton, NJ: Princeton University Press, 1979). 428 between these fractions of capital and the state on the other hand, can be better understood. This is because the perspec tive used in this respect (which is a materialist perspec tive) places the accumulation process in the context of a world politically divided among ruling classes. This approach provides a rational explanation of exploitative relations, namely that they are not sui generis— they are created. It is also on the basis of this understanding that the dynamics of class relations between capitals (foreign, state, and private indigenous) and the working class (those left out of the Zambian model of accumulation) in Zambia become clear. In this formulation the state capital is not seen as a replacement for local private capital but as a class fraction that allies with foreign capital and national private capital to form a common project in which all benefit from developing forces of production. This enables us to examine the contending classes and the relations between them. At the same time, this approach suggests the need to examine the internal structure of the Zambian elite in order to discover the bases of collaboration and competition among its different fractions. Conversely, it suggests the need for examining the bases for conflict and cooperation among representatives of foreign capital, owners of local capital, and the top echelons of the Party and the state apparatus. These theoretical perspectives constitute the basic premise from which we base our analysis of Zambia's integra tion into the new international division of labor. For the 429 purpose of the proceeding analysis, foreign capital is divided into industrial and finance capital. Our analysis, in relation to foreign industrial capital, focuses on the new patterns of foreign investment in industry and the role of the postcolonial state as an integrating agent that integrates the plurality of isolated capitalist interests into concrete class interests (including organiza tion of markets). Attention is also paid to the form of collaboration (alliance) between foreign and local capital aimed at sharing the benefits, if unequally, of Zambia's national capital accumulation. In this respect, we examine the dynamics, as far as they can be discerned, within and between each partner. We examine, for example, the joint development of the petrochemical industry and other joint-venture projects. An effort is also made to show that the national industrial bourgeoisie is not an auxiliary to foreign capital but instead collaborates with it (different from being under their control). Of course, the form that collaboration takes depends on the kind of leverage that is available to each partner within a given branch of industry. Throughout the analysis, special attention will be paid to the policy implications and effect on capital accumulation of joint ventures. The study of foreign finance capital focuses on sources of foreign finance capital. These are broadly official or 430 bilateral (government or government-sanctioned), multilateral (international organizations), and private (commercial banks and suppliers' creditors) sources. The policy influence and effect on internal accumulation of foreign financing are analyzed in relation to the terms of financing and interest rates paid with respect to such loans. The implications for international accumulation are also examined in relation to global accumulation crisis. Thus, the theoretical perspective we employ to analyze Zambia's integration in the new international division of labor suggests that in order to understand the role played by the Zambian state as the principal organizer of production (through the parastatal system) we need to take into account qualitative (as well as quantitative) changes in the nature of the international capitalist economy. These transforma tions are related to the changes in the scale of production and the locus of decision making. Specifically, the expan sion and integration of the world economy are some of the variables that are crucial to the present analysis, which seeks to explain the impact of the growth of the world econ omy on the productive structure of each of the sectors on the Zambian economy. The point of analytical importance is that with Zambia's integration in the new international division of labor it is no longer possible to explain the impact of state economic policies on the relations of production by confining our analysis to the requirements for internal accumulation. We 431 need to include the dynamics of the world capitalist economy. These include the determinants of production and tendencies in international trade and investment. Our implied proposi tion is relatively simple, namely that the analytical tools used by Marx^ in his analysis of the intertwining of the three circuits of capital— money-capital, productive-capital, and commodity-capital— might be usefully extended to the analysis of Zambia's integration in the new international division of labor.® Foreign Industrial Capital This section sets out to examine the position occupied by foreign industrial capital in the Zambian economy imme diately following independence and after the Mulungushi (1968) and Matero (1969) economic reforms, whose main purpose was to transfer economic dominance from foreign capital to domestic capital, which still needed to be developed. The analysis is done in relation to the role of the postcolonial state as the main vehicle through which indigenous capital was developed, and through which the interests of the national bourgeoisie were protected (especially during the ^See Marx, Capital, vol. 2. ®The importance of money-capital was noted most persua sively by V. I. Lenin in his Imperialism; The Highest Stage of Capitalism. Also importantly, since Lenin's influential essay, there has been significant expansion of productive- capital on a global scale and the powerful impact of the integration of the various facts of capitalist economy into an increasingly unified international market, of which Zambia has become an integral part. 432 first decade of independence). On the other hand, the section addresses the question of the new class relations in relation to foreign industrial capital vis-à-vis the state initiatives aimed at scaling down foreign ownership and control of the major means of produc tion. In this connection, the section examines new indus trial linkages, which in some respects necessarily unified the class interests of foreign and national bourgeoisie, thereby paving the way for joint ownership of certain means of production (especially those that are capital-intensive) and for development of class alliances among fractions of major classes. Sources of Foreign Industrial Capital and the New Patterns of Foreign Investment The sources of foreign industrial capital and the new patterns of foreign investment in the Zambian economy after the 1968 to 1970 economic reforms hinged on the importance attached by the state to indigenous ownership and control of the means of production. The rationale for this investment policy was discussed in detail in chapters V, VI, and VII. But, for the purpose of putting the present discussion into an appropriate perspective, we briefly reiterate some of the benefits envisioned by the policy makers. Indigenous ownership and control (especially in the form of state ownership and control) was not only seen as neces sary to limit the repatriation of profits abroad and to oversee Zambia's overall interests in the economy, but also 433 put the state bureaucracy in a position to use state power to make capital and other resources available from state-owned and -controlled banks and nonbank financial institutions and parastatal companies to lubricate the needed industrializa tion. For this reason, the postcolonial period (following the economic reforms) witnessed a phase of restructuring of foreign ownership and control of the means of production in favor of the state. Importantly, following the economic reforms the sources of foreign industrial capital and the patterns of foreign investment began to change as a result of new investment laws designed to facilitate the development of secondary indus trialization and to promote domestic capitalism. On the other hand, the broad aim of foreign investment policy was to diversify the sources of foreign capital. This, together with the general policy requirement for Zambian participa tion, widened Zambia's integration in the new international division of labor. The real direction of state intervention in the indus trial sector, apart from the takeovers, was in licensing. Under the Industrial Development Act No. 18 of 1977, any person or company wishing to manufacture any product in Zambia, whether intended for domestic or external markets, is required to do so under a license issued by the minister of commerce and industry. Under the act, priority enterprises are eligible for certain incentives. The criteria for 434 eligibility included (a) maximum utilization of domestic raw materials— the main criterion; (b) production of intermediate goods that are used by other industries; (c) diversification of its industrial structure; (d) creation of substantial opportunities for permanent employment; (e) improvement of domestic industrial skills or fostering the development of domestic technology; and (f) promoting industrial development in rural areas. Another real direction of state intervention is in the area of mining— the Mines and Minerals Act of 1969, which reverted the mineral rights to the state. Section 50 of the Act stipulates: (a) all rights of ownership in, of searching for, mining and disposing of, minerals are hereby vested in the president on behalf of the Republic; and (b) the provi sions of subsection (a) of this section shall have effect notwithstanding any right of ownership or otherwise which any person may possess in and to the soil on or under which minerals are situated. The Act empowers the state to grant special mineral exploitation licenses, which give the holder three years to prepare a program for mining development (chapter 3 of the Act) and to grant 25-year leases. Under the Act, the state acquires 51 percent of the shares in any new mining company. Also, under the Act the investor is under obligation (among others) to conform to specified investment rates and to submit progress reports and any other 435 7 reports called for by the state. The state also used the Act to diversify mineral production away from copper.® The criteria relating to industrial investment were not only applied for the obtaining of licenses but also for preferential treatment with respect to government purchasing (unless the tender price submitted by the company meeting the priority enterprise criteria exceeds the lowest bid by 10 percent); preferential treatment with respect to the granting and processing of import licenses; rebates on customs duty payable on capital equipment (if labor-intensive techniques of production are not a viable alternative), raw materials (if they are not available from domestic sources of supply), and other intermediate goods (if they do not inhibit the creation of domestic value-added); relief from sales tax; relief from Selective Employment Tax; relief from income tax; exemption from any tax or customs duty payable on the impor tation of machinery intended for use in the manufacture of export products; and preferential treatment with respect to For other requirements that give the state the power to direct and control mining development in Zambia, see Govern ment of the Republic of Zambia, The Mines and Minerals Act, 1969 (Lusaka; Government Printer, 1969). ^Following the 1969-70 partial (51 percent) nationali zation of the copper mining companies, the gist of which was that the companies secured a favorable deal in which much of their income shifted into secure management and service fees and guaranteed repayments (in fact, the ZIMCO bonds were redeemed at par in 1973 when the market value was only 48 percent and hard Eurodollar loans had to be raised for the bonds' redemption), the state decided to look to other minerals and to other formulas (new type of joint-ventures) for their exploitation. 436 access to public financing, among others.® These are some of the main types of state intervention in the industrial development of Zambia following the two major economic reforms, and mainly designed to influence investment decisions of foreign industrial capital. These interventions also point to the importance of the state in the process of accumulation in the industrial sector, as in other sectors. Even more important is the fact that these interventions point to the fact that the Zambian state possesses wider powers and initiatives to intervene in the economy than both the colonial and settler states that preceded it. The state used these powers and initiatives to develop and foster a new system of cooperation among capitals, both industrial and finance (state; private national; private foreign; suppliers, financial markets, and other private sources^®; international organizations— the World Bank system and other multilateral and intergovernmental agencies; governments and their agencies, including central banks and autonomous public capitalistic bodies), doing business in Zambia, either through portfolio or direct investment. Through the state-owned Zambia Industrial and Mining ®See Government of the Republic of Zambia, The Indus- trial Development Act, 1977 (Lusaka; Government Printer, 1977). ^®Other private sources include external liabilities on account of nationalized properties and contractual obliga tions of direct-investment enterprises to foreign parent companies or their affiliates. 437 Corporation (ZIMCO), the state brought together investors from capitalist countries (except socialist Yugoslavia) and was instrumental in establishing joint-venture enterprises that are at the heart of the capitalist mode of production in Zambia. After the 1970 economic reforms the joint-venture or partnership form of investment became predominant. This involved a linkup between foreign finance capitals, foreign industrial capitals, and local capital, mainly state capital, as shown in table 83. The table also shows that there was a significant transfer of ownership from foreign to local, albeit state, capital during the period covered. The share of total issued capital owned by foreign residents plummeted dramatically between 1970 and 1982, from 100 percent to less than 50 percent (distributed among different foreign capi tals) in all medium- and large-scale enterprises. For reasons already mentioned, local private capital plays a very limited role in joint-venture enterprises as they mostly involve intensive capital investment beyond the reach of private national bourgeoisie. Due to the pressure exerted by the state and the national bourgeoisie, the joint- venture form of foreign investment has become the hallmark of post-economic reform capitalism in Zambia. 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fi N >1 EH EH fi b 3 > b fi o P N o 3 3 P P •H O a b 0 O +) U 3 fi S e g •H o P P T" P o 3 3 >1 S i -S fi P P P b 3 S 0 tn P P 3 P E ^ 2 U fi 3 3 P O b O 1 p •H *H M U O b b I b tn tn rH 3 p r o p 3 3 tn 3 o ! 00 o a a p fi > ü p a 3 •H 3 o _ 3 > 1 > 1 e fi Q p tn fi p P O •H P fi 3 tn fi fi 3 fi p I p 3 3 p ^13 o b # EH 3 3 3 3 b P P 3 3 P fi p “ o a O P P fi 3 P b a ü b EH EH H 3 fi 3 p p fi 3 p • a 3 b 3 3 P fi b a P P H 3 3 a fi 3 P fi g •H >1 3 b St 3 fi >1 fi fi O P N 3 3 3 b 3 •H 3 3 P P •rl b ^ ■ fi • G p b hH » 3 0 0 fi O P 3 —^ro P TO 3 U 3 0 3 ro 0 0 fi 3 ü b a a p 0 0 This form of foreign investment received support from such bourgeois organizations as the Zambia National Chamber of Commerce and Industry, which was often critical of state intervention and state enterprises. Also, the bulk of state infrastructure investments produced favorable conditions for the new industries dominated by the joint-venture companies. Moreover, as shown in table 83, there is evidence of a trend toward cooperation among capitals across nationalities. Two examples, among others, respectively involving industrial and finance capitals, are the oil refinery by Lublend Company Limited and expansion of copper production by the Zambia Consolidated Copper Mines Limited. In the first case, 51 percent of equity capital is held by the Zambian government; 39 percent by American companies— Mobil Petroleum Company (19 percent), Caltex Petroleum Corporation (10 percent), and Total Zambia Limited (10 percent); and 10 percent by an Italian company, Agip Zambia Limited. In the second case, which involved production financing, the Inter national Finance Corporation (IFC) of the World Bank system, through a system of syndication, brought together finance companies from different developed capitalist countries (the Commonwealth Development Corporation of the United Kingdom, the European Investment Bank of the EEC, and the Overseas Private Investment Corporation of the United States) to raise a total of $250 million for the project. A Eurodollar loan was arranged by Standard Chartered Bank of the United 445 Kingdom. The Export Credit Guarantee Department of the United Kingdom arranged $71 million of suppliers' credits for British machinery exports. The IFC arranged a DM 70 million ($30 million) fixed-rate loan for machinery exports from the Federal Republic of Germany. State intervention in the economy after 1970, and the new pattern of investments (joint ventures) that resulted from it, not only multilateralized Zambia's linkages with developed capitalist countries as a whole but increased the number of foreign investors of the leading capitalist coun tries of the Organization for Economic Cooperation and Devel opment (OECD)see table 84. Also, as new non-British multinational firms increas ingly entered the Zambian market, British firms that traded with Zambia before the economic reforms hastened to set up production units within the country, mainly in partnership with the state. The most important multinational company among these is Lonrho (London-Rhodesia), which had a nominal capital of K2 million with a sales turnover in 1975 of K64 million for fifty subsidiaries in agriculture and llsee International Finance Corporation, Annual Report, 1982 (Washington, D.C.; International Finance Corporation, 1982), pp. 34-42. l^The leading capitalist member countries of OECD are Australia, Austria, Belgium, Canada, Denmark, Finland, France, the Federal Republic of Germany, Italy, Japan, The Netherlands, New Zealand, Norway, Sweden, Switzerland, the United Kingdom, and the United States. Altogether the OECD comprises 24 member countries. 446 TABLE 84 DIRECT FOREIGN INVESTMENT IN JOINT-VENTURE MANUFACTURING FIRMS BY LEADING CAPITALIST COUNTRIES OF THE OECD, 1979 AND 1982 Percentage of Total Share Country Joint-Venture Company Capital 1979 Canada Zambia Breweries Ltd. 20.0 Finland Mansa Batteries Ltd. 30.0 Federal Repub Kapiri Glass Products Ltd. 35.0 lic of Germany Kasama Vehicle Assemblers Ltd. 25.0 Italy Livingstone Motor Assemblers Ltd. 30.0 Lusaka Engineering Co. Ltd. 40.0 Japan Nitrogen Chemicals of Zambia Ltd. 8.0 Kasama Vehicle Assemblers Ltd. 15.0 Switzerland Kafue Textiles of Zambia Ltd. 22.5 United Kingdom Kafue Textiles of Zambia Ltd. 10.0 Zambia Oxygen Ltd. 49.0 National Milling Co. Ltd. 49.0 Chilanga Cement Ltd. 30.0 Duncan, Gilbey & Matheson (Z) Ltd. 34.0 Dunlop (Zambia) Ltd. 77.0 Kafironda Ltd. 46.0 National Breweries Ltd. 49.0 Zambia Sugary Co. Ltd. 24.0 United States Metal Fabricators of Zambia Ltd. 29.0 447 TABLE 84— Continued Percentage of Total Share Country Joint-Venture Company Capital 1982 Canada Zambia Breweries Ltd. 20.0 Finland Mansa Batteries Ltd. 9.0 ' Federal Repub lic of Germany Kapiri Glass Products Ltd. 9.0 Italy Livingston Motor Assemblers Ltd. 20.0 Lusaka Engineering Co. Ltd. 40.0 Japan Nitrogen Chemicals of Zambia Ltd. (K1 million preference shares) —- Switzerland Kafue Textiles of Zambia Ltd. (and 7.5% of 25,000 preference shares of K2 each) 22.5 United Kingdom National Breweries Ltd. 49.0 Zambia Oxygen Ltd. 49.0 National Milling Co. Ltd. 49.0 Chilanga Cement Ltd. 27.0 Duncan, Gilbey & Matheson (Z) Ltd. 34.0 Dunlop (Zambia) Ltd. 77.0 Kafironda Ltd. 45.5 Kafue Textiles of Zambia Ltd. (and 15% of 199,000 preference shares) 22.5 Zambia Sugar Co. Ltd. 11.0 United States Metal Fabricators of Zambia Ltd. 29.4 SOURCE; Industrial Development Corporation Ltd., Annual Report [1979 and 1982] (Lusaka; INDECO, 1979 and 1982). E.:. 448 agricultural machinery services, brewing, engineering, entertainment, hotels, mining and mining equipment supplies, motor trade distribution, paint manufacture, publishing, and vehicle assembly.Lonrho employed over 6,000 people (14 percent of total employment in the manufacturing sector) in 1976. Lonrho's interests in Zambia have sinCe expanded considerably. These include the Kalangwa Estates, one of the largest farms in Africa. The data in tables 83 and 84 show two general phenomena that are in line with the basic reason for state interven tion. While the data show the main areas of foreign invest ment, they also show the general move of foreign capital away from primary industrialization (especially in extractive industries) and into the manufacturing sector, and the increased level of local ownership of the main industries. Even more important, the tables show that it is not only the overall ownership by foreign residents that has declined but controlas well. It was due to the preponderance of state control that the state was able to determine the rate of accumulation and 13por a detailed study of Lonrho's interests in Africa see Suzanne Cronje, Margaret Ling, and Gillian Cronje, Lonrho; Portrait of a Multinational (London: Julian Fried mann, 1976). For the period 1975-76 Lonrho obtained 88 percent of its profits from Africa. About the British government inquiry into the activities of Lonrho following the board room row in Lonrho in 1973, see British Department of Trade, Lonrho Limited: Investigation under Section 165 (6) of the Companies' Act, 1948, Report (London: HMSO, 1976). ^^Citizenship of the majority of directors and percent age of shareholding are used as proxies for control. 449 the distribution of surplus, which in turn determined the rate of reinvestment and the direction of production. The policy pursued by the joint-venture companies encouraged a high level value-added. For example, the new policy no longer favored (except as dictated by the logic of capital) the mere extraction of primary commodities over their processing, and encouraged domestic production of goods over their importation.^® This aspect of the policy relates to the development of domestic linkages of the manufacturing industry. Growth of Foreign-owned Issued Capital and Capital Accumulation in the Parastatal Joint-Venture Enterprises The aim of this section is to examine the growth of foreign-owned issued capital and the distribution of profits in the parastatal joint-venture enterprises in the manufac turing and mining sectors. From the data to be considered in this section, it is evident that foreign capital has not found the existence of a dominant parastatal sector an insuperable obstacle to accumulating capital in Zambia. Foreign companies that deal in bulk commodities have found parastatal companies to be a rationalizing mechanism since they provide a convenient outlet for bulk sales. Foreign capital has been found to be willing to go into joint ventures with parastatal companies because they are perceived l®The example of this is when it is possible to draw on readily available and economical international supply lines. 450 as providing an umbrella against unfavorable government policies such as protective tariffs and even outright nation alization.^® This explains the general trend regarding the growth of foreign-owned issued capital, shown in table 85 for the period 1971 to 1982. The share of total issued capital owned by foreign capital remained constantly high, between 32 percent and 83 percent. The general increase of the share of total capital owned by foreign capital in the parastatal sector for the period 1971 to 1982 may also be explained by profits attributable to foreign shareholders in the manufacturing sector, as shown in table 86. The table shows that foreign capital enjoyed relatively high profits, except during slump and recessionary years. The state facilitates the process of capital accumula tion by foreign capital through a number of incentives offered to enterprises that utilize investment provided from outside Zambia or employ within Zambia a significant amount of foreign capital.The same phenomenon is observed in the mining sector where, despite the 51 percent state ownership. ^®One example, among others, is the case of Metal Fabricators of Zambia Limited, the copper wire manufacturing plant that is a joint-venture parastatal company jointly owned by the Industrial Development Corporation and two American companies but managed by staff seconded from Reig International of the United States. The production process and much of the marketing is handled by this United States- based multinational corporation. ^^See Government of the Republic of Zambia, The Indus trial Development Act No. 18 of 1977 (Lusaka; Government Printer, 1977), p. 82. 451 1 fi on CM •H 'd oo 3 3 1 4-1 fi fi rH fi O 3 r- 0 On 3 TABLE 86 DISTRIBUTION OF PROFITS IN JOINT-VENTURE ENTERPRISES IN THE MANUFACTURING SECTOR, 1970-82 Profits Attributable to Foreign Profits Shareholders Profits Attributable as Percentage Total Attributable to Foreign of Total Year Profits^ to INDECCr Shareholders Profits 1970 9,281 5,989 3,292 35.5 1971 11,320 5,767 5,553 49.1 1972 14,313 7,078 7,235 50.5 1973 15,332 7,063 8,269 53.9 1974 17,817 9,361 8,456 47.5 1975 2,840 2,474 366 12.9 1976 9,695 6,380 3,315 34.2 1977 3,868 2,179 1,689 43.7 1978 1,167 993 174 14.9 1979 20,668 15,066 5,602 27.1 1980 15,796 14,745 1,051 6.7 1981 16,488 11,552 4,936 29.9 1982 13,030 4,879 8,151 62.6 SOURCE: Industrial Development Corporation Ltd., Annual Report [1972-82] (Lusaka: INDECO, 1972-82). NOTE: Ail figures in thousands of Kwacha. ^Total profits are stated after income tax, withholding tax, and extaordinary charges or credits. ^INDECO is a state-owned and -controlled (100 percent) holding company for all state-owned and -controlled manufac turing operating companies. 453 profits attributable to foreign shareholders for the period 1975 to 1982 were generally high (see table 87) except in 1980, when the price of copper was particularly depressed. From the data in these tables, it is reasonable to conclude that in Zambia the state is far from being an instrument used by the indigenous bourgeoisie to squeeze out foreign capital. Instead, joint ventures with foreign companies in both the parastatal and private sectors have precipitated policies that tend to accommodate the interests of foreign capital. In concluding this section, it is important to observe that through the mechanism of joint ventures with foreign companies, state-owned and -controlled companies (and a few private joint-venture companies) have been incorporated into the network of international capital. Joint ventures in Zambia, which combine state and foreign capital, have been fundamental to current expansion of the state sector. Joint- venture agreements are a new way of drawing the multinational corporations into a "local" schema of accumulation. Joint ventures have also made it possible for the state to be involved in production operations^® where it would have had difficulty working on its own. ^®Some of the operations are Nitrogen Chemicals of Zambia Limited, which produces fertilizers and explosives raw materials; Zambia Oxygen Limited, which manufactures indus trial gas; and the Ethanol Company of Zambia Limited, which produces alternative fuels from chemicals and petrochemicals. 454 TABLE 87 DISTRIBUTION OF PROFITS IN JOINTLY OWNED MINING COMPANIES, 1975-82 Foreign Profits Shareholders' Profits Attributable Profits as Total Attributable to Foreign Percentage of Year Profits^ to ZIMCCr Shareholders Total Profits 1975 105.9 52.1 53.8 50.8 1976 3.4 1.7 1.4 41.2 1977 23.6 8.9 14.7 62.3 1978 36.7 20.5 16.2 44.1 1979 71.9 37.4 34.5 48.0 1980 172.4 172.0 0.4 0.2 1981 51.1 29.5 21.6 42.3 1982 176.0 107.1 68.9 39.1 SOURCE; Zambia Industrial and Mining Corporation Ltd., Annual Report [1975-82] (Lusaka; ZIMCO, 1975-82). NOTE: All figures in millions of Kwacha. ^Stated after income tax, withholding tax, and extra ordinary charges or credits. ^ZIMCO is a 100 percent state-owned and -controlled holding company for all state-owned and -controlled compa nies. 455 Foreign Finance Capital In the preceding section we endeavored to show that indigenous capitalism does not operate independently of international capital. We also showed that through joint ventures there is a high degree of interlinkage between foreign and domestic capital in Zambia, notwithstanding the restriction placed by the state on the expansion of foreign capital by prohibiting it from entering areas of business reserved for Zambians and the state. In this connection, we also showed that foreign investment following the two major economic reforms involved a linkup between international finance agencies, foreign industrial firms, and the state (and in a few cases Zambian private capital), a system of capitalist production described by Mandel in one of his major works as one of the most important features of the late capitalist phase of imperialism.^^ The present section is intended to analyze the sources of foreign finance capital and their policy implications vis- à-vis the accumulation function of the state. In this connection, we analyze the impact on internal accumulation of foreign financing resulting from the terms of financing and interest rates paid on foreign loans. The analysis is carried out in the framework of the dynamics of the world capitalist economy, which include, inter alia, the determi nation of production and tendencies in international trade ^®Ernest Mandel, Late Capitalism (London; New Left Books, 1976), p. 347. 456 and investment. In particular, the analysis relates problems of relations of production and internal accumulation to the series of economic shocks^® that hit the world economy in the 1970s and spilt over into the early 1980s. The indicators used in the analysis serve to show the qualitative and quan titative changes resulting from Zambia's integration into the international division of labor. Sources and Terms of Foreign Financing In the introduction to this chapter we stressed the importance of external factors (and the fact that the Zambian economy is an integral part of the global economy) in analyz ing the effects of Zambia's integration into the interna tional division of labor. Before we turn to the analysis of ^®The first economic shock was inflation, which hit double digits in 1973, receded slightly and then soared into double digits again late in the decade. Although Zambia's exports initially profited from the upsurge in global infla tion, the benefits were short-lived. By 1974, the profits of higher raw materials prices were consumed by skyrocketing oil prices together with the inflated costs of manufactured products imported from the advanced capitalist economies. The second economic shock of the 1970s was the unprecedented increase in oil prices, from approximately $3 a barrel in early 1973 to over $30 at the end of the decade— thus oil price increases contributed greatly to Zambia's accumulation woes. The third major economic shock was the downswing of global economic growth, accentuated by the steep recessions of 1974-75 and 1980-82. The slowdown in world economic growth acutely affected Zambia's exports (mainly copper) to the industrialized countries. The problem of stag-flation in these countries caused import prices to rise precipitously while export markets and prices declined by the same magni tude. The fourth economic shock was soaring interest rates. The cost of borrowing money (particularly private bank lend ing) and servicing of foreign debts rose substantially. A combination of all these shocks gave Zambia a Hobson's choice of going deeply into debt or facing economic collapse. 457 the sources and terms of foreign financing, it is important to ask the extent to which an independent capitalist develop ment process is possible in Zambia. At present this question can be answered only in the negative. As we showed in the earlier discussion, both the colo nial and settler states discouraged an integrated or all- embracing capitalist development in Zambia. The existence of precapitalist mode of production and its coexistence with capitalism were encouraged. The net effect of these policies is the lack of internal linkages between sectors in the economy and the existence of strong external linkages that have been substantially widened by the postindependence open- door policy with regard to foreign investment and financing. The important point to be emphasized here is that the postcolonial state, by design, inherited an economy that seriously lacks the important linkage between production of consumer goods and production of producer goods. This defi ciency gave the Zambian reproduction structure a far less dynamic character than the reproduction structures of advanced capitalist economies. The central point (pertinent to this analysis) is that the lack of a linkage between sectors I and II (as analyzed - by Marx^l) constitutes a serious accumulation problem result ing from the fundamental importance to the Zambian economy of its capacity to import. Zambia depends on imports for the ^^Marx, Capital, vol. 2. 458 supply of most of its essential consumer goods, of inputs required for current production, and of machinery and equip ment (capital goods) and spare parts for further production and development. Thus imports are indispensable for these purposes. Their availability in adequate amounts is of critical impor tance to the process of accumulation. This fact brings to the forefront the central role of foreign exchange availa bilities to pay for imports. Available foreign exchange constitutes the external resources accruing to Zambia, which are made up of its export earnings on goods and services and the inflow of new capital. However, the gross total of these resources does not constitute import capacity. A full under standing of Zambia's import capacity problem calls for a study of the issue in the broad context of external finance and its contribution to the accumulation of capital in Zambia. Our starting point is the analysis of Zambia's balance of payments. Table 88 summarizes Zambia's foreign transac tions, other than capital movements (foreign investments, net new debt), for the period 1970-82. The table depicts a situation that is typical of an economy that is heavily based on imports. The persistent deficit in the current balance of payments was chronic throughout the period considered. And the reason, obviously, is the tribute exacted by foreign capital. During the thirteen years covered by the table, on the average 94 percent of the deficit was accounted for by 459 I 0 u 1 Ô tH i o o u < EH O 3I m u CO I 00 i 5 w m Eh EH I < a 04 o &4 m I: o 8 o I - I * 0 * d < o m m m s < N ï'j s: n 3 C lA £ “ ■go ! SÇ I 3 ; :% •H S + ii 0> 4) Q) <0 II X ^ z u O 460 the need for foreign exchange to pay shippers and insurance companies; dividends, royalties, and payments for other services to multinational corporations and other foreign capitalists; and interest to international banks. Another source of capital outflow is with respect to payments made in connection with private unrequited trans f e r s . ^2 The magnitude of these transfers, which is shown in table 89, points to the degree to which the Zambian economy is still dependent on management service contracts involving foreign personnel. The table depicts this situation from the time of independence in 1964. As shown in the table, Zambia's dependency with respect to foreign technicians (as measured by value relatives of their remittances to their home countries) remained consistently high during the eigh teen years covered by the table. These persistent huge deficits on current account define the bind in which Zambia finds itself with respect to its integration into the new international division of labor. These deficits constitute obligations that cannot be ignored or put off to another day. They have to be met promptly in order to prevent trade from collapsing. That is, imports have to be paid for promptly in order to bring essential Unrequited transfers involve transfer of real resources from one economy to residents of another economy without a quid pro quo; consideration of symmetry demands that the same values be reflected in the balance of payments of both the recipient and the donor economies. Unrequited transfers are of two kinds, private and official. Most private unrequited transfers are classified as current and most official unrequited transfers as capital transfers. 461 TABLE 89 OUTFLOW OF CAPITAL THROUGH PRIVATE UNREQUITED TRANSFERS, 1964-82 Percentage Increase of Total Transfers Transfers Year (US $ millions) (1964 = 100) 1964 12.0 100.0 1965 15.0 125.0 1966 13.0 108.3 1967 13.0 108.3 1968 34.0 283.3 1969 73.0 608.3 1970 147.0 1,225.0 1971 152.0 1,266.7 1972 137.0 1,141.7 1973 143.0 1,191.7 1974 135.0 1,125.0 1975 132.0 1,100.0 1976 119.0 991.7 1977 97.0 808.3 1978 104.0 866.7 1979 137.0 1,141.7 1980 183.0 1,525.0 1981 156.0 1,300.0 1982 67.0 558.3 SOURCE; International Monetary Fund, Interna tional Financial Statistics Yearbook, 1984 (Washing ton, D.C.; IMF, 1984). 462 consumer goods and to keep the wheels of industry turning. Since payments include not only purchases of essential consumer goods and intermediate and capital goods, but also the servicing of foreign liabilities, unless interest, amor tization, and dividend payments are promptly remitted, the sources of foreign capital and the country's creditworthiness will rapidly dry up. the effect of this situation is that as long as Zambia's economy remains wrapped up in the interna tional capitalist network, it must obtain the foreign exchange needed to cover the deficits by attracting invest ment from foreign companies and by borrowing from external sources. But this path leads to even greater deficits, and policy moderation to accommodate the interests of external creditors. This is the subject of proceeding analysis. Sources of Foreign Financing This section discusses the sources of foreign financing and analyzes their policy implications for capital accumula tion in Zambia. Persistent disequilibria in the balance of payments resulting from large shortfalls in export earnings forced Zambia to look for alternative sources of interna tional reserves (international liquidity)^3 needed to meet ^^International reserves are conventionally defined as official holdings of gold, foreign exchange, and Interna tional Monetary Fund-related assets (special drawing rights— SDRs— and reserve positions in the Fund). Apart from gold, these reserves are made up of currencies suitable for inter vention in the foreign exchange market and for direct pay ments of foreign obligations and of financial assets that can be converted into such currencies on short notice at a generally moderate risk of loss. A broader concept of 463 import costs and investments essential for economic growth and development. These financial resources (minus grants) constitute Zambia's external debt. For this reason, the sources and terms of foreign financing have determining effects of processes of capital accumulation in Zambia. The essence of this is that a country's capacity to import is related to the excess of foreign exchange earnings above debt-service obli gations. If the debt-service ratio is very high, a given percentage drop in foreign exchange earnings lowers the capacity to import by an even greater percentage amount. This problem is exacerbated by the fact that Zambia's imports consist largely of capital goods and manufactured interme diate products. A reduction in the capacity to import tends to reduce the rate of investment due to lack of capital goods imports. To the same extent, utilization of existing capacity is reduced as imported inputs and spare parts become scarce. Thus, both the reduced investment rate and reduced capacity utilization tend to retard the growth of the economy and the process of accumulating capital. It is in these respects international liquidity includes, in addition to the holdings of international reserves, external commitments and long-term foreign liabilities and the capacity of borrowing (establish ing lines of credit) from foreign sources. The concept of international liquidity is much less precise than that of international reserves, because the capacity to borrow abroad is in part determined by the terms on which a country is willing or able to borrow, including cost, maturity, and other conditions related to the loans. 464 that the sources of Zambia's external financing or debt influence accumulation in the country. The sources of Zambia's foreign financing in the form of loans fall under two broad categories, official and private. Official sources comprise international organizations; the World Bank, regional development banks, other multilateral and intergovernmental agencies, and governments. On the other hand, private sources comprise suppliers (credits from manufacturers, exporters, or other suppliers of goods) and financial markets— private banks and other financial insti tutions. Descriptive data used to compute the magnitude of Zambia's external debt^^ have been selected from the custo mary official sources, mainly the latest available reports from international organizations, which are standard in this kind of investigation. In order to understand Zambia's debt problem and its impact on accumulation of capital it is important to examine the structural change that accompanied the growth of the overall volume of external debt during the period under study. This facilitates the determination of changes in the main sources of international liquidity creation, which maintained their exposure during the same period. For this It is appropriate at this point to define external debt. External debt is defined as debt that has an original or extended maturity of over one year and that is owed to nonresidents and repayable in foreign currency, goods, or services. 465 purpose, two major aspects of the structure of Zambia's external debt are analyzed. These are the changes in the debt's composition according to major creditor or source categories, and the maturity distribution of the loan contracts, including the interests paid. At the present level of analysis, attention is directed to the magnitude of the debt and to the change in the struc ture of the sources. A second level of analysis, which examines the maturity distribution of the loan contracts, together with the interest rates (which including periodi cally adjustable interest rates) contracted, is done in the next section, which discusses the terms of public and publicly guaranteed external debt. Two types of external debts are considered in this study. These consist of foreign loans extended to the government (national external debt) and publicly guaranteed O C loans made to the parastatal and private companies. Loans extended to the Zambian government from official sources in capitalist and socialist countries as of December 31, 1982, appear in table 90, with the largest exposure made by the sources in capitalist economies, which amounted to 96 percent of the total exposure of $1,293 million. Of this ^ A distinction is made between public debt, which is an external obligation of a public debtor— including the national government, a political subdivision (or an agency of either), and autonomous public bodies— and publicly guaran teed debt, which is an external obligation of a private debtor (including parastatal companies) that is guaranteed for repayment by a public entity. 466 TABLE 90 FOREIGN DEBT OF THE GOVERNMENT OF ZAMBIA BY LENDER AS OF DECEMBER 31, 1982® Lender US $ Millions^ African Development Bank 16.2 Arab Bank for Economic Development 7.8 Arab League 10.0 Bulgaria 3.9 Canada 39.7 People's Republic of China 205.5 Denmark 4.0 European Economic Community 15.5 German Democratic Republic 4.0 Federal Republic of Germany 44.9 India 6.4 Iraq 55.8 Japan 75.3 The Netherlands 22.2 OPEC Special Fund 3.5 Romania 11.6 Saudi Arabia 19.7 United Kingdom 76.1 United States of America 147.6 USSR 175.0 World Bank (IBRD) 289.5 Kuwait 41.2 467 TABLE 90— Continued Lender US $ Millions^ Sweden 7.7 European Investment Bank 9.9 TOTAL 1,293.2 SOURCE; Bank of Zambia, Financial Report (Lusaka; Bank of Zambia, 1983), p. 34. ®Does not include government-guaranteed foreign debt and other foreign debt of parastatal companies and the foreign liabilities of the Bank of Zambia. ^Converted to U.S. dollars from Zambian Kwacha at the exchange rate of Kl.O = US $0.84. 468 total, the largest contribution of $ 7 3 2 . 4 million (57 percent) came from the European Economic Community (EEC) and the Organization for -Economic Cooperation and Development (OECD). In contrast, loans from sources in the socialist countries of Eastern Europe totaled $400 million (31 percent), and the remaining $ 1 6 0 . 6 million was extended by non-Western capitalist sources, with the bulk of it ($138 million, or 11 percent) provided by the oil-exporting coun tries and their official institutions. Further analysis will help illuminate structural changes that followed the growth of the overall volume of Zambia's external debt during 1 970 to 1982. For the purpose of clear exposition, world and regional data are analyzed separately, and sources are further analyzed according to their political and economic groupings. This helps to throw light on the alliance and organizational strategies that emerged to protect their interests. The upward trend of Zambia's public and publicly guar anteed external debt continued to accelerate sharply during the entire period under consideration ( 1 9 7 0 - 8 2 ) . For the period 19 70 to 1982 the average annual growth rate of debt outstanding, including undisbursed, ^7 was about 14 percent. ^®The EEC member countries are Belgium, Denmark, the Federal Republic of Germany, France, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, and the United Kingdom. ^^Debt outstanding, including undisbursed, is the sum of disbursed and undisbursed debt and represents the total outstanding external obligations of the borrower at year-end. 469 considerably more than the growth rate of exports, which were seriously affected by the global recession (see table 91). Scaled in relation to the export of goods and services, the debt outstanding, including undisbursed, rose from nearly 87 percent at the end of 1970 to over 303 percent in 1982. The magnitude of the growth of total external debt outstanding, including undisbursed, with respect to each year from 1970 to 1982 is shown in figure 5. The same phenomenon is observed with respect to debt outstanding, disbursed only, shown in table 92. While more funds were disbursed between 1970 and 1982, their net flow was drastically reduced by declining export earnings during the same period. As shown in the table, disbursed debt as a percentage of goods and services exported increased from 55.5 percent in 1970 to 131.3 percent in 1975, and 226 percent in 1982. The period 1970 to 1982 was marked not only by increased growth of disbursed debt outstanding (net of short-term liabilities) but also by a significant change in the types of debt and sources of supply. Except in 1976, when the grant element^® of international lending to Zambia by the OECD member countries reached nearly 44 percent of total The grant element reflects the financial terms of a transaction; interest rate maturity (interval to final repayment) and grace period (interval to first repayment of capital). The grant element of a loan is often expressed as a percentage, conventionally 10 percent of the face value of the loan. The discount rate is used to determine relative rankings of loans on the basis of "hardness" or "softness." 470 TABLE 91 TOTAL EXTERNAL DEBT OUTSTANDING, INCLUDING UNDISBURSED, AND TOTAL VALUE OF EXPORTS, 1970-82 External Debt Total Total as Percentage External Value of of Total Value Year Debt® Exports of Exports 1970 833.7 959.0 86.9 1971 811.9 701.0 115.8 1972 982.5 829.9 118.5 1973 1,163.8 1,203.0 96.7 1974 1,427.7 1,479.0 96.5 1975 1,611.8 880.0 183.2 1976 1,681.4 1,122.0 149.9 1977 1,819.7 974.0 186.8 1978 2,186.2 942.0 232.1 1979 2,724.4 1,537.0 177.3 1980 3,088.5 1,464.0 211.0 1981 3,077.4 1,222.0 251.8 1982 3,210.4 1,059.0 303.2 SOURCE: World Bank , World Debt Tables: External Debt of Developing Countries [1972-84] (Washington, D.C.: World Bank, 1972-84). NOTE: All figures in millions of U.S. dollars. ®Debt outstanding, uncluding undisbursed, is the sum of disbursed and undisbursed debt and represents the total outstanding external obligations of the borrower at year- end. ^Total value of exports refer to the total value of goods and all services (including workers' remittances) sold to the rest of the world. 471 320 300 280 260 240 220 200 180 160 140 120 100 80 60 40 20 1970 71 72 73 74 75 76 77 78 79 80 81 82 Fig. 5. Total external debt outstanding (including undisbursed) as percentage of total value of exports, 1970-82. SOURCE; Calculated from table 14 9. 472 TABLE 92 TOTAL EXTERNAL DEBT® OUTSTANDING (DISBURSED ONLY) AND TOTAL VALUE OF EXPORTS,° 1970-82 Total Total External Debt Total External Value of as Percentage of Year Debt Disbursed Exports Total Value of Exports 1970 532.1 959.0 55.5 1971 539.0 701.0 76.9 1972 676.3 829.0 81.6 1973 703.7 1,203.0 58.5 1974 815.9 1,479.0 55.2 1975 1,155.7 880.0 131.3 1976 1,298.9 1,122.0 115.8 1977 1,406.5 974.0 144.4 1978 1,470.7 942.0 156.1 1979 1,847.9 1,537.0 120.2 1980 2,208.7 1,464.0 150.9 1981 2,273.6 1,222.0 186.1 1982 2,394.0 1,059.0 226.1 SOURCE: World Bank, World Debt Tables : External Debt of Developing Countries [1976-84] (Washington, D.C.: World Bank, 1976-84). NOTE: All figures in millions of U.S. dollars at current prices. ^External debt outstanding, disbursed only, is defined as debt that has an original or extended maturity of over one year (i.e., does not include short-term) and that is owed to nonresidents and repayable in foreign currencies, goods, or services. It also refers to total outstanding debt drawn by the borrower at year-end. ^Exports include nonfactor services. 473 disbursement, the period 1970 to 1982 witnessed a downward trend in grant elements from this source. Grant elements were in some cases less than 14 percent of total disbursement (see table 93). From table 93 the downward trend with respect to the debt that carried grant elements is evident. For the whole period, debt that carried grant elements aver aged about 27 percent of debt disbursements as compared to an average of 73 percent of non-grant-carrying debt. The data in table 94 point to another change of great significance pertaining to the loan sources in OECD and EEC countries. For the thirteen-year period, 1970 to 19 82, net lending by official multilateral agencies that carry conces sional terms^9 were consistently low, averaging about 24 percent. Thus, for the whole period 76 percent of external debt was owed to private creditors (mostly in the EEC coun tries) . Again, focusing on the shift in the sources of finance away from official agencies toward private sources (in the form of bank loans and export credits), we continue with analysis of the data from the OECD, which constitutes the largest single source of Zambia's external debt. A discon certing trend in Zambia's external debt is shown in table 95. The table shows the rising share of debt owed to private creditors on commercial terms of relatively short maturity Concessional terms refer to the "softness" of loans in terms of interest rates and the length of time the funds are available to the borrower. 474 TABLE 93 TOTAL NET DISBURSEMENT OF EXTERNAL DEBT AND GRANTS (BILATERAL) BY THE OECD DEVELOPMENT ASSISTANCE COMMITTEE COUNTRIES, 1970-82 Grant Element Total as Percentage Year Disbursement Grants of Total Disbursement 1970 33.5 11.4 34.0 1971 44.8 15.9 35.5 1972 101.9 18.9 18.5 1973 168.1 35.6 21.2 1974 165.8 31.7 19.1 1975 301.1 41.8 13.9 1976 97.2 42.5 43.7 1977 214.5 66.6 31.0 1978 336.4 68.8 20.5 1979 455.7 94.4 20.7 1980 396.3 134.8 34.0 1981 459.7 117.7 25.6 1982 402.0 126.5 31.5 SOURCE; Organization for Economic Cooperation and Development, Geographical Distribution for Financial Flows to Developing Countries (Paris: OECD: 1969-83). NOTE: All figures in millions of U.S. dollars. 475 TABLE 94 NET EXTERNAL DEBT DISBURSEMENT BY OECD DEVELOPMENT ASSISTANCE COMMITTEE COUNTRIES, EEC MEMBERS, AND MULTILATERAL AGENCIES, AND PERCENTAGES OF DISBURSEMENT, 1970-82 Total DAC EEC Multilateral Year Disbursement Bilateral Members Agencies 1970 26.9 0.1 22.0 4.8 (100)® (0.4) (81.8) (17.8) 1971 36.6 0.5 28.4 7.7 (100) (1.4) (77.6) (21.0) 1972 98.3 6.1 76.9 15.3 (100) (6.2) (78.2) (15.6) 1973 158.6 81.2 51.3 26.1 (100) (51.2) (32.3) (16.5) 1974 189.9 12.3 121.8 55.8 (100) (6.5) (64.1) (29.4) 1975 323.5 51.5 207.8 64.2 (100) (16.0) (64.0) (20.0) 1976 134.1 32.6 23.8 77.7 (100) (24.0) (18.0) (58.0) 1977 205.7 62.9 85.0 57.8 (100) (30.6) (41.3) (28.1) 1978 315.7 89.0 178.6 48.1 (100) (28.2) (56.6) (15.2) 1979 449.4 85.6 275.7 88.1 (100) (19.0) (61.0) (20.0) 1980 353.1 101.1 160.4 91.6 (100) (28.6) (45.4) (26.0) 1981 419.8 140.6 201.4 77.8 (100) (33.5) (48.0) (18.5) 1982 346.8 90.3 185.2 71.3 (100) (26.0) (53.4) (20.6) SOURCE; Organization for Economic Cooperation and 476 TABLE 94— Continued Development, Geographical Distribution for Financial Flows to Developing Countries (Paris; OECD, 1969-83). NOTE; All figures in millions of U.S. dollars at current prices and exchange rates. ^Figures in parentheses represent percentages of net debt disbursement with respect to each source. 477 TABLE 95 TOTAL EXTERNAL DEBT (DISBURSED) OWED TO THE MEMBER COUNTRIES OF THE OECD DEVELOPMENT ASSISTANCE COMMITTEE, 1976-82 Private Sources Total Debt Official Private as Percentage Year Disbursed Sources Sources^ of Total Debt 1976 806.0 98.0 708.0 87.8 1977 865.0 113.0 752.0 86.9 1978 961.0 241.01 720.0 74.9 1979 1,126.8 354.0 772.8 68.6 1980 1,294.7 450.0 844.7 65.2 1981 1,337.0 475.0 862.0 64.5 1982 1,423.0 511.0 912.0 64.1 SOURCE: Organization for Economic Cooperation and Development, Geographical Distribution for Financial Flows to Developing Countries (Paris: OECD, 1975-83). NOTE: All figures in millions of U.S. dollars at current prices and exchange rates. ^Private sources comprise private creditors or sup pliers who extend export credits, and private financial markets. 478 (original maturity less than one year) in the total. Between 1976 and 1982 external debt owed to private creditors in the member countries of the Development Assistance Complex of OECD averaged 73 percent. Table 96 shows the preponderance of private creditors in the breakdown of external debt service paid to creditors in the OECD member countries. The table shows that for the period 1976 to 1982, payment to private creditors averaged over 90 percent. The predominance of private sources (especially private banks) is still clear as we examine data relating to all sources of Zambia's external debt for the period 1970 to 1982. The change in the structure of debt outstanding and disbursed is underscored by the high ratios of total debt owed to private creditors. Table 97 shows that more than 50 percent of outstanding external debt owed in 1972 was owed to private creditors. The ratios of total debt from this source remained high for the remaining period (1973 to 1982), except in 1981, when the total of outstanding debt from private creditors was slightly below 26 percent. The proportion of public and publicly guaranteed multi lateral disbursed debt owed to private creditors was rela tively high between 1972 and 1978, and remained relatively high from 1979 to 1982 (see table 98). This trend is shown in figure 6, which compares disbursements from official sources with disbursements from private sources. The pressure of a sharp rise in private debt obligations with short maturities (together with perennial budget 479 TABLE 96 EXTERNAL DEBT SERVICE PAID TO OECD DEVELOPMENT ASSISTANCE COMMITTEE COUNTRIES, 1976-82 Payment to Private Paid to Paid to Creditors as Per Total Debt Official Private centage of Total Year Service^ Creditors Creditors Debt Service 1976 122.9 5.5 117.4 95.5 1977 170.8 5.8 165.0 96.6 1978 190.3 7.5 182.8 96.1 1979 190.9 11.5 179.4 94.0 1980 239.0 14.1 224.9 94.1 1981 193.2 16.5 176.7 91.5 1982 114.8 12.8 102.0 88.9 SOURCE: Organization for Economic Cooperation and Development, Geographical Distribution for Financial Flows to Developing Countries (Paris: OECD, 1975-83). NOTE: All figures in millions of U.S. dollars. ^Total debt service includes principal and interest payments combined. 480 TABLE 97 TOTAL EXTERNAL DEBT OUTSTANDING, INCLUDING UNDISBURSED, FROM OFFICIAL AND PRIVATE SOURCES, 1972-82 Private Sources Total Official Private as Percentage Year Debt® Sources Sources of Total Debt 1972 982.5 439.1 534.4 55.3 1973 1,163.8 708.7 455.1 39.1 1974 1,427.7 936.8 490.9 34.4 1975 1,611.8 918.4 693.4 43.0 1976 1,681.4 977.3 704.1 41.9 1977 1,819.7 1,140.9 678.8 37.3 1978 2,186.2 1,495.9 690.3 31.6 1979 2,724.4 2,011.5 712.9 26.2 1980 3,088.5 2,236.0 852.5 27.6 1981 3,077.4 2,289.8 787.6 25.6 1982 3,120.4 2,362.3 848.1 26.4 SOURCE; World Bank, World Debt Tables: External Debt of Developing Countries [1972-84] (Washington, D.C.: World Bank, 1972-84). NOTE: All figures in millions of U.S. dollars. ^Debt outstanding, including undisbursed, is the sum of disbursed and undisbursed debt and represents the total outstanding external obligations of the borrower at year- end. 481 TABLE 98 OFFICIAL DEBT AND PRIVATE DEBT AS PROPORTIONS OF EXTERNAL DEBT OUTSTANDING (DISBURSED ONLY), 1972-82 Year External Debt® Official Debt^ Private Debt^ 1972 676.3 180.8 ^ 495.5 (26.7)0 (73.3) 1973 703.7 275.6 428.1 (39.2) (60.8) 1974 815.9 422.7 393.2 (51.8) (48.2) 1975 1,155.7 555.5 600.2 (48.1) (51.9) 1976 1,298.9 691.6 607.3 (53.2) (46.7) 1977 1,406.5 791.4 615.1 (56.3) (43.7) 1978 1,470.7 935.1 535.6 (63.6) (36.4) 1979 • 1,847.9 1,272.3 575.6 (68.9) (31.1) 1980 2,208.7 1,570.4 638.3 (71.1) (28.9) 1981 2,273.6 1,655.8 617.8 (72.8) (27.2) 1982 2,394.0 1.736.6 657.3 (72.5) (27.5) SOURCE: World Bank, World Debt Tables [1982-84] (Wash ington, D.C.: World Bank, 1982-84). NOTE: All figures in millions of U.S. dollars. ®Total outstanding debt drawn by the borrower at year- end. Also known as debt outstanding, disbursed only. ^Official debt comprised loans from international orga nizations (multilateral loans); loans and credits from the 48: TABLE 98— Continued World Bank; regional development banks; and other multilat eral and intergovernmental agencies; and loans from govern ments (bilateral loans): loans from governments and their agencies (including central banks) and loans from autonomous public bodies. ^Private debt is debt from private creditors comprising loans from suppliers: credits from manufacturers, export ers, or other suppliers of goods. It also comprises loans from financial markets: • loans from private banks and other financial institutions, and publicly issued and privately placed bonds. The last group of sources comprises external liabilities on account of nationalized properties and unclassified debts to private creditors. ‘^Figures in parentheses are respectively percentages of official and private debt in relation to total debt out standing, disbursed only. 483 Official Debt85 80 Private Debt 75 70 65 60 55 50 45 40 35 30 25 20 0 1972 73 74 75 76 77 78 79 80 81 82 Fig. 6. Official and private debt as percentages of disbursed debt, 1972-82 SOURCE: Computed from table 98. 484 deficits and balance-of-payments problems) and ardent desire to improve the country's import capacity,^0 and the need to maintain its creditworthiness led to major changes in Zambia's economic and investment policy. Policy change was also precipitated by insistence of both the International Monetary Fund (IMF) and international banks that the debtor countries undertake stabilization programs. In particular, the banks' overriding concerns regarding the implementation of stabilization programs are the assur ance that the borrowing less-developed countries (Zambia being one of them) will earn enough foreign exchange each year to meet loan repayments, and the assurance (through the IMF) that there will be continued safe opportunities to lend. Thus, the IMF's classic role is not only to provide resources of its own but, often more important, to provide a seal of approval for national policies that encourages foreign finance capitals (lenders) to untie their purse strings. The extent to which the IMF protects the interests of lenders in the Western capitalist countries is revealed by the fact that the banks in these countries had conditioned new lending on successful negotiations of an IMF agreement. For this 30 Export earnings divided by long-term capital inflow minus debt repayments and profit remittances Import Capacity = ------Unit value of imports 485 reason, Zambia's policy response will be discussed in the context of the lending policies of the IMF. The extent of the IMF's influence on Zambia's economic policy may be gauged from the trend of Zambia's net borrowing from the Fund for the period 1972 to 1982, as shown in table 99. The significance of the IMF as a source of Zambia's external financing especially emerged between 1978 and 1982, when borrowing from the Fund averaged 42 percent of the value of Zambia's total exports for that period. In addition to the lending trend shown in the table, Zambia received addi tional concessional loans in the form of stand-by facilities, compensatory financing facilities, and loans from the Trust Fund. These types of loans require countries to submit to different levels of conditionality.^^ The first agreement for high-conditionality stand-by facilities to cover the period April 26, 1978, to April 25, 1980, was entered into between the Zambian Government and the IMF in March 1978. Under the agreement, the IMF made 3 The loan facilities of the IMF are made available to member countries under two categories: low-conditionality facilities and high-conditionality facilities. Low- conditionality merely establishes that a country has a "balance-of-payments need" (a deficit) accompanied by a declaration that it is taking measures to resolve its deficit. The Fund does not ordinarily challenge this declaration. Conversely, high-conditionality involves the country's design of a specific set of policy measures and programs to eliminate its deficit, IMP agreement that the program will be adequate for the purpose, and the country's commitment to implement that program. Loans under the country's high-conditionality category are now virtually always provided in the form of a stand-by agreement, which provides a country with the assurance of a right to draw over some future period— one to three years. 486 TABLE 99 NET BORROWING FROM THE INTERNATIONAL MONETARY FUND (USE OF IMF CREDIT)^ AS PERCENTAGE OF EXPORTS, 1972-82 IMF Borrowing as Percentage Year Total Exports IMF Borrowing of Total Exports 1972 829.0 41.3 5.0 1973 1,203.0 68.7 5.7 1974 1,479.0 69.8 4.7 1975 880.0 88.9 10.1 1976 1,122.0 110.6 9.9 1977 974.0 115.7 12.3 1978 942.0 319.3 33.9 1979 1,537.0 421.5 27.4 1980 1,464.0 393.2 26.9 1981 1,222.0 730.7 59.8 1982 1,059.0 634.9 60.0 SOURCE: World Bank, World Debt Tables: External Debt of Developing Countries [1972-84] (Washington, D.C.; World Bank, 1972-84). NOTE: All figures in millions of U.S. dollars. ^The "Use of IMP Credit" comprises purchases outstand ing under the credit branches including enlarged access resources, and all of the special facilities (the buffer stock, compensatory financing, supplementary financing, and oil facilities). These transactions involve borrowing from, and repayment to, the IMF. 487 available a high-conditionality loan of Special Drawing Rights (SDR)32 of 250 million in IMF credits, while the government agreed to adopt and implement the IMF-sponsored and -monitored "stabilization program" (in addition, a 1977 SDR stand-by facility equivalent to K35 million was resched uled) . The agreement was extended in 1980 to cover a three- year period from May 1981, Under the extended agreement, the 0 IMF approved another high-conditionality loan of SDR 800 million. The government undertook to adopt and implement another tough conditionality IMF "adjustment package." The "conditionality" for the use of IMF credit affected the autonomy of the Zambian state as it gave the IMF the power to direct the major instruments of accumulation during the stabilization period. ^^The exchange rate of the SDR in terms of the U.S. dollar was US $1.20635 = SDR 1.0. However, U.S. Public Law No. 94564 provided that the par value of the U.S. dollar in terms of gold and SDR would be repealed when the proposed Second Amendment to the Fund's Articles of Agreement entered into force. The Amendment became effective on April 1, 1978. Under the Amendment, the value of the SDR is no longer expressed in gold, and the method of valuation of the SDR is determined by the IMF by a high majority of the total voting power. Before the Second Amendment came into effect, the IMF Executive Board reviewed the method of valuing the SDR that had been in effect since July 1, 1974 (Executive Board Deci sion No. 5718 [78/46] G/S, adopted March 31, 1978). The sixteen countries whose currencies originally determined the value of the SDR from July 1, 1974, each had a share in world exports of goods and services in excess of 1 percent on the average oyer the five-year period 1968-72. The currencies used for this purpose from July 1, 1978, are those of the sixteen member countries with the largest exports of good and services for the period 1972-76. For other pertinent details see International Monetary Fund, Annual Report of the Execu tive Board for the Year Ended 30 April, 1978 (Washington, D.C.; IMF, 1978), pp. 56-57. 488 Both the 1978 and 1981 "stabilization programs" required, as preconditions, devaluation of the Kwacha (Zambia's national currency) respectively by 20 percent against the U.S. dollar— Zambia's intervention currency. Also, both programs involved austerity measures. The adjustment package of policies called for restrictive mone tary and fiscal policies. These policy measures included controlling the growth of the money supply through bank reserves; inordinate borrowing from the Bank of Zambia (central bank) by the government; reduction in the rate of growth of domestic credit through enforcement of credit ceilings for commercial bank lending; drastic cuts in government expenditure (including elimination of subsidies); control of price and wage increases, not to exceed 5 percent (in some cases wage freeze) and a ban on strikes. Both stabilization programs were geared to the reorder ing of the economy. The programs were designed to reduce inflation and strengthen the balance of payments (to achieve an overall balance-of-payments equilibrium by 1980) in order to lay the groundwork for the resumption of sustained growth of production and employment. The key elements were the improvement of public finances and an increase in domestic savings. 33see Government of the Republic of Zambia, Budget Addresses by Ministers of Finance [January 1977-January 1983] (Lusaka: Government Printer, 1977-83). 489 The reduction of the public sector deficit was recog nized as the cardinal factor in the control of domestic demand, strengthening of the export sector, and so limiting the need for external borrowing. The adjustment programs were also expected to cause the share of total imports in aggregate supply to decline. These trends were expected to permit a gradual recovery of net international reserves and a more efficient allocation of available resources. Both monetary and fiscal policy instruments employed in the programs were intended to facilitate the mechanisms for internal accumulation of capital. Thus, fundamentally the most important question that is central to this analysis is how costly it was, in terms of growth, to meet the objectives of the IMF-sponsored adjust ment programs. That is, we examine the implications of austerity measures for economic growth. Our starting point is to examine the basis on which the austerity measures were taken. It is plain to argue that if the economy is at full employment, budgetary restraints would merely reduce infla tion, not real output. But the Zambian economy was not at full employment of resources during the period 1974 to 1982, and thus the cuts in aggregate demand precipitated an adverse impact on real growth. The IMF stabilization program, which anticipated the expansionary stimulus to exports from devaluation, did not take into account the possible inelastic export response and the fact that the Zambian economy is essentially an import- 490 dependent economy, and thus vulnerable to exogenous factors (in this case high prices of imports). During the period 1970 to 1979 the annual growth rate of exports averaged 1.2 percent, and for the period 1970 to 1980 the growth rate of exports was negative by 0.2 percent. The induced decline in aggregate demand posed problems with respect to economic growth. Between 1970 and 1977, the annual growth rate of the economy averaged 0.4 percent of real gross domestic product (GDP).34 During 1978-79 the economy slipped into a deep reces sion, resulting in an annual growth of minus 9 percent. The economy did not grow appreciably in 1980 (0.9 percent of real GDP), and during the 1981 the growth rate averaged about 2 percent of real GDP. Per capita annual growth for the period 1978 to 1979 averaged 0.2 percent, while during the period 1980 to 1981 per capita growth was zero. Thus, during the periods of the adjustment program real wages fell precipi tously. The external sector targeted in the adjustment programs also had implications for economic growth. During the adjustment period Zambia experienced sharp declines in imports. In 1981, imports fell by $17 million (9 percent) from the 1980 level of $1,921 million to $1,904 million. The decline in imports was even greater in 1982 as the level of imports dropped by $554 million (29 percent) from the 1981 34gee World Bank, World Development Report [1980-83] (Washington, D.C.: World Bank, 1980-83). 491 level of $1,904 million to $1,350 million. These cutbacks were opportunity costs for economic growth (as shown above) as imported inputs for industry became scarce. The reduction in imports reflected unavailability of foreign exchange, raising the question of the extent to which the adjustment programs were successful in boosting export earnings. The external target also fell short of achieving its objectives set out in the adjustment program with regard to reducing Zambia's current account balance to near zero. The current account deficit, which stood at $620 million (1977 level) at the start of the program, rose by nearly 37 percent (1977 = 100) during 1978, to $847 million. There was a marginal improvement in 1979, when the deficit was reduced by about 7.6 percent ($47 million) of the 1977 level. The current account position deteriorated sharply in 1980 by rising to a record high of $1.5 billion, or an increase of 142 percent over the 1977 deficit. Deficits for 1981 and 1982 remained high as compared to the deficit of the base year. At the end of 1981 the current account deficit stood at $1.43 billion, or an increase of 131 percent over the 1977 deficit. At $879 million, the 1982 current' account deficit was equally high. This was an increase of about 42 percent over the 1977 level (see table 88). The greatest vulnerability of the adjustment policies stemmed from the severe decline in real incomes as depicted by a decline in gross national product (GNP). The situation 492 was worsened by an annual rate of inflation that averaged 8.4 percent between 1977 and 1981. Unemployment (an increasingly severe problem in the cities and among school leavers) was further accentuated during the adjustment period. People in wage-paid employment during the period 1977 to 1980 averaged 23 percent of the total labor force of 6,684,110. Unemployment averaged 20 to 25 percent of the total labor force. The high rate of unemployment was mainly caused by curbs imposed on government spending (the public sector being the largest source of employment in the nation), which brought further restraints on economic growth. This, as expected, engendered political unacceptability of the adjustment policies. Consequently, the period 1977 to 1980 witnessed the largest labor unrest since 1966, when there were 241 reported strikes, involving 307,167 workers and resulting in 579,406 lost man-days. Between 1977 and 1980 a total of 267 strikes were reported, involving 116,975 workers o c and resulting in 44,182 lost man-days. Decline in real wages and living standards that followed forced the working class to disproportionately bear the ultimate brunt of the "adjustment" programs. Other economic vulnerabilities of the adjustment poli cies included the collapse in the price of copper (Zambia's largest— 95 percent— source of export earnings) and high import prices of vitally needed industrial goods. These, 33gee Monthly Digest of Statistics 9 (June 1973), 15 (April-June 1979), and 17 (April-June 1981). 493 together with continued heavy deficit spending and lower production levels, drove up inflation and exacerbated Zambia's balance-of-payments difficulties. One fact stands out of this analysis, namely that a reduction in domestic demand will not necessarily lead to an increase in export earnings. This is especially true for Zambia, which depended on one traditional export (copper) for which demand and price contracted sharply during the adjust ment period, making essential imports exceed export earnings. This structural disequilibrium between import requirements and export earnings persisted throughout the adjustment period, necessitating a substantial net inflow of long-term capital.36 The preceding analysis points to the fact that the therapies applied by the IMF in the form of "stabilization" or "adjustment" programs severely jolted the Zambian economy. They seriously lowered the levels of capital accumulation. Zambia was put in a position (as revealed by the above analy sis) where it had to choose between having a current account balance near zero and having zero growth— it could not have both. Neither internal nor external targets were achieved. Some of the reasons for the failure of the stabilization or adjustment programs in Zambia are apparent from the data we examined. The greatest cause for not achieving adjustment 36Net inflow is equivalent, in this context, to gross inflow less debt-service payments. 494 targets is the fact that the IMF adjustment package is applied indiscriminantly to countries seeking to draw on its resources without regard to the conditions and historical features peculiar to each of them. For example, the same package is indiscriminantly applied to developed economies such as Canada and Italy, and to less-developed countries such as Zaire and Zambia. From our analysis of Zambia's adjustment program it is obvious, for example, that the economic, social, and politi cal impact of credit restrictions, and the imposition of curbs on government spending, simply cannot be compared in the case of a country like Italy and one like Zambia. The former has a mature economy with a substantial per capital income; a slowdown in the rate of growth of such an economy does not jeopardize its overall development along similar lines in the future. A devaluation of the national currency, for instance, may be a sound measure for such an economy, which usually has an autonomous capacity for the production of capital goods; devaluation in this case may increase the level of employment in the country and export earnings, assuming that leakages on imports can be contained. In Zambia (as in other less-developed countries), how ever, any devaluation immediately upsets the investment capacity of the economy. This points to the importance of intercountry differences in the elasticity of supply of exports. This is a cardinal factor that deserves particular 495 attention when designing adjustment programs. For example, countries differ considerably in the extent to which they can compress imports without suffering adverse effects. Some countries are better equipped than others in the availability of skills and resources for developing import substitution industries. An analysis of the IMF stabilization policy as applied to Zambia between 1977 and 1982 makes it possible to deter mine the theoretical base of the Fund's stabilization programs. It is plain from our analysis that the IMF uses orthodox stabilization theory, which relies heavily on exces sive money creation and overvaluation of the exchange rate as the source of inflation and balance-of-payments deficits. Thus, as we have seen, the Fund's principal policy measures for achieving economic stabilization are reduction in the rate of growth of domestic credit and devaluation of the exchange rate. These policy measures thus involve severe monetary contraction, devaluation of national currency, and sharp reduction in real wages. The net effects of these measures usually involve dras tic loss of production and little progress against inflation. While the balance of payments may improve (as was the case in 1979 when Zambia's merchandise trade balance had a surplus of $56 million), this is mainly due to reductions in income and import demand. In sum, the IMF's stabilization program adversely 496 affected accumulation of capital in Zambia. It brought on the train with it growth costs and political strain beyond tolerable bounds. Unfortunately, due to persistent global recession, international economic recovery was not in sight to mitigate these costs and stresses. Thus the IMF's stabi lization policies were ineffective as instruments for pivot ing the Zambian economy in the direction of sustained growth. Terms of External Financing and Capital Accumulation In the preceding section particular attention was paid to the fact that along with the increase in size, the struc ture of Zambia's foreign debt changed appreciably during the period 1976 to 1982. Among the major transformations was a perceptible increase in the predominance of private versus official credit sources such as governments and multilateral financing agencies. This made private creditors Zambia's main source of international liquidity creation and financing of the balance-of-payments deficits. Another fundamental change in Zambia's foreign debt structure we alluded to was the sharp rise in obligations with short-term maturities. In the present section we examine the trends in the terms of capital flows and how they added to the problems of accumulation caused by domestic factors discussed in the preceding section. By terms of capital flow, as used in this study, we mean conditions under which foreign loans were made to Zambia during the period under study (1970-82). The terms of foreign financing generally fall under two major 497 categories, namely "hard" and "soft" terms. Foreign capital flows are based on a variety of terms, ranging from very hard to very soft. Three important aspects of the terms of capi tal flow are the interest rate, the maturity, and the grace period. All have direct impact on accumulation of capital. The longer the maturity and grace period, and the lower the interest rate, the softer is the loan. Conversely, the shorter the maturity and grace period, and the higher the interest rate, the harder the loan. The softness of a loan may simply be measured by expressing its value in comparison to a direct grant (the grant element or concessional value of a loan). The "grant" or "concessional" value of a loan is simply the total amount (principal) of the loan less the discounted value of the flow of payments made over the years to repay the loan and interest due. Thus, if a country borrows at 2 percent for ten years, this loan is more favorable than borrowing at "hard" commer cial rates of 10 percent for only, say, five years, but it is less favorable than a pure grant. The pure grant serves as a standard at the other end. The grant element of a transac tion is the total amount involved, while the grant element of a pure commercial loan is zero. However, although the grant element of a loan is a useful measure of its softness, interest rates, maturities, and grace periods that are included in this measure are not sufficient to determine the value of a loan (that is, the 498 value of a loan as a means for accumulating capital). The value of a loan to the borrower may also be affected by the other conditions under which loans are made. The most important of these conditions is the tying of loan proceeds to purchases in the donor country. This is the case with official assistance loans^? and suppliers' credits. The implication for capital accumulation is that if the prices paid for equipment in the donor country are higher than world market prices, the value of the proceeds to the recipient is lower than if tying were eliminated. Furthermore, tied loans often must be repaid in currency that is freely convert ible,38 that is, currency that is not tied to purchases in a particular country. 3^Since the early 1970s multilateral agencies (the World Bank system, the Inter-American Development Bank, the Euro pean Investment Bank, African arid Asian Development Banks, and other regional development banks) and some governments increasingly borrowed from international money markets in order to lend to less-developed countries such as Zambia. Consequently, their terms of lending hardened and grew harder due to increased tightness of world money markets. Not only did the terms of the major multilateral agencies harden, but the share of hard-lending agencies in total financial flows to Zambia increased rapidly. 3®Zambia's foreign loans were repaid in U.S. dollars. This had an adverse effect on net flow of disbursed funds due to dramatic and unprecedented increase in interest rates in the United States. Between 1979 and 1983, except for a brief period when the economy was sunk in the 1980 recession, the prime rate was in double digits. Twice interest rates hit 20 percent. Interest rates not only increased in nominal terms, but in real terms as well. Real interest rates used to hover at around 1 percent to 2 percent. Between late 1979 and 1983 real interest rates climbed as high as 10 percent. This made dollar-denominated assets costly. 499 Again, the implication for capital accumulation is that this kind of tied loan carries a higher "effective" interest rate than the nominal rate that is charged. This leads to a reduction in the value of a loan, in some cases at least 10 to 20 percent. This points to the importance of taking into account the effect of the change in the structure of external debt when assessing its impact on capital accumulation. On balance, the terms of capital flows to Zambian had grown progressively harder during the period covered by this study (see table 100, which provides a summary of the terms of availability of Zambia's external debt for the period 1972 to 1982). This was due to the limited availability of official funds and accessibility of the highly liquid private capital markets. Ordinarily, and according to a rational borrowing pattern, Zambia would first use less expensive funds and only subsequently use harder types of loans. However, the "hierarchy of terms" is often different from the "hierarchy of conditionality" attached to the dif ferent types of resources. This partly explains Zambia's recourse to expensive but easily available and flexibly usable (not tied) private bank loans, as shown in table 101 (also see table 95 for the dominance of private sources in the OECD countries), which shows the current cost of Zambia's outstanding medium- and long-term external debt during 1972 to 1982. In fact, as shown in table 101, despite high cur rent interest cost on outstanding private bank loans (from 6.7 percent in 1972, 11.7 percent in 1973, 10.9 percent in 500 CM c n rH m O 00 c n lO O i n i n tH CM CM p H c n CM m 00 CO c n 00 p' p- 0) 1—1 rH rH •H § o i n Hf CM O 0 00 u i n CO CO Ht t-H rH CM § 1 Q •H c n r- CM 00 00 g r~ & m CO ro m c n I—I (—! rH rH CM 0 0 1 I 00 i n CO CO ■Hf Q fN r~ o!r- (Ml c n i n o i n Ht 1—I CM m o| 5 • P . o M CO r~ 00 rH p~ « PH Q o c n CO p' cn D rH H CM PM H (d Q G a CO c n m rH rH M c ^ (U o § O c n CO CO c n 4J m 0 i H rH rH CO r-i o M I M m r~ g m rH Hf rH ■HP â (0 c n D 0> tH S' c n 00 O m o p H 1 •• 1— 1 rH rH EH 1 O g EH M fo H r - CO m Id M +> m 0 m i n P ' i n CO A T—1 rH CM « ■o Q pH E M O u M EH m •O (U CO CO c n c n I—I s 4J r~ M 1 c n 00 p* Ht CM § < rH rH ■P rH M Sg !o m eh CM CO m Ht O M Q CO CD X r~ m CO p~ CM CM § - (U 2 “ rH rH m G o •S ■o 4J fH I CO Ü M M S' G Id H •H lU dP 3 CO M •P M O Id + > .. s G CU T3 a dP O m 8 ^ CO "p4 E pH r—> 0) M (Ü D m o CD •p 0) p H O 0 0 rH CO •P CM (U CO I A <0 •pH fd U M 0) •P 0 0 •H CD 3 O g r~ M + i HJ Id Id cn Id a Id M u > M S Ü CD m 501 00 I CN ro rl rl e n CN rl m 00 p ~ en Ht P- Ht* o e n CD en H CN Ht rl 1 ri CD rl CO CO Ht i n o o 01 00 0) en Ht IT) CO ir> CD p - •H rl CN ro rl rl 1 O COCO Ul ' CO e n p ~ o o 00 IU en ro CO P' 00 00 p ~ CN rl CN Ht M •H Eh cn en H CNCN rl ro en rl X 00 p- M I en m CD Ht 00 (N if> en rl CN rl rl CN rl 1 01 Q P' W en % a M H 00 o e n r o CO en en o EH P» 1978, 12.3 percent in 1979, 15.4 percent in 1981, and 10.9 percent in 1982), this source dominated the structure of Zambia's external debt (in the OECD countries, as shown in table 96, payments to private creditors accounted for 95.5 percent in 1976, 96.1 percent in 1978, 94.1 percent in 1980, and 88.9 percent in 1982 of Zambia's total interest payments), The significant point regarding capital accumulation in Zambia, however, is that the relative weight of the harder financial terms of bank credits adversely affected the over all average terms of Zambia's external borrowing. As shown above, the interest rate on commercial bank credits, which reached an average of 12.3 percent in 1979 and peaked at 15.4 percent in 1981, pushed the total average interest rate upward to unprecedented levels. Conversely, the limited length of the grace and amortization periods of these credits helped shorten the general maturity period, thus intensifying the accumulation problems associated with the debt-service burden. The implications for capital accumulation of Zambia's increased external indebtedness appears in table 102 (does not include short-term debt with original maturity less than one year)which relates the growth of external debt to the national real resources for the period 1972 to 1982. The table shows clearly the extent to which the national real resources are affected by external debt obligations. The 39gee William R. Cline, International Debt; Systematic Risk and Policy Response (Cambridge, MA: MIT, 1984), p. 294, 503 TABLE 102 TOTAL EXTERNAL DEBT* AS PERCENTAGE OF GROSS NATIONAL PRODUCT,“ 1972-82 External Debt Total External Gross National as Percentage Year Debt Product of GNP 1972 676.3 1,713.0 39.5 1973 703.7 2,242.0 31.4 1974 815.9 2,727.0 29.9 1975 1,155.7 2,273.0 50.8 1976 1,298.9 2,409.0 53.9 1977 1,406.5 2,308.0 60.9 1978 1,470.7 2,528.0 58.2 1979 1,847.9 3,021.0 61.2 1980 2,208.7 3,506.0 63.0 1981 2,273.6 3,157.0 72.0 1982 2,394.0 3,601.0 66.5 SOURCE: The World Bank, World Debt Tables : External Debt of Developing Countries [1976-82] (Washington, D.C.: World Bank, 1974-84). NOTE: All figures in millions of U.S. dollars at current prices. *Total external debt outstanding disbursed only owed to nonresidents repayable in foreign currency, goods, or services, which has an original or extended maturity of over one year. ^Gross national product (GNP) is the measure of the total domestic and foreign output claimed by residents of an economy, minus the domestic outplut claimed by nonresidents. It is calculated without making deductions for depreciation. 504 average annual rate of increase of real public and publicly guaranteed external debt between 1973 and 1977 was 16 percent, more than one-third of the average growth rate of real GNP of 47 percent. For the period 1978 to 1982 the average annual rate of increase of real external debt was more than one-third (12 percent) of the average growth rate of real GNP of 30 percent. Although the average annual growth rate of external debt between 1973 and 1982 was smaller than the average annual growth rate of GNP for the same period, it represented a significant offset on the GNP for a developing country. When external debt is also expressed as a percentage of GNP between 1972 and 1982, a clear picture emerges regarding the extent to which the GNP was affected by the buildup of external debt. Between 1972 and 1982 (table 102) the external debt as a percentage of GNP ranged from 30 percent to 72 percent (the peak of 72 percent was reached in 1981). The impact of external indebtedness on accumulation is also shown in table 103, which shows total debt service as a percentage of GNP for the period 1972 to 1982. The table shows that during that period significant proportions of GNP were diverted to servicing external debt. Both tables 102 and 103 show that there was a significant outflow of capital from Zambia to developed countries. The high ratio of external debt to GNP points to the fact that the process of deterioration in the country's creditworthiness was at work. r 505 TABLE 103 TOTAL DEBT SERVICE AS PERCENTAGE OF GNP, 1972-82 Total Debt Service as Total Debt Gross National Percentage Year Service Product of GNP 1972 112.5 1,713.0 6.6 1973 368.6 2,242.0 16.4 1974 114.4 2,727.0 4.2 1975 96.9 2,273.0 4.3 1976 121.8 2,409.0 5.1 1977 196.3 2,308.0 8.5 1978 241.9 2,528.0 9.6 1979 257.8 3,021.0 8.5 1980 295.0 3,506.0 8.4 1981 284.0 3,157.0 9.0 1982 177.2 3,601.0 4.9 SOURCE: World Bank , World Debt Tables: External Debt of Developing Countries [1976-84] (Washington, D.C.: World Bank, 1976-84). NOTE: All figures in millions of U.S. dollars. 506 The upward trend of Zambia's external debt and the accompanying debt service on accumulated debt appear in figure 7, which relates both the external debt and debt service to the GNP for the period 1972 to 1982. The debt service in 1973 was particularly high because it included the accelerated redemption of the mining companies' bonds, which resulted from nationalization of the copper mines in 1970. The trend of capital transfer from Zambia to developed indus trialized countries is also shown in figure 8, which relates total external debt to Zambia's gross domestic product (GDP) during 1973 to 1980. This means that significant proportions of the GDP were committed to servicing external debt during that period. The indicator of debt service makes it possible to study the behavior of the financial flows connected with Zambia's foreign indebtedness— gross and net disbursements and net transfer of funds. Thus, the gap between gross disbursements and net transfers of funds received during the period under consideration corresponds to amortization and interest payments. Reduction in foreign-exchange earnings (through reduc tion in loans and export earnings) and continuous expansion of amortization and interest payments put a country into a forced transition to a phase of negative net transfer of financial resources, that is, a situation in which the finan cial transactions connected with the debt reduce the coun try's domestic savings resources instead of.supplementing 507 GNP Total External Debt Total Debt Service 1972 73 74 75 76 77 78 79 80 81 82 Fig. 7. Total external debt (disbursed only): Debt service and GNP, 1972-82. SOURCE: Calculated from tables 102 and 103 508 80 75 70 65 60 55 50 45 40 35 30 1973 74 75 76 77. 78 79 80 Fig. 8. Total external debt as per centage of GDP, 1973-3 0. SOURCE: World Bank, World Tables [1976-82] and World Debt Tables: External Debt of Developing Countries [1976-82] (Washington, D.C.: World Bank, 1974-82). 509 them, as is the case in relatively normal times. The centrality of the indicator of debt service for the purpose of determining the effect of external indebtedness on accumulation of capital is that in addition to the financial problem relating to outflows of foreign exchange in the form of debt amortization and interest payments and the related balance-of-payments difficulties, the growth of the debt- service obligation can slow down or even halt the process of accumulation of capital in the long run. Thus, a rapidly increasing flow of debt-service payments does not only act as an offset to the flow of new capital coming into the country, but may plant the country into financial quicksand. There are two basic reasons for this. First, the interest and amortization payments not offset by new capital inflows reduce the savings available for investment. Second, these payments are made in foreign exchange, so that any attempt at savings is rendered insufficient. Thus, as was stressed before, a specific effort is needed that generates or releases the necessary foreign exchange, either through expansion of exports or through substitution or curtailment of imports. In short, debt service erodes the base of real savings and investment resources, weakens economic growth, and gives rise to a self-fueling cause and effect spiral. The first summary indicator we use to assess the impact of debt service on accumulation of capital in Zambia is the ratio of debt-service payments for the period 1972-82 to the amount of debt outstanding at the beginning of each year 510 during that period (table 104). This is a useful way of summarizing the average terms on which past debt has been accumulated, and is particularly sensitive to the maturity structure of outstanding debt. The table shows that apart from the fact that significant proportions of the debt out standing were devoted to servicing the debt, the average growth rate of debt service between 1972 and 1977 was 46.6 percent larger than the average growth rate of debt outstand ing at 16.6 percent. Also, although for the period 1978 to 1982 the average growth rate of debt outstanding was larger (28.4 percent) than the average growth rate of debt service (at 0.7 percent), for the period 1972 to 1982 the average growth rate of debt service was still larger (at 23.7 percent) than the average growth rate of debt outstanding at 22.5 percent. The implication for accumulation is clear. More resources required for production were committed to servicing current debt. The second summary indicator we employ to determine the impact of external debt on accumulation of capital is the ration of debt-service payments to new capital inflows for the period 1972 to 1982. This indicator focuses attention on the role of debt-service payments in determining the magni tude of the net.resource flow to a country. Thus table 105 shows that Zambia experienced inadequate (in some cases nega tive) growth of new flows due to a general rise in the ratio of debt-service payments. 511 TABLE 104 TOTAL EXTERNAL DEBT® OUTSTANDING (DISBURSED ONLY) AND TOTAL DEBT SERVICE AS PERCENTAGE OP OUTSTANDING DEBT, 1972-82 Total Debt Service as Outstanding Total Debt Percentage of Year Debt Service Outstanding Debt 1972 676.3 112.5 16.6 1973 703.7 368.6 52.4 1974 815.9 114.4 14.0 1975 1,155.7 96.9 8.4 1976 1,298.9 121.8 9.4 1977 1,406.5 196.3 14.0 1978 1,470.7 241.9 16.4 1979 1,847.9 257.8 14.0 1980 2,208.7 295.0 13.4 1981 2,273.6 284.0 12.5 1982 2,394.0 177.2 7.4 SOURCE: World Bank, World Debt Tables: External Debt of Developing Countries [1976-84] (Washington, D.C.; World Bank, 1976-84). NOTE; All figures in millions of U.S. dollars at current prices. ^External debt outstanding (disbursed only) is defined as debt that has an original or extended maturity of over one year (i.e., does not include short-term) and that is owed to nonresidents and repayable in foreign currencies, goods, or services. It also refers to total outstanding debt drawn by the borrower at year-end. 512 TABLE 105 TOTAL DISBURSEMENTS, TOTAL DEBT SERVICE, AND TOTAL DEBT SERVICE AS A PERCENTAGE OF DISBURSEMENTS, 1972-82 Debt Service as Total Total Debt Percentage of Year Disbursements® Service Disbursements 1972 131.8 112.5 85.4 1973 293.9 368.6 125.4 1974 172.3 114.4 66.4 1975 432.0 ■ 96.9 22.4 1976 228.9 121.8 53.2 1977 182.0 196.3 107.9 1978 154.5 241.9 156.6 1979 535.2 257.8 48.2 1980 629.3 295.0 46.9 1981 416.2 284.0 68.2 1982 350.2 177.2 50.6 SOURCE; World Bank, World Debt Tables; External Debt of Developing Countries [1976-84] (Washington, D.C.; World Bank, 1976-84). NOTE; All figures in millions of U.S. dollars. ^Disbursements are drawings on outstanding loan commit ments during the year specified. 513 The data in table 105 also point to continued rise in debt-service payments and indicate increased difficulties in servicing debt, though indirectly.^® The upward trend of debt service for the period 1972 to 1982 is also shown in figure 9. The picture given clearly points to a significant outflow of capital from Zambia. The same phenomenon appears in table 106, which shows that the offsetting of capital flows by debt-service payments was particularly acute in 1973, 1977, and 1978. During these years there was negative inflow of net capital as debt- service payments exceeded disbursed loans. In 1973 debt- service payments exceeded disbursed loans by $74.7 million. In 1977 debt-service payments were in excess of disbursed capital by $14.2 million, while repayment flows for 1978 exceeded net flows of capital by $87.4 million— thus pointing to the fact that Zambia was not an exception to an avalanche of external debt that threatened to wreck the Third World economy. Between 1979 and 1982 debt-service payments aver aged nearly 54 percent of disbursed capital. This repre sented a significant transfer of capital from Zambia to developed countries and, as expected, seriously slowed down ®The reason for this is that the magnitude of the debt- service ratio at which debt payments pose serious risks to a country's accumulation efforts can be established only after a rather detailed examination of the country's situation. Among the more important factors that need to be taken into account are the stability and diversification of the coun try's exports, the extent to which current imports can be compressed without damaging the development process, and the size of external reserves. 514 160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 1972 73 74 75 76 77 78 79 80 81 82 Fig. 9. Total debt service as percent age of total debt disbursements, 1972-82. SOURCE: Calculated from table 105. 515 TABLE 106 TOTAL DEBT DISBURSEMENTS AND NET CAPITAL TRANSFERS, 1972-82 Total Net Capital Year Disbursements® Amortization Interest Transfers*) 1972 131.8 75.8 36.7 19.3 1973 293.9 277.8 90.8 -74.7 1974 172.3 67.1 47.3 57.9 1975 432.0 49.2 47.8 335.0 1976 228.9 59.9 69.9 107.1 1977 182.0 130.2 66.0 -14.2 1978 154.5 165.4 76.5 -87.4 1979 535.2 175.6 82.3 277.3 1980 629.3 187.1 107.9 334.3 1981 416.2 188.8 95.2 132.2 1982 350.2 92.4 84.8 173.0 SOURCE: World Bank, World Debt Tables: External Debt of Developing Countries [1976-84] (Washington, D.C.: World Bank, 1976-84). NOTE: All figures in millions of U.S. dollars. ^Disbursements refer to drawings on outstanding loan commitments during the year specified. ^Net transfers (disbursements minus amortization and interest, i.e., total debt service). 516 the process of capital accumulation. To complete our assessment of the effect of debt service on accumulation of capital in Zambia, we use the standard debt-service ratio— the ratio of debt-service payments to export earnings. This ratio has the merit of directly relat ing the magnitude of debt-service payments to the main source of the foreign exchange available for effecting payments, and indicates the extent to which export earnings are avail able to finance imports. Because imports play a vital role in Zambia's production efforts, debt servicing directly competes for export earnings with Zambia's efforts to accumu late capital. The extent to which debt-service payments affected earnings for the period 1970 to 1982 is shown in table 107 and figure 10. Except in 1970 and 1974, when debt-service payments were below 10 percent (respectively 5.1 and 7.7 percent) of export earnings, substantial amounts of export earnings were diverted to servicing external debt. As a percentage of total value of exports, debt-service payments ^^Although total foreign-exchange availabilities com prise export earnings and new capital inflows, new capital assistance is virtually always tied to purchases of goods and services (other than servicing debt) and does not, therefore, normally add to Zambia's debt-servicing ability. It is true that debt can be serviced to the point of extinction, but only by surrendering export earnings. For this reason, it is prudent to evaluate Zambia's ability to service debt primar ily in the light of its export earnings. Of course, a coun try with a good credit standing in international money markets may be able to finance a high debt-service ratio and avoid default through a high level of borrowing, but this action only postpones the country's debt-service burden and accumulation problems. 517 TABLE 107 TOTAL DEBT SERVICE® AS PERCENTAGE OF EXPORTS,*) 1970-82 Total Debt Service Total Debt Total Value as Percentage of Year Service of Exports Exports 1970 49.3 959.0 5.1 1971 70.2 701.0 10.0 1972 112.5 829.0 13.6 1973 368.6 1,203.0 30.6 1974 114.4 1,479.0 7.7 1975 96.9 880.0 11.0 1976 121.8 1,122.0 10.9 1977 196.3 974.0 20.2 1978 241.9 942.0 25.7 1979 257.8 1,537.0 16.8 1980 295.0 1,464.0 20.1 1981 284.0 1,222.0 23.2 1982 177.2 1,059.0 16.7 SOURCE: World Bank, World Debt Tables: External Debt of Developing Countries [1976-84] (Washington, D.C.: World Bank, 1974-84) . NOTE: All figures in millions of U.S. dollars at current prices. ®Total debt service refers to actual total repayments of principal (amortization) and interest payments made in foreign currencies, goods, or services in the years speci fied. ^Exports include nonfactor services. 518 35 30 25 20 15 10 73 74 75 76 77 78 79 80 81 82 Fig, 10, Defat service as percentage of exports, 1970-82. SOURCE; Calculated from tafale 107. 519 were especially high in 1973 (30.6 percent), 1977 (20.2 percent), 1978 (25,7 percent), 1979 (16.8 percent), 1980 (20.1 percent), and 1981 (23.2 p e r c e n t ) . The indicator of debt service as a percentage of the value of goods and services exported also enable us to gauge the impact of debt- service payments on Zambia's external liquidity. The costs of paying the interest and amortization, which grew enormously and rapidly between 1970 and 1982 (as a result of fast growth of external debt), plus weak export earnings forced Zambia to dip into its foreign reserves to service external debt. The extent to which the fast growth of Zambia's external debt affected its international reserves is shown in table 108, which shows the relationship between disbursed external debt and international reserves for the period 1970 to 1982. The country's international reserves as a percentage of disbursed external debt plummeted to about 7 percent in 1982 from nearly 97 percent in 1970. The downward trend in the levels of Zambia's international reserves and their relation to disbursed external debt is illustrated in figure 11. As a result, Zambia's safety margins of international reserves in ^^Usually the 15-20 percent range is treated as a divid ing line. Debt-service ratios lying above that range may usually be considered as indicating potential danger, while ratios below that range may usually be considered "safe" in the sense of export earnings left for production purposes (hence accumulation of capital). For this view, see United Nations Conference on Trade and Development (UNCTAD), Debt Problems of Developing Countries ; Report by the UNCTAD Secre tariat (New York: United Nations, 1972), p. 11. 520 TABLE 108 INTERNATIONAL RESERVES AND EXTERNAL DEBT OUTSTANDING: DISBURSED, 1970-82 International Reserves as International External Debt Percentage of Year Reserves^ Disbursed External Debt 1970 513.6 532.1 96.6 1971 282.1 539.0 52.3 1972 171.0 676.3 25.3 1973 208.0 703.7 29.6 1974 196.0 815.9 24.0 1975 166.0 1,155.7 14.4 1976 115.0 1,298.9 8.9 1977 94.0 1,406.5 6.7 1978 97.0 1,470.7 6.6 1979 191.0 1,847.9 10.3 1980 206.0 2,208.7 9.3 1981 142.0 2,273.6 6.3 1982 157.0 2,394.0 6.6 SOURCE: World Bank , World Debt Tables: External Debt of Developing Countries [1976-84] (Washington, D.C.: World Bank, 1976-84). NOTE: All figures in millions of U.S. dollars. ^International reserves are the sum of a country's holdings of Special Drawing Rights (SDRs), its reserve posi tions in the IMF, its holdings of foreign exchange, and its holdings of gold (valued throughout at year-end London prices). 521 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 1970 71 72 73 74 75 76 77 78 Fig. 11. Ratio of international reserves to disbursed debt, 1970-82. SOURCE: Calculated from table 108. 522 terms of the capacity to import goods and services necessary for capital accumulation were reduced to critically low levels of less than three months (1972-82). This critical trend is shown in table 109. Reserve/import ratios dropped precipitously from 20.2 percent in 1973 to 9.5 percent in 1976 and 7.5 percent in 1981. There was a slight improvement in 182, when the reserve/import ratio rose by 4.1 percent to 11.6 percent. However, Zambia was still critically positioned to withstand the pressure implicit in such a situation. The country's import capacity only improved marginally from under one month (0.9) in 1981 to just over one month (1.4) in 1982. In the fact of rapidly eroding international reserve position, strict monetary policy measures were put into effect in order to prevent capital flight. These policy measures included comprehensive exchange controls, strict control of commercial bank credits, and control of imports. These measures con versely had adverse effect on accumulation of capital as they adversely affected the supply of imported inputs and spare parts, which were critical for production. Another better gauge of the impact of debt service on accumulation of capital is to relate it to the value of imports. By deflating annual debt-service payments by an index of import prices we are able to measure the opportunity cost (forgone real imports) of servicing the external debt. Table 110 shows that except in 1974 and 1974, when debt service was respectively 8.1 and 6.3 percent of imports. 523 TABLE 109 RATIO OF INTERNATIONAL RESERVES TO IMPORTS ON GOODS AND SERVICES, 1972-82 Year Months 1972 2.1 1973 2.4 1974 1.7 1975 1.3 1976 1.1 1977 1.0 1978 0.9 1979 1.5 1980 1.3 1981 0.9 1982 1.4 SOURCE; World Bank, World Debt Tables; External Debt of Developing Countries [1982-84] (Washington, D.C. World Bank, 1982-84). 524 TABLE 110 DEBT SERVICE AS PERCENTAGE OF IMPORTS , 1972-82 Debt Service as Total Debt Total Value Percentage of Year Service® of Imports" Imports 1972 112.5 974.0 11.6 1973 368.6 1,029.0 35.8 1974 114.4 1,416,0 8.1 1975 96.9 1,550.0 6.3 1976 121.8 1,205.0 10.1 1977 196.3 1,163.0 16.9 1978 241.9 1,256.0 19.3 1979 257.8 1,481.0 17.4 1980 295.0 1,921.0 15.4 1981 284.0 1,904.0 14.9 1982 177.2 1,350.0 13.1 SOURCE: World Bank, World Tables [1976-84], and World Debt Tables : External Debt of Developing Countries [1982-84] (Washington, D.C.: World Bank, 1976-84 and 1982-84). NOTE: All figures in millions of U.S. dollars at current prices. ^Total debt service refers to actual total repayments of principal (amortization) and interest payments made in foreign currencies, goods, or servies in the years speci fied. ^Imports of goods and services are the total value of goods and all services purchased from the rest of the world. 525 substantial resources were diverted to debt-service payments instead of paying for imports that are necessary to put in motion the mechanisms of capital accumulation. Imports, like exports, affect the levels of capital accumulation as far as debt servicing is concerned in that the opportunity cost of obtaining the necessary foreign exchange for payments can be determined in terms of the real resources alloted for export of goods and services or of imports forfeited for that purpose. Thus the volume of imports needed to cover external debt servicing depends on the evolution of prices for exports from the debtor country. If prices rise, the debtor country needs to export only a relatively small volume of goods and services to cover a given amount of external financial commitment. But, importantly, if import prices rise at the same time, the debtor country may well have to reduce the amount of imports, otherwise it would to need to export greater quantities of goods in order to bear the cost of imports absorbed by consumption, investment, and production. Zambia's capacity to import was impaired by debt-service payments, which grew rapidly compared to the growth of foreign-exchange earnings. For Zambia a decline in the capacity to import leads to a decline in the capacity to accumulate capital. Finally, we examine the extent to which Zambia's pro jected external debt is likely to affect its efforts to accumulate capital. This is done by analyzing debt-service 526 projection data (table 111) with respect to debt-service payments for the period 1983 to 1991. The projected picture of payments shows that substantial resources will continue to be transferred from Zambia to industrialized capitalist coun tries in the form of debt-service (interest and amortization) payments. Central to this analysis is the fact that large proportions of foreign-exchange earnings between 1983 and 1991 will not be free to purchase imports required for production, and ultimate extraction of surplus-value for the purpose of accumulation. The table also shows a projected shift in the debt- service obligations owed to official creditors, often on concessional terms. However, this should not necessarily suggest that large proportions of projected external debt will be on soft terms. This is because for multilateral agencies, such as the World Bank, regional development banks, and some governments, to be able to increasing lending to developing countries, they must raise funds in international money markets. For this reason, unless some method to subsidize the interest rates is instituted, commercial lending terms will have to be charged in order to compensate private bondholders adequately for their investment. This means that debt- service payments will continue to have adverse effects on Zambia's efforts to accumulate capital. Importantly, since the state will continue to be the dominant instrument of 527 M O MH + > MH A O tH 0 ) 0 ) - P a\ u o 0) (d Q -H •H 00 M - P + > > Tf m CP VO (N 00 n CN CP CT> 0) m C rH p in fO m m CN rH rH tH CO > 0) Id (U •H Ü -P CO 4-1 k P O EH ^ 04 Q) &H I 0 ) 04 § Q Q •k CO rH d) k 44 O in in cn VO 00 CP VO g Id 44 I > r4 CP CPCP CPCP CPCPCP CP rH >H rH rH rH rH rH rH rH rH rH 528 accumulation, the data in table 111 serve to indicate the extent to which it will be constrained in this role by debt- service payments. External Factors and Accumulation of Capital The purpose of this section is to analyze some of the more significant exogenous factors (including external indebtedness) whose impact adversely affected Zambia's efforts to accumulate capital. Zambia's efforts to accumu late capital are particularly vulnerable to adverse changes in the economic conditions of industrial countries. Zambia's vulnerability to these conditions is aggravated by the fact that it is largely dependent on copper exports, which account for over 93 percent of the country's foreign- exchange earnings (see table 61) and which, like other raw materials exports (especially minerals), is subject to highly fluctuating international prices and economic activity in the industrial countries. Thus, as was argued in the preceding section, together with the factors of domestic origin, the crisis of capital accumulation in Zambia reflected to an important degree the effects of the numerous changes in the international economic and financial crisis that had adverse effects on the econo mies of industrial countries between 1974 and 1979, and from 1980 onward. The most important of these changes were the steep rise in oil prices in 1974 to 1975 and 1970 to 1980 (these high oil prices produced a recessive economic trend in 529 the industrialized countries); the 1974 to 1975 recession, the partial recovery between 1975 and 1979, and the contrac tion in 1980 to 1982; and the sharp increase in the nominal and real interest rates, especially between 1974 and 1975 and from 1979 to 1982. Because of the importance of the markets in the indus trial countries (especially the major industrial countries of the OECD^^) for Zambia's exports, and as sources for its imports for capital and intermediate goods, as well as capi tal inflows, the analysis that follows immediately is intended to highlight the magnitude of economic problems faced by industrial countries (especially from 1974 to 1982) as a result of unfavorable external and domestic economic conditions that afflicted them for a number of years. The second aim (which is important to this study) of the analysis is to show how economic adjustment policy measures taken by industrial countries in order to generate economic growth, restore a stable financial environment, and to improve their balance-of-payments conditions affected Zambia's efforts to accumulate capital. ^^The major industrial countries are Canada, France, the Federal Republic of Germany, Italy, Japan, United Kingdom, and the United States. These industrial countries, which are also member countries of the OECD, have the largest aggregate share in world trade (exports and imports of goods and services). 530 Changes in Economie Activity and Balance of Payments in Industrial Countries The aggregate current account balances of the industrial countries (table 112) for the period 1973 to 1982 show adverse swings that point to the general weakness of the economies of these countries during this period (for country analysis see table 113). The economies of the whole group of industrial countries were generally characterized by decel eration of export trade expansion that was quite proportion ate to the concurrent deceleration of growth in output. This, in consequence, caused the volume of their imports to rise much faster than exports, leading to unfavorable or negative "balances of trade"^^ in 1974 (-$23.0 billion), 1976 (-$14.4 billion), 1977 (-$18.4 billion), 1979 (-$35.5 billion), 1980 (-$66.2 billion), 1981 (-$19.6 billion), and 1982 (-$15.0 billion). These downward shifts originated in the severe international recession of 1974 to 1975. Follow ing this period economic recovery proceeded satisfactorily in ^^The term "balance of trade" is often Confused with the term "balance of payments." While the error is understand able, the two terms are not interchangeable. In part, the confusion derives from the fact that both are properly measured in monetary terms. In any year in which a country has exports of goods and services greater in monetary value than the monetary value of the goods and services it has imported, it is said to have a positive "balance of trade." The "balance of payments" ledger, on the other hand, repre sents a much broader picture— the overall money movement between one country and all others with which it has had any financial dealings. The "balance of payments" position of a country is determined by a combination of many factors, including, but not restricted to, its "balance of trade." Other important items that go into the "balance of payments" picture are investments and capital flows (capital flows, i.e., the movement of money into or out of the country). 531 to O CD O o CD CN« VO •; *: tn O CD en W en CD m M CNO «H t CN tn m m T3 M U O w â W VO CN to to ^4 CN to CD CN t=01 ^ #4 CN CN 9 k to 00 O o as *0 00 O CN M(N CNCN 0\ (N CN tn 1 —4 q 2 : W 0) Q) N kO CN CD o r- ^ 4 fH to r* CQ U A m tO 0 44 q 1 > ** *0 0 CN •H vO q q c < 14 •H q q CL 4» 44 q 44 u Tî q q C 14 c «H — 0) q 0 w M 44 q M TJ tn 0 0 0 144 qt 4J U 44 0 c l4 ^ U4 U VW ^ M "U •o •H tw q * 14 P- q Le 0 f CL 0 0 0 43 q 3 c S q O m U u 0 s q n» Ü ♦ q 0 q 00 U "O «M o o C ü q 0 — y 3 S C Ûé Cu q 2 14 U C e n 44 C I "O q 3 44 0 — ’ 0 CL q 0 q q q > M u q i] 0 0 0 l4 0 0 44 q 0 ^ 0 ëS? 44 4J U U 0 U4 ü g •H u g vw q ^ q M Vt 0 q q q C 3 U c 2 q 0 0 0 "O > > > c q 0 q p g a CL q u U 44 q -4 ü tu «H u q I .Q X £ u 0 0 14 0 l4 q U W4 q o u g q c o q Cl] H (A w CL Z 44 CQ q O m q 44 •H U q vO 00 Ot o 11 > u 3 532 CM 1975. This improvement in output led to some improvement in the aggregate current account balance, which recorded a surplus of $8.9 billion in 1975, after a downward swing of $23 billion in 1974 (table 112). However, the second half of 1976 was marked by an,unex pected slowdown, and the pickup that followed this worrisome pause was generally weak and short-lived. By the second half of 1977, the European industrial countries had lost virtually all of their previous upward m o m e n t u m . ^5 Except for the United States, the growth of domestic demand remained below that of real GNP in both 1976 and 1977. Between the recession trough in the second quarter of 1974 and the fourth quarter of 1982 the economies of indus trial countries variously continued to experience a slack in aggregate demand, high interest rates, and inadequate profits for business enterprises (crisis of appropriation of surplus- value) . A combination of these factors led to a substantial slowing down in the rate of growth of real private nonresi- dential investment (business fixed investment) in the major industrial countries.^6 45gee International Monetary Fund, Annual Report, 1978 (Washington, B.C.: International Monetary Fund, 1978), pp. 1- 33. 46gee International Monetary Fund, World Economic Out- look, 1984 (Washington, B.C.; International Monetary Fund, 1984), p. 38. 534 General slowdown in economic growth, high levels of unemployment, and the need to compress the balance-of- payments deficits caused industrial countries to adopt new adjustment policy measures. The principal or dominant focus of adjustment policy measures in several industrial countries was to control inflation, which continued to mar the economic performances of many industrial countries, and to achieve a lasting reduction in inflationary expectations so as to reestablish the conditions necessary for sustained noninfla- tionary growth. High inflation and deteriorating growth of productivity were blamed on relatively accommodative policies pursued throughout most of the 1970s. Primarily, the adjustment strategy required that policies of financial restraint be adopted to restore a more stable environment for private economic activity. In consequence, conservative monetary policies (involving short-term adjustments) were called on to cushion the main burden of restraint. As a result, the increase in interest rates and the rise in unemployment associated with the disinflation process were more severe than would have been the case if a more progressive and balanced set of policies had been followed. The repercussions on the world economy of the worsening of the economic recession in the industrialized countries in the areas of both trade and finance, were transmitted with a multiplier effect to Zambia. These factors precipitated the country's external financial crisis (see table 93). The 535 impact of the worsening economic recession in the industrial ized countries resulted in sharp increases in the current account deficits between 1974 and 1982 (mainly in the trade balance and payments for financial services, insurance, dividends, and royalties); a deterioration in the composition and financial condition of capital inflows; and a substantial outflow of capital, which had become the chief and the inflexible determining factor of the external deficit. In particular, the weakening of demand for Zambia's export caused by the reduced economic activity in the indus trial countries greatly retarded the country's efforts to accumulate capital by substantially reducing its export earnings (foreign exchange) required for importation of intermediate and capital goods. Industrial countries constitute Zambia's largest export market, as was shown in table 49, which shows the values of Zambia's exports to industrial countries as a percentage of values of Zambia's total exports to world markets for the period 1965 to 1982. The decline in world trade adversely affected Zambia's exports, whose nominal value in dollars fell by 40.5 percent in 1975, 4.7 percent in 1980, 16.5 percent in 1981, and 13.3 percent in 1982 (see table 1 1 4 ) Figure 12 presents the ^^Export figures in table 114 include private transfers. It is on this account that they do not correspond with export figures in table 49, which do not include private transfers. On the basis of export figures in table 49, as a result of the decline in world trade Zambia's exports fell (in terms of 536 TABLE 114 EXPORT AND IMPORT TRADE, 1970-82 Imports as Balance Percentage Year Exports® Imports^° of Trade of Exports 1970 959.0 658.0 301.0 68.6 1971 701.0 736.0 -35.0 104.9 1972 829.0 974.0 -145.0 117.5 1973 1,203.0 1,029.0 174.0 85.5 1974 1,479.0 1,416.0 63.0 95.7 1975 880.0 1,550.0 -670.0 176.1 1976 1,122.0 1,205.0 -83.0 107.4 1977 974.0 1,163.0 -189.0 119.4 1978 942.0 1,256.0 -314.0 133.3 1979 1,537.0 1,481.0 56.0 96.4 1980 1,464.0 1,921.0 -457.0 131.2 1981 1,222.0 1,904.0 -682.0 155.8 1982 1,059.0 1,350.0 -291.0 127.5 SOURCE: World Bank, World Tables, 1976, and World Debt Tables ; External Debt of Developing Countries [1982-84] (Washington, D.C.: World Bank, 1976 and 1982-84). NOTE: All figures in millions of U.S. dollars. ^Exports in this table refer to the total value of goods and all services (including workers' remittances) sold to the rest of the world. ^Imports of goods and services are the total value of goods and all services purchased from the rest of the world. 537 US $ millions 2000 1900 1800 1700 1600 1500 1400 1300 1200 1100 1000 900 800 700 ■/ Exports 600 Imports 0 1970 71 72 73 74 75 76 77 78 80 81 82 Fig. 12. Zambia's balance of trade, 1970-82. SOURCE: Calculated from table 114. 538 picture regarding the deterioration of Zambia's terms of trade for the periods 1975-87 and 1980-82. The totals shown in table 114 include sharp decreases in the unit values of copper exports (the main source of Zambia's primary inter national liquidity) on both the London Metal Exchange and the New York Commodity Exchange, as shown in table 65 (London: -39.9 percent in 1975, -6.6 percent in 1977, and -20.2 percent in 1982; New York: -17.1 percent in 1975, -4.4 percent in 1977, and -18.2 percent in 1982), and in the rate of growth in volume of mineral production (from 2.2 percent in 1974 to -7.3 percent in 1975, and 1.6 percent in 1980 to -22.6 percent in 1981).^8 The average annual growth rate of exports for the period 1970 to 1981 was -0.2 percent, com pared with 2.3 percent for the period 1960 to 1970. The picture was the same with regard to the growth of imports. The average annual growth rate of imports for the period 1970 to 1971 was -6.8 percent, compared with 9.8 percent for the period 1960 to 1970. Zambia continued to have unfavorable terms of trade between 1979 and 1981. Based on 1975 = 100 at 67 percent in 1981, the country's terms of trade (export prices divided by import prices x 100) deteriorated by nearly 25 percent from the 1978 level of 89 percent. nominal value in dollars) by 42.3 percent in 1975, 31.5 percent in 1981, and 13.6 percent in 1982. ^®The rates of growth in volume of mineral production are with respect to minerals produced for export: copper, lead, zinc, and cobalt. See Bank of Zambia, Report and Statement of Accounts for the Year Ended 31 December, 1982, p. 35. 539 Other external factors that adversely affected Zambia's external trade were triggered off by the closure of the border with the white minority-ruled Rhodesia (now Zimbabwe) in January 1973.^® The Rhodesian route was Zambia's tradi tional and most important route, in terms of cost and volume of the country's world exports and imports passing through to and from the port of Beira and South African ports (exports: 46.9 percent in 1970, 48.9 percent in 1971, and 54.7 percent in 1972; and imports; 76.9 percent in 1970, 63.6 percent in 1971, and 68.7 percent in 1 9 7 2 ).^0 The closure of the border caused a serious decline in Zambia's export trade, and also greatly jacked up the cost of production in the export sector. The fall in export earnings, together with the deterio ration of the balance of payments, had an adverse effect on Zambia's ability to accumulate capital during the period 1975 to 1982. Both the fall in export earnings and deterioration of the balance of payments played a large part in Zambia's ^Zambia is land-locked and, as such, was forced to reroute her exports and imports through longer and costly routes to the ports of Dar-es-Salaam in Tanzania, Beira and Nacala in Mozambique, South African ports, and Maputo in Mozambique by road and rail through Francistown in Botswana and Lobito in Angola, but this route was discontinued in August 1975 following civil war in Angola. For detailed analysis and statistical data regarding accumulation problems faced by Zambia as a result of the closure of the border with Rhodesia, see United Nations, United Nations Secretary- General 's Report ^ ECOSOC (E/1978/114), 5 July 1978. ^^See Government of the Republic of Zambia, Cabinet Office, Why Zambia Re-Opened the Southern Railway Route (Lusaka: Government Printer, 1978), pp. 1-11. 540 external indebtedness. The degree to which the current account deficits contributed to the growth of Zambia's external indebtedness and how they adversely affected the mechanisms of capital accumulation may be gauged by showing their relationship to the country's GNP. In 1974, the current account deficit stood at 19.3 percent of the GNP. It sharply rose to 54.8 percent in 1975. Between 1979 and 1982, the current account deficits as a percentage of the GNP remained high: 19 percent in 1979, 42.8 percent in 1980, 45.4 percent in 1981, and 24.4 percent in 1982. Interest Rates and Accumulation of Capital The analysis presented in this section attempts to exam ine the impact of high interest rates, together with the rise in the value of the U.S. dollar and high rates of inflation, on accumulation of capital in Zambia. Our starting point is a reiteration of what was said in the preceding sections, namely that during 1979 to 1982 the growth of medium- and long-term loans to Zambia by international banks and other private creditors (suppliers), rather than official lenders, continued generally unabated. These loans, essentially, were contracted on floating or market-related (not fixed) interest rates and substantially denominated in U.S. dollars. Market-related interest rates mostly influenced by the six-month London Inter-Bank Offered Rate (LIBOR) rose to positive levels in real terms during 1979 to 1981. Eurodollar interest rates in London (an 541 important index of the price of funds for private financial institutions) rose from about 5.5 percent in 1972 to about 13.75 percent in 1980, and averaged nearly 17 percent during the first half of 1981; by contrast, the interest rate on loans from official sources rose only slightly from about 4.25 percent to a little over 5 percent. Thus, while floating interest rates were rising sharply fixed interest rates remained low because they applied mainly to flows whose terms were subsidized (particularly aid loans and, less so, export credits) or are channeled through multi lateral development lending institutions such as the Inter national Development Association and the International Finance Corporation of the World Bank, and similar affiliates of the OECD, EEC, and government agencies. Importantly, contrary to changes in fixed interest rates, changes in floating interest rates affect (with an average time lag of about six months) the entire outstanding stock of floating- interest debt. This meant that the percentage of export earnings devoted to servicing foreign debt rose signifi cantly. Thus, rising interest rates resulting from new and outstanding stock of floating-interest debt constituted one of the major external factors with adverse consequences for accumulation of capital in Zambia. They worsened Zambia's external position. As a net importer of oil, Zambia suffered a cumulative deterioration in its terms of trade during 1978 to 1982. 542 Also, the fact that a high proportion of Zambia's external debt as denominated in U.S. dollars significantly contributed to the worsening of Zambia's foreign indebted ness. These two interrelated external factors (the unprece dented rise in interest rates and the rise, also extremely rapid, in the value of the U.S. dollar) had the immediate effect of contributing to the deterioration in Zambia's balance-of-payment deficits. Also, the fact that a large proportion of Zambia's foreign debt was contracted on floating interest rates and denominated in U.S. dollars meant that the market fluctua tions in interest rates were rapidly passed on to the cost of debt service. The remarkable upsurge of interest rates in international financial markets^! (especially in the United States, whose interest rate volatility is illustrated in figure 13, which depicts annual average changes in prime interest rates from the first quarter of 1974 to the first quarter of 1980), particularly from 1978, sharply exacerbated Zambia's expanding balance-of-payments deficit and thereby became the major precipitating factor in the country's Slpor detailed discussion and analysis regarding exchange rate upswings of major currencies of industrial countries, and ensuing policy measures, see International Monetary Fund, Annual Report [1982 and 1983], respectively pages 41-51 and 44-54. All major currencies experienced very substantial longer-term movements between 1973 and 1982. The erratic movements in exchange rates during this period had on occasion created substantial problems in the real sectors (as opposed to tertiary sectors) of the industrial economies, making international adjustment more complicated. 543 25 20 15 10 1974 1975 19761977 1978 1979 1980 Fig. 13. United States: Prime lending rate, 1974-80. SOURCE: The Washington Post, 3 and 14 April 1980. 544 balance-of-payments crisis during 1978 to 1982 (see table 88). The fact that financial flows to Zambia came to be heavily influenced by the magnitude at which interest rates were rising in the capital markets of industrial countries had two adverse related effects for capital accumulation in Zambia. In the first place, in consequence of the price increases, the financing of any given volume of imports resulted in higher levels of debt and hence of service pay ments (interest and amortization). In the second place, higher interest rates reinforced the upward pressure on service payments resulting from higher prices. The same forces that pushed up import prices pushed down export prices of primary commodities (including copper, Zambia's major export community), thereby causing the country's terms of trade to deteriorate. The outflow of foreign exchange from Zambia in the form of interest and profit payments (denominated in U.S. dollars) to foreign capital rose by 35 percent in 1978, 11 percent in 1979, and 66 percent in 1980. These increases substantially outstripped increases in export earnings during the same period (see table 114). The amount of interest and profit payments rose by 184 percent over the three-year period, from $71 million in 1978 to $868 million in 1980. More than 100 percent of this increase was due to the rise in interest rates from their 1976 to 1977 average levels (see table 88, item 2). 545 The volatility of exchange rates for major currencies involved the marked appreciation of the U.S. dollar from October 1980 to August 1981 and substantial effective depre ciation of the other major currencies. The appreciation of the effective exchange rate for the U.S. dollar from October 1980 to August 1981 amounted to 22 p e r c e n t . ^2 These unprece dented fluctuations among major currencies impinged upon Zambia's capacity to accumulate capital since the country's export and import prices were not fixed in terms of a single foreign currency. The substantial variability of exchange rates among the major currencies caused accumulation problems in Zambia, as such fluctuations in exchange rates inevitably ^^Real interest rates (that is, the difference between nominal interest rates and estimates of expected rates of inflation) rose more strongly in the United States, where inflation was accelerating in the face of declining monetary growth, than, for example, in Japan and the Federal Republic of Germany. In the United States, real short-term interest rates increased from about zero in 1978 to an average of about 8 percent during 1981 and the first half of 1982. In Japan and the Federal Republic of Germany, the increase was less marked, from about 2 percent in Japan and about 1 percent in the Federal Republic of Germany in 1978 to an average of 5 to 6 percent in both countries during 1981 and the first half of 1982. This change in relative monetary conditions was an important factor contributing to the unprecedented strength of the dollar vis-â-vis the yen and the deutsche m^rk from 1981 to the first half of 1982. The dollar soared by 20 percent against other major currencies and shot up by between 39 and 40 percent against the yen and deutsche mark. The tendency toward higher nominal and real interest rates in the United States attracted foreign finan cial investments (causing the U.S. dollar to continue appre ciating) due to the higher real rate of return investors could obtain on dollar-denominated assets. For trends in the movements of nominal and real interest rates for four major industrial countries (United states. United Kingdom, Federal Republic of Germany, and Japan) see International Monetary Fund, Annual Report, 1983, p. 49 (chart 17). 546 led to variations in the country's import and export prices, thereby altering the domestic currency value of the country's foreign trade. The rise in the value of the U.S. dollar strengthened the prestige that it had enjoyed since December 1971 as the international monetary reserve currency, the foreign-exchange intervention currency, and the leading exchange currency in international trade. At the same time, the real depreciation of the pound sterling and the Italian lira strengthened international demand for the dollar still further. Impor tantly, depreciation of the pound sterling eventually led to its abandonment by the OPEC countries in favor of the dollar. Furthermore, the massively higher OPEC oil price required correspondingly larger dollar-denominated payments by all the oil-deficit countries. This further increased the pivotal role of the dollar all over the world. At the same time, especially between 1980 and 1982, the rise in the value of the dollar strongly depressed the dollar prices of exports, particularly of primary products such as metals and minerals (see table 115 and figure 14). The annual average purchasing power of these products, which averaged 160 percent in 1970, plummeted to 115 percent in 1975, and further dropped to 108 percent in 1980, 102 percent in 1981, and 95 percent in 1982 (with 1977-79 = 100). Even though the inflation rate in the United States exceeded 10 percent in 1981, the dollar price index of the major primary products (including copper) fell by nearly 547 TABLE 115 PURCHASING POWER OF PRIMARY COMMODITIES (METALS AND MINERALS)® EXPORTED BY DEVELOPING COUNTRIES IN TERMS OF IMPORTED MANUFACTURES, 1970-82 (CONSTANT U.S. DOLLARS, 1977-79 = 100) Year Annual Averages 1970 160.0 1971 127.0 1972 115.0 1973 140.0 1974 152.0 1975 115.0 1976 110.0 1977 105.0 1978 91.0 1979 105.0 1980 108.0 1981 102.0 1982 95.0 SOURCE: World Bank, Commodity Trade and Price Trends, 1985 (Washington, D.C.: World Bank, 1985). ^Minerals and metals: copper, tin, nickel, bauxite, aluminum, iron ore, manganese ore, lead, zinc, and phosphate rock. Zambia's main tradi tional mineral exports comprise copper, zinc, and lead. 548 160 140 120 100 80 '70 '71 '72 '73 '74 '75 '76 '77 '78 '79 '80 '81 Fig. 14. Purchasing power of primary commodi ties (metals and minerals) exported by developing countries in terms of imported manufactures, 1970-82. (Annual averages in constant US dollars, 1977-79 = 100.) SOURCE: Calculated from table 115. 549 twice that level during the same year. While the U.S. dollar value of primary products was falling, the U.S. dollar value of merchandise imports (manufactured goods) continued to rise, as shown in table 116. The unit value index ("cif" index) of manufactured goods rose from nearly 32 percent in 1970 to 56 percent in 1974, 92 percent in 1979, and respec tively 96 percent and 94 percent in 1981 and 1982 (with 1980 = 100). The upward trend of price indices of manufactured goods is illustrated in figure 15. Pronounced weakness in export markets and adverse terms of trade (caused by ever-rising prices of imports) eroded Zambia's purchasing power for the needed intermediate and capital goods. In consequence, the U.S. dollar value of Zambia's total imports of goods and services (net of interest on external debt) fell by about 1 percent in 1981 from the 1980 level and by a further 29 percent in 1982 (see table 114). This cumulative decline of 30 percent over this two- year period led to a significant decline of import volume during 1981 to 1982. The importance of import volume declines for accumula tion of capital in Zambia is explained by the general slump in the economic activity (1980-82), which ensued following the 1979 oil price increase. As a result of reduction in the volumes of imports of machineries and spare parts, and raw materials, the overall operations of most industries (includ ing the mines) on average remained depressed during 1979 to 1982. With most industries operating below capacity, the 550 TABLE 116 PRICE INDICES: MANUFACTURING UNIT VALUE INDEX,® 1970-82 (1980 = 100) Year CIF Indexb 1970 31.7 1971 34.4 1972 37.7 1973 45.0 1974 56.4 1975 64.1 1976 65.3 1977 79.5 1978 83.0 1979 92.3 1980 100.0 1981 95.8 1982 94.1 SOURCE: World Bank, Commodity Trade and Price Trends, 1985 (Washington, D.C.: World Bank, 1985). ^Industrial market economies indices of U.S. dollar unit values of manufactured exports to developing countries. The "CIF" index combines a 90% weight of FOB export prices with a 10% weight of transport costs. ^Unit values of manufactures classification includes chemicals, manufactured goods (classified by material), machinery and transport equipment, and miscellaneous manufactured articles. 551 100 90 80 70 60 50 40 30 1970 71 72 73 74 75 76 77 78 79 80 81 82 Fig. 15. Price indices, 1970-82: Manufactur ing unit value index (cif; 1980 = 100). SOURCE: Calculated from table 116. 552 output of goods and other commodities (a prerequisite for accumulation of capital) remained erratic. This in turn made planning and management of production difficult, apart from slowing the process of accumulation. Finally, we consider inflation as another external factor that had significant impact, albeit indirect, on the process of accumulation of capital in Zambia. From the discussion at the beginning of this section it is apparent that rising interest rates in the major industrialized coun tries principally reflected the effects of restrictive mone tary policies adopted since 1979 to restrain the renewed upsurge of inflationary pressures generated by the second rise in oil prices. Following the oil price rises of 1979 to 1980, the policies adopted by the authorities of the industrial coun tries were influenced by the adverse impact of high rates of inflation experienced by these economies during this period. Aggregate real GNP in the industrial countries grew by only about 1.25 percent per annum in 1980 and 1981. Output declined by 0.25 percent in 1982. Inventories were reduced at a more rapid pace than had been foreseen, and both busi ness fixed investment and consumers' expenditure were weaker The goal of restraining inflationary pressures thus became the principal focus of policy in nearly all industrial ^^See International Monetary Fund, Annual Report, 1983, pp. 5-11 (English version). 553 countries. The intensity of commitment to restrictive mone tary policy (especially in the United States, where the monetary restrictions were more severe than in other major industrial countries) was clearly reflected in the movements of price indices discussed above. The course of inflation, together with the policy changes adopted to restrain it, was a major determinant if interest rate developments during 1979 to 1982. As was mentioned in the preceding discussion, these developments had adverse impact on the process of accumula tion of capital in Zambia as they weakened demand in the industrial countries, thereby depressing export markets for primary exports such as copper (which is Zambia’s prime source of foreign exchange) in these countries. The same inflationary forces caused unprecedented rise in the price of imports, especially of manufactured capital and intermediate goods required for production. From the foregoing analysis, it is clear that real interest rate differentials emanating from the disparity between nominal interest rates (the real interest rates plus inflation premium in each case) and the pace of international inflation affected Zambia's efforts to accumulate capital in various ways. This was especially so with the accumulation activities linked to the country's external position. As a large share of Zambia's external debt portfolio became linked to inflation through floating interest rate contracts, and as interest rates adjusted to inflation, debt-service charges became higher in the short run. 554 This had the effect of a more rapid amortization of the real loan.^* in turn, this increased the country's need to refinance its maturing obligations, thereby making the coun try vulnerable to disruptions in capital markets or short-run fluctuations in export earnings. This problem was further worsened by the fact that inflation and inflationary condi tions in capital goods exporting markets greatly reduced the present real value of Zambia's disbursed external debt. S^inflation may either accelerate the real effective amortization schedule for a loan (but not the total real repayments) or decelerate the schedule to such an extent that a portion of the real repayment is canceled. Of course, which of these two extremes occurs depends on whether the nominal interest rate fully incorporates the actual inflation experienced. It is also commonly thought that international inflation reduces the real burden of debt servicing for the debtor countries due to the fact that it reduces the real value of debt previously incurred. It is consequently argued that inflation reduces the present value of debt-service payments. However, it is vital to note that when market interest rates rise in response to inflation, the erosion in the real value of the outstanding loan caused by inflation is offset. Thus, the creditor receives as interest payments what in a less inflationary environment would be repaid as amortization. As to the extent debtor countries may benefit from the impact of international inflation on the real burden of their debt-servicing obligation depends on the level of inflation vis-à-vis the level of nominal interest benefited from international inflation between 1970 and 1979, when spiraling inflation exceeded the level of nominal interest rates. However, this observation is too simplistic as it posits a single real interest rate to be generally valid for all debtor countries on the implicit assumption that the same international price levels and nominal interest rates were common to all countries and that financial markets repre sented a perfectly integrated mechanism. Experience, how ever, shows that real interest rates vary from country to country for a number of reasons; market fluctuations, policy measures, transfer or political risks, and legal and institu tional differences. 555 The erosion in the present real value of the country's disbursed external debt, together with short-run fluctuations in export earnings, forced Zambia to seek the approval of external creditors to reschedule (a form of debt relief) its external debt to cover the period mid-1982 to mid-1984. Rescheduling was of critical importance in staving off the country's liquidity crisis by providing time for the needed economic adjustment, and by restoring the country's credit worthiness and thus permitting the resumption of new lending.55 55oebt rescheduling amounts to a rearrangement or restructuring, generally involving stretching out, of the original repayment schedule with respect to a particular debt or a set of debts. Rescheduling is one of the options avail able to a country that is having difficulties in "servicing" its external debt, that is, in making the repayments of principal and interest as they fall due. A country may face debt-servicing problems for a number of reasons (some of which have been discussed in detail), including (a) pursuing inadequate macroeconomic policies, leading to balance-of- payment problems and undermining the country's ability to service debt; (b) borrowing excessively, that is, beyond the country's current capacity to service the debt; (c) borrowing on unfavorable terms (such as accumulating too much short term debt) or building up an unfavorable maturity profile with a "hump" in repayments falling due; (d) external events beyond the country's control, such as excessive borrowing on the basis of floating interest rates (usually linked to the interest rate in the London interbank market), which may increase sharply due to adverse conditions in the interna tional financial markets; and (e) experiencing a temporary but substantial export shortfall reducing the country's foreign-exchange earnings and its ability to service its external debt. Zambia's debt renegotiations took place in the framework of the Paris Club ("credit or club") under which official multilateral debt (officially extended and officially guaranteed loans, mainly export credits) renego tiations usually take place. The Paris Club, founded in 1956 to guide renegotiation of Argentina's external debt, is neither a legal entity nor an organization; it is the name given given to an ad hoc group of creditor governments— all of them industrialized countries and predominantly OECD 556 Rescheduling approval carries a heavy political price that adversely affects the state's relative authority. The debtor country has to agree (as a precondition to debt- rescheduling negotiations) to the International Monetary Fund stabilization program. Under the agreement, certain major policy-making decisions are transferred to the IMF, which acts as an instrument that protects the interests of external creditors and their states. Apart from the above problems resulting from inflation, inflationary conditions also adversely affected the credit worthiness of Zambia in various important ways. Under inflationary conditions certain measures commonly used to evaluate the country's creditworthiness (the ratio of the current account deficit to GDP, annual interest payments to GDP or annual debt service to GDP) were biased upward by higher, inflation-induced interest rates. Generally, other indicators tended, due to inflation, to show an altogether misleading deterioration in the country's economic situation. For instance, the current account of the balance of payments was distorted due to interest payments that had the effect of transferring some amortization pay ments from the capital account to the current account. The picture conveyed by this phenomenon was one of a deteriorating current account. This apparent weakening of the country's economic situation (due to distorted members— which meets in Paris at meetings organized and chaired by the French Treasury. 557 creditworthinessin some respects adversely influenced decisions by commercial banks in capital market countries to extend more loans. This, in consequence, had a limiting effect on the state's ability to facilitate the mechanisms of accumulating capital due to inadequate availability of foreign exchange to pay for imports of the necessary means of production, which in turn would put into motion the mecha nisms for accumulating capital. The Effects of Sharp Oil Price Rises on Ac cumulation of Capi tal In this section an attempt is made to assess the impact on accumulation of capital in Zambia of sharp oil price rises. In less than 10 years Zambia, like many other oil- importing developing countries, absorbed two massive rises It is beyond the scope of this study to provide a detailed analysis of the effects of inflation on Zambia's external position during the period covered by the study. We can only acknowledge that the precise impact of inflation on amortization rates and debt indicators is dependent on infla tion itself, on whether foreign borrowing is subject to fixed or floating interest rates, and on average maturities. Thus, the complex effects of inflation on debt-term structure and debt indicators make assessments of the debt situation less straightforward than in a noninflationary environment. For a detailed study on the effects of inflation on the behavior of international capital markets see Organization for Economic Cooperation and Development, Capital Markets Study: General Report of the Committee for Invisible Transactions (Paris; OECD, 1967) . Also see Gordon W. Smith, The External Debt Prospects of the Non-Oil Developing Countries, NIEO Series (Washington, D.C.; Overseas Development Council, 1977). 558 in the prices of imported fuels imposed by the Organization of Petroleum Exporting Countries (OPEC). The first massive increases in prices was between 1973 and 1974, and the second between 1979 and 1980. The cartel supported increases sky-rocketed oil prices , by more than 1,000 per cent, from about $3 per barrel in early 1973 to well above $30 and, in some cases, up to $40 per barrel by 1980. Between 1973 and 1974 alone (at $11 per barrel), the price increase was about 367 per cent (for 57 these phenomenal increases see Figure 16) . Sharp rises in oil prices enormously contributed to the swelling of Zambia's balance-of-payments deficits for the period 1973 to 1981. On the first occasion, the cost of imports of oil and derivatives rose by 576.5 per cent in 1974 from the 1973 level. The increase to the overall import bill for 1974 was by 5.8 per cent. For the period 1975 to 1981, the rise in the cost of imports of oil and Because of the magnitude of the negative impact which sharp oil price increases had on the economic growth in Zambia, it is fitting to note the uniqueness of the oil cartel which OPEC used effectively in its pricing and market ing strategy. First, the price elasticity (i.e. increase or decrease in demand being brought about by reductions or increases in the price of the product) for petroleum is low (i.e. demand for petroleum is price inelastic) because of few economically viable and technically feasible sub stitutes. Second, OPEC most dramatically controlled supply elasticities (or "commodity boom") of oil, a variable critical in raising prices. 559 Value in K million 180 170 160 150 140 130 120 110 100 90 70 60 50 40 30 20 10 1973 74 75 76 77 ' 78 79 80 81 82 Fig. 16. Zambia's Oil import Bills, 1973-82 SOURCE: The Bank of Zambia, Annual Reports, 1974-1984. 560 derivatives accounted for nearly 44 per cent of the increase in tile current account payments deficits (10.6 per cent in 1975; 71.9 per cent in 1976; 39.5 per cent in 1977; 35.6 per cent in 1978; 74.2 per cent in 1979; 40.3 per cent in 1980; and 33 per cent in 1981).^® Between 1973 and 1981 oil imports in value terms main tained an upward trend as a percentage of import values, averaging 12.9 per cent (from about 5 per cent in 1973 to 20 per cent in 1981). The important feature of the rise in the cost of imports of oil for the purpose of capital accumulation in Zambia was that conservation efforts which reduced the amount of oil imports in volume terms (from 6.9 million barrels in 1975 to 5.7 million barrels in 1981), were offset by continued real increase in prices of oil over the same period. Thus, the continued increase in prices of oil had an adverse impact on the efforts directed at capital accumulation. The increased cost of oil imports carried high opportunity costs in terms of forgone imports of capital and intermediate goods required for production of goods and services. The impact on accumulation of this foreign-exchange hemorrhage can also be gauged by relating the cost of oil See The Bank of Zambia, Reports and Statements of Accounts for the years ended 31 December, 1975-1982, (Lusaka, 1975-1982) . 561 imports to export earnings. For the period 1973 to 1981, the cost of imports of oil and derivatives as a per cent of exports averaged nearly 10 per cent. The ratio of gross oil imports to exports of goods and services rose from 2.3 per cent in 1973 to 9.4 per cent in 1975; 10 per cent in 1978; and 20 per cent in 1981. These ratios point to the degree the continued rise in the cost of imports of oil and derivatives acted as a drainage of the much needed foreign-exchange to pay for imports of raw materials and machinery spare parts. The rise in oil prices had other adverse consequences, both direct and indirect. With the increase in fuel costs, the balance-of-payments deficits on "other goods and services (debt)" account which include transportation services also rose sharply, averaging 83 per cent of the increase in the current account deficits recorded for the period 1973 to 1981 (see Table 8 8 , item 4), with peaks in 1973 (142 per cent); 1974 (103 per cent); 1976 (82 per cent); 1978 (70 per cent); and 1979 (114 per cent). This represented a significant transfer of real resources from Zambia to developed countries. The increase in the price of oil also had a direct draining effect on the growth of the gross domestic product (GDP). As a per cent of GDP, the cost of oil rose from 1 per cent in 1973 to 6 per cent in 1981. For the period 1973 to 1981, the cost of oil averaged 3.5 per cent of GDP. Thus, in terms of opportunity 562 cost, the loss to Zambia in forgone production of goods and services averaged 3.5 per cent over the period. The indirect effects of the high costs of oil are complex and their impact more difficult to evaluate. These include, among others, first, the interest cost arising from the debt contracted to cover the increased expenditure on oil. Second, higher prices of oil Cas a source of energy) caused distortions in the structure of production. In the mining industry, the escalating costs of oil which was accompanied by the steep fall in prices of copper reduced the profitability of the mines. As a result, there was a series of labor unrest as management controlled wage increases. Higher costs of production attributable to rising costs of oil led to underutilization of resources in many industries, and to a slowdown in the growth rate of employment. Third, the adverse repercussions of the world economic recession of 1974 to 1975, and 1979 to 1980 on the Zambian economy and its exports were as a result of higher prices of oil. The oil price rises were absorbed into production costs in the industrial countries and in large measure passed on in manufacturing prices whose unit value (unit 563 59' value index cif) rose sharply between 1973 and 1982. These rises in unit values had an unfavorable impact on Zambia's terms of trade for the period 1970 to 1982. Exports account for 50 per cent of Zambia's gross domestic product (GDP) . For this reason, the terms of trade deterioration significantly contributed to a huge reduction in national income. In turn, this caused the average annual growth rate of GNP per capita to slide to zero between 1974 and 1980 from the average annual growth rate of 1.2 per cent recorded between 1965 and 1973. Consequently, consumption per capita also declined sharply. The fall in national income also had a general ad verse effect on the average annual growth rate of consump tion and investment. The annual growth rate of public consumption dropped from the 1960 to 1970 level of 11 per cent to 0.8 per cent for the period 1971 to 1980. The average annual growth rate of private consumption declined from the 1960 to 1970 level of 6.8 per cent to 1.9 per cent for the period 1971 to 1980. The average annual growth rate of gross domestic investment recorded for the period 1971 to 1980 dropped to -10.8 per cent from the Industrial market economies indices of US dollar unit values of manufactured exports to developing countries The "CIF" index combines a 90% weight of "FOB" export prices with a 1 0 % weight of transport costs. 564 average annual growth rate of 10.6 per cent attained between 1960 and 1970.®° Conclusion From the analysis of data in this chapter, two major conclusions emerge regarding the relative autonomy of the Zambia State and its accumulation function. The first conclusion relates to the centrality of the state as the main vehicle through which internal capital accumulation takes place. The second conclusion concerns the effects of Zambia;s integration into the international division of labor on the relative authority of the Zambian State vis- a-vis its accumulation function. The centrality of the Zambian State as a vehicle through which internal accumulation of capital takes place with respect to both domestic and foreign capitals has been established. The data support the hypothesis we posed in the study, namely that the Zambian State (post colonial) radically differs from the colonial state that preceded it, which was the ourtifht agent or instrument of the ruling class located abroad. In the same respect, it differs from the Federal State (which immediately preceded it), which was under complete control of the domestic ruling class (white minority settler class). ®°See The World Bank, World Development Report, 1983, (Washington, D.C., 1983), p. 154. 565 It is concluded without qualification that unlike the two states that preceded it, the Zambian State controls both the preponderance of the means of production and the means of coercion. Under preindependence capitalism the control of the means of production and the means of coercion were concentrated in two separate entities, respectively the capitalist class and the state. Under state capitalism, which became dominant following the 1970 economic reforms, both the substantial control of the means of production and the means of coercion came to be concentrated in the state. This put the Zambian State in a unique position as a vehicle through which both domestic and foreign capitals sought to accumulate capital. The data show that through intervention (through specific policies and programs) in the economy the Zambian State effectively established conditions for internal accumulation. From the data it is evident that the Zambian State has both formal charge over the national economy (through predominant ownership and control of the major means of production) and effective control of the main mechanisms and rates of accumulation, notwithstanding foreign partial ownership of some of the major means of production, such as the copper-mining companies. It is plain from the data that the state is the princi- 566 pal source of investment funds. For this reason, it plays a determining role in developing and fostering the forces of production. In this respect, the evidence points to the fact that state enterprises play a crucial accumulation function in breaking through crucial bottlenecks such as in petro-chemicals, where, commonly, neither private local capital nor foreign capital are able or willing to invest. Another area of investment that falls under this category is research and development. To this end, the state-run National Institute for Scientific Research was allocated K4 million under the Third National Development Plan (1973-83) for programs aimed at increasing production of goods and services. The function of developing the forces of production include the production and reproduction of labor at new higher levels required by accumulation (expansion of both general and specialized education). In this connection, the food and housing policies are oriented toward the section of the Zambian population that earns salaries and wages. All capitals (foreign, state, and private indigenous) benefit from these policies. Thus, we can safely conclude that the regulative, productive, and ideological activities of the state cannot be understood in terms of the requirements of any particular segments of capital, domestic or foreign. From the centrality of the accumulation function of the state in Zambia, it is plausible to conclude that state 567 capital must not be perceived as a replacement for local private capital but as a class fraction that allies with foreign capital and national private capital to form a common project in which all benefit from developing forces of production. This conclusion clearly spells out the class nature of the Zambian State. Another conclusion emerges from this, namely that the postcolonial state in Zambia importantly functions as an integrating agent that integrates the plurality of isolated capitalist interests into concrete class interests. The integrative function includes organisation of both domestic and foreign markets for goods and services, and financial resources. From this, it is reasonable to conclude that the regulative, productive, reproductive, and ideological activities of the Zambian State cannot be understood in terms of the requirements of any particular segments of capital (notwithstanding state activities directed at developing and sustaining indigenous private capital) domestic or foreign. Thus, the fact that foreign firms are restricted to operations in capital-intensive industries and to govern ment contracts worth not less than K100,000, while Zambian firms profit more from operations in less capital-intensive industries and government contracts worth less than K100,000, has important consequences for accumulation and capitalist development, such as the way profits are invested. What 568 is important here is to conclude that these industries, capital-intensive or less capital-intensive, foreign- or Zambian-operated (the same applies to government contracts), themselves feed into the capitalist mode of accumulation in Zambia, which is decisive when it comes to determining the class character of the Zambian State. In relation to this conclusion, the data show that in order to determine the class character of the Zambian State the divisions between foreign and domestic capital are not crucial. These are secondary contradictions that must be placed in the context of the primary problems of accumula tion in general, that is, problems facing capital with respect to social forces opposed to capital or obstructing capital. This conclusion does not suggest that secondary contradictions do not matter. On the contrary, they can occasionally disrupt capitalist accumulation. Secondary contradictions may threaten accumulation insofar as they undermine the capacity of the ruling class to face primary problems of subordinating labor or precapitalist social forces. The second conclusion points to the importance of exogenous factors in evaluating the effectiveness of the state to function as the main source for investment funds and its ability to effectively intervene in the economy. The data in this chapter point to the fact that state control of substantial economic resources does not necessarily 569 result in state autonomy. The lack or scarcity of resources has been shown to place constraints on what an interventionist state can do. At the same time, the data show that the degree to which the national economy is intertwined with inter national capitalism is an additional constraint on state action. In the Zambian case both facts acted as a fetter to the extent to which the state intervened in the economy to indigenize it (that is, formulating and implementing policies aimed at regulating competition between foreign firms and the rising Zambian-owned and -controlled firms). Thus, as was concluded in chapter V, because of the extent to which the Zambian economy is integrated into the international division of labor, the state adopted cautious policies in redefining Zambia's relationship with major multinational corporations, which in some cases led to partial nationalization (51 per cent state ownership) of foreign-owned and -controlled companies. It is these cautious policies that guide development of joint-venture enterprises between national and foreign bourgeoisie. It can, therefore, be concluded that although economic reform policies were successful in transferring (to a considerable magnitude) the economy from foreign to Zambian control, they did not seek to destroy capitalism but to "humanize" it and to establish national control of the economy. Data analysis also shows that the fact that the ability 570 of the Zambian State to act as the major vehicle for capital accumulation largely depends on the country's export-earnings limits the effectiveness of the state in •j±iis role. This is because estimates of the export- earnings potential of the country's development plans were bound to be conjectural (due to external factors beyond the country ' s control) and often erred on tlie optimistic side. Consequently, the capacity of the state ■ to intervene in the economy in some cases proved to be seriously inadequate. For this reason, Zambia resorted to external borrow ing. However, as the data show, this was far from improving the situation. This meant opening the door to foreign influence (if not control) aimed at protecting the interests of external creditors. The policies accompanying external debt had the effect (through the IMF adjustment policies and projects) of shifting the focus or diluting the effective ness of the country's socialist policies. In order to meet the country's external financial obli gations economic policies came to be oreinted toward maximi zation of the capital accumulation function. This led to neglect of the legitimation function (expanding social welfare programs, increasing wages, fully implementing industry indigenization policies, and restricting competi tion by foreign firms) of the state. This led to deteriora tion of relations of production or labor unrest leading to nationwide strikes. In other words, the data clearly show 571 that Zambia's external indebtedness adversely affected the ability of the state to act entirely in the interest of domestic capitals. It could no longer take investment actions that contradicted interests of the ruling class in industrial countries. Indeed, the crisis of accumula tion (including the rising spiral of external debt) experienced by Zambia between 1975 and 1982 was no more than an expression of financial adjustments to the ongoing changes in economic and financial conditions of industrial countries. Thus, conditions that governed patterns of in vestment and accumulation of capital during that period were to a large extent externally determined. Finally, the relative autonomy of the Zambian State to intervene in the economy was adversely affected by the coun try's external position resulting from external shocks (defined as large, unanticipated changes in world economic conditions), which included shifts in the terms of trade, associated to a considerable degree with increases in oil prices, and the slowdown in the growth of world export (copper) demand, associated with sorld recessions. This was compounded by high interest rates and inflationary pressures. The pressure exerted by high rates of inflation in the general level of world prices and high interest rates worsened the country's external position in that they adversely influenced the real cost of amortizing external loans. Variations in foreign-exchange values also had adverse impact on the capacity of the state to intervene in 572 the economy as tliey affected the country's relative "affordability" (national purchasing power) of imports of capital and intermediate goods necessary for further production. High levels of import prices, which deter mined the feasible volume of imports for given levels of foreign-exchange receipts, also adversely affected the ability of the Zambian State to function as the main vehicle through which major investments in the economy were were effected. In short, the data suggest that as a consequence of Zambia's integration into the international division of labor, to assess the capacity of the state to act as the main instrument for accumulation of capital it is necessary to analyze the overall external (in addition to internal) economic position of the country. CHAPTER IX SUMMARY OF THE STUDY, CONCLUSIONS, AND SUGGESTIONS FOR FURTHER RESEARCH Introduction This chapter summarizes the theory of the postcolonial state, draws conclusions, and makes suggestions for further research. The central theme of this dissertation is the economic role of the state in Zambia and its consequences for class formation. In this respect, the dissertation first addressed two related primary research problems. These are the nature and characteristics of the Zambian State (the postcolonial state) as a vehicle for capital accumulation, in comparison with the two colonial states that preceded it, and the processes of class formation generated by the state's economic and related activities. The key areas of the state's economic intervention discussed in the study include the spheres of production and circulation (that is, spheres of capitalist production and circulation, which involved state management and regulation of both the wage-labor force land money; M > C >.M'^; ^Where M is the sum of money with which a capitalist buys the use of a commodity, C, including the labor-power of a worker, which creates a surplus-value by producing more value than itself. After the sale of the commodities made by 573 574 capital as totality takes the form of capital in circulation and capital in production; and as a condition for accumula tion capital must pass through circulation— the point of departure; thus as depicted in figure 17, capital as a whole must move through a continuing circuit). In relation to these two spheres, the study also analyzed some aspects of state intervention or managerial regulation, which took the form of economic policy, affecting both constant capital (installations and raw materials) and the valorization of capital. These analyses have shown that state intervention is at the core of capitalist development in Zambia. Regarding the class characteristic of the Zambian State and class formation, the general line of analysis adopted in this study is the one that sought to demarcate fractions of both the ruling class and working class according to their material base in the economy. The same mode of analysis was applied to the analysis of capitals, which were divided into fractions of state monopoly capitals (51 percent to 100 percent state-owned monopoly companies), foreign-owned and associate companies (associate companies have state ownership of less than 51 percent and thus are not state-controlled), and indigenous private live, surplus-value producing labor, the capital is able to recover more money (M') than the initial outlay (M). The formula points to the fact (as empirical evidence in this study has confirmed) that the economic relationship and the class relationship between workers and capital are insepar able. So, too, are production, circulation, and accumula tion. 575 MP X p Fig. 1 7 . Model of the circuit of capital as a whole, where M is money capital and C represents commodities— both means of produc tion (MP) and labor-power (LP). After an intervening period of production (P), commodi ties containing surplis-value are produced (C), which must be sold (C ->■ M') in order to return to the money-capital form: M. 576 capitals of various sizes but smaller than state-owned and associate companies. Thus the basic premise on which the analysis of state intervention in the economy is based is that such analysis is essentially a task in class analysis. For this reason, Zambia's general economic policy of indigenization of the economy is understood as an expression of class relationship. Hence, the degree of effectiveness of specific economic policies is perceived as a function of the balance of class forces. The study stressed the fact that no economic policy as a form of state intervention can be properly analyzed without taking into account its class content. Thus, throughout this study it has been maintained that the state is neither a "soulless machine" nor a "neutral instrument" of authority whose intervention in the economy is above class interests (although the state is not in the "exclusive service" of a particular fraction of the ruling class). This mode of analysis (rational analysis) served as an analytical tool for determining the types of class structures that developed in Zambia during the period of colonial domination and after independence in 1964. Finally, the study also investigated the effects on capital accumulation and class relations of Zambia's integra tion into the international division of labor. This included the analysis of the balance-of-payments effects and terms-of- 577 trade effects^ of external shocks^ for the period 1974 to 1976 and 1979 to 1981. In particular, the scheme of analysis included the balance-of-payments effects of the slowdown of foreign demand on Zambia's exports due to deceleration of the growth of world trade and adverse export volume effects (expressed for each year as a proportion of export value), together with policy responses to these shocks. In relation to the central theme of this dissertation, the focus of the analysis regarding the effects of external shocks was on the impact of these shocks on both the process of capital accumulation (and economic growth) and the role of the state as the major agent for capital accumulation, and its capacity to function as the dominant sponsor for the country's investment programs. The study also analyzed the roles played by foreign industrial and financial capitals (both public and private) in the Zambian economy, and their implications for capital accumulation and class relations. ^The terms-of-trade effects have been estimated as the difference between the current price values of exports and imports and their constant price values, estimated in the prices of the relevant base period. ^External shocks are defined as large, unanticipated changes in world economic conditions. They include shifts in the terms of trade, associated to a considerable degree with unprecedented increases in oil prices, and the slowdown in the growth of world export demand, associated with world recessions. For the period 1979 to 1981, external shocks included increases in interest rates in world financial markets. 578 The Postcolonial State; Theoretical Implications In analyzing the role of the Zambian State (the postco lonial state) as an instrument of capital accumulation, and its consequences for class formation, we were doing much more than engaging in intellectual casuistry. We employed concepts that are presumed to be rich in associations so as to bring in the scheme of analysis various characteristics that distinguish the Zambian State from the two colonial states before it, and capitalist states of industrialized countries. However, the concept of the state, like that of class, conjures up several images, far beyond any limited defini tion. For this reason it was important from the outset to clarify some of the assumptions that are made with regard to the ongoing debates about the nature of the capitalist state (and the colonial state) and the postcolonial state, and how they relate to the economy and to social classes. First, it was necessary to identify characteristics that all states share and those that are peculiar to the postco lonial state. All states are the ultimate coercive power. They make exclusive claim to the legitimate use of coercive f o r c e . 4 On the other hand, in addition to making exclusive In analyzing the nature and characteristics of the state, it was necessary to make a clear distinction between the state and government. Government is the system of rule- making roles. The concept of government also includes the state apparatuses that put into effect the rules made by the government. 579 claim to the legitimate use of coercive force, the postcolo nial state directly produces goods and services. Second, it was important to make a distinction between the state and the ruling class, and between the ruling class and the government. The ruling class was defined as the social class that, by virtue of its control of the means of production (this is especially true in advanced industrial countries), is able to command a preponderance of social, political, and economic goods and power. Thus, it is really the ruling class that is in power (again, this is strictly true in advanced industrial coun tries where the state does not own the ordinary means of production and is not directly engaged in the production of goods and services), the government being merely in office (but importantly,, the government is essentially the formal link between the state and the ruling class). Therefore, by virtue of the place the ruling class occupies in the social relations of production it is usually (not always) able to ensure that those who occupy the high offices of government or bureaucracy are sympathetic to its interests, and give it the necessary access to state power. However, this relationship is not without class con flict, since senior bureaucrats (sometimes referred to as the governing class) may not necessarily be members of the ruling class, and thus a government may represent interests that are 580 objectively in conflict with those of the ruling class.^ The point that was emphasized in the study was that although the dynamic of state action is largely explained in terms of the imperative requirements of capital (including inexorable pressure of various fractions of capitalists), it is a mistake to focus exclusively on them. It is important to take into account other powerful impulses to state action that are generated from within the state by decision makers in charge of state, apparatuses. These internally generated impulses cannot be taken to be synonymous with the purposes of dominant classes. It follows from this theoretical stance (as was argued in chapter II) that the state cannot simply be conceptualized as a monolithic weapon in the hands of the ruling class. The extent to which the state is used by the ruling class to protect its interests is empirically deter mined. While to a certain degree the postcolonial state shares these characteristics with the colonial state that preceded it and the capitalist state of advanced industrial countries, it differs from these states in important respects. It is in this respect that the postcolonial state has been variously ^This theoretical position is blurred with respect to Zambia (as is the case with a number of postcolonial socie ties) , where members of the ruling class control the largest sector (the parastatal sector) in the economy and occupy high offices of government. Thus, the extent to which the state apparatuses remain in the service of the ruling class is an empirical question. It is evident from this study that the relationship between the state and the ruling is an extraor dinarily complex one, being at once a relationship of fusion, complementarity, independence, and contradiction. 581 theorized but without success in building a theoretical model of the postcolonial state. For this reason the postcolonial state has been predom inantly perceived as being in the service of foreign capital. There has been constant assumption that the local ruling classes are little more than an intermediary for foreign interests.® Another analyst has even suggested that it is a misnomer to refer to the national bourgeoisie as the ruling class in postcolonial societies, arguing that unless the governing class actually determines the process of economic reproduction in the country, it cannot be called a ruling class, however large its formal powers may be.^ The Zambian case has shown that these analyses are carried out along a wrong theoretical path. From the Zambian material it is clear that although in some respects one postcolonial state differs from another, generally it is plausible to argue that the postcolonial state and the ruling class in postcolonial societies do not approximate same phenomena in colonial societies or advanced industrial coun tries. While it is true that all states intervene in the economy, the nature and degree of intervention generally For example, see Alavi, "The State in Post-Colonial Societies"; Saul, "The State in Post-Colonial Societies; Tanzania." Also see Saul, "The Unsteady State; Obote and General Amin," Review of African Political Economy 5 (1976); and Leys, Underdevelopment in Kenya. But for a modified theoretical position see Leys, "Capital Accumulation, Class Formation and Dependency." 7gee Von Freyhold, "The Post-Colonial State and Its Tanzanian Version." 582 distinguishes the postcolonial state from both the colonial state and the capitalist state in advanced industrial coun tries . This study offers conclusive evidence regarding the centrality of the role played by the state in the Zambian economy. It points to various important respects in which the interventionist nature of the Zambian postcolonial state differs from that of the colonial states (Northern Rhodesia Government, and the Government of Rhodesia and Nyasaland) and the capitalist states of advanced industrial countries. The state in Zambia is the principal source of invest ment funds. The state owns and controls major enterprises in all sectors of the economy. It plays a crucial role in breaking through crucial bottlenecks in heavily capitalized industries such as mining and petrochemicals where ordinarily neither private domestic capital nor foreign capital are able or willing to invest. The Zambian State provides economic and political services for capitalist penetration. It directly performs the crucial role of managing the meshing of capitalist and precapitalist modes of production. The Zambian state is the largest single employer of labor. State economic policies substantially facilitate (as shown in chapters V, VI, and VII) the reproduction and expansion of capitalist relations of production. This makes the state in Zambia more pivotal to the direct process of surplus appropriation and capital accumulation than the colonial states that preceded it, and 583 the capitalist states in advanced industrial countries. Conclusions and Suggestions for Further Research This section presents conclusions drawn from analyses made in connection with key research questions addressed in the dissertation regarding the.centrality of the role of the state in capital accumulation and class formation in Zambia. The section also presents suggestions for further research that may contribute to the improvement of future research designs on the political economy of Zambia. Conclusions The conclusions reached in this study support the seven hypotheses (presented in chapter I) that guided the analyses of key relationships between increased state ownership and control of the means of production and indigenous capital accumulation on one hand, and class formation on the other. Hypothesis 1 The first conclusion relates to this hypothesis, which was essentially stated as an expectation that the economic role of the postcolonial state in Zambia is not independent of class interests, and thus the resulting state capitalism is a phenomenon that has a defined class content or charac ter. The state took unprecedented class action, which reversed the pattern of ownership of the means of production. Thus, it has vigorously intervened in the process of class formation to ensure that particular places in the division of 584 labor have been assigned to Zambian nationals rather than non-Zambians. Other class actions include intervention in the class struggle against class interests of foreign capital to ensure that certain economic concessions are made available to Zambian nationals and Zambian-controlled businesses. The conclusion that the economic role of the state in Zambia is not independent of class interests is supported by the fact that economic dominance of the state through the parastatal sector has led to the emergence of a sector of the ruling class ("state functionaries") that does not originate in the class of private owners of the means of production. Hypothesis 2 The proposition underlying hypothesis 2 is essentially that the state's ability to maintain accumulation of capital independently from foreign capital holdings is expected to be variously affected by the extent and the terms of the coun try's financial obligations. It is further predicted that such external obligations and other linkages (external trade) will have the effect of influencing the country's specific economic policies and political actions. This hypothesis involves the adverse effects of Zambia's external debt and the balance-of-payments effects of external shocks, resulting from changes in the terms of trade and the slowdown of foreign demand for Zambia's exports (principally copper), as well as the effects of policy responses to these 585 shocks in the form of reliance on additional net external financing, export promotion, import substitution, and macro- economic policies. The hypothesis is generally supported by the data, which show that in an economy where the public and parastatal sectors are dominant, the country's external financial linkages significantly affect the state's ability and capacity to act as the main source for economic growth. First, it has been shown that the Zambian economy depends on imports for the supply of most essential consumer goods, of imports required for current production, and of machinery and equipment (capital goods) and spare parts for further production (including import substitution) and economic growth. Thus the economy's ability and capacity to import in adequate amounts is of critical importance to the process of accumulation. In this connection, the critical importance of availability in adequate amounts of foreign exchange to pay for imports was stressed in chapters VI and VIII. Heavy drainage on the country's foreign exchange caused by payments to foreign creditors seriously impaired the country's capacity to import. For the period 1970-82 (table 88; also see table 89) the need for foreign exchange for external payments averaged 94 percent of the deficits. Thus, perennial unfavorable terms of trade had an adverse effect on the capacity of the state to function as the main vehicle for capital accumulation. Second, the upward trend of Zambia's public and publicly 586 guaranteed external debt, which continued to accelerate sharply during the period 1970-82, constituted another significant impediment for the state's ability to facilitate the process of capital accumulation. The data in tables 91 and 92 support the hypothesis that the state's ability to maintain accumulation will vary with the country's external financial linkages. For the period 1970-82 the annual growth rate of the country's debt outstanding (including undis bursed) averaged 14 percent. This was considerably higher than the growth rate of exports. The country's external debt obligation as a percentage of total value of exports rose from 87 percent in 1970 to 303 percent in 1982. This represented a significant outflow of capital. The adverse effect of Zambia's external indebted ness is also shown in tables 102 and 103, which respectively show total external debt as a percentage of GNP and total debt service as a percentage of GNP. As a percentage of GNP, the total external debt rose from 39.5 percent in 1972 to 66.5 percent in 1982. The total debt service as a percentage of GNP represented another significant transfer of real resources to foreign creditors. The extent to which the country's external financial obligations depleted the country's international reserves is shown in table 108. International reserves, which stood at 96.6 percent of external debt in 1970, dropped to 6.6 percent in 1982 due to continuous expansion of amortization and interest payments. Consequently, this drastically reduced 587 the country's domestic savings resources. The net effect of this situation is that the state's ability to maintain accu mulation of capital independently from foreign capital hold ings was adversely affected. Third, other external financial linkages that had adverse effects on the ability of the state to maintain accumulation independently from foreign capital holdings originated in the worsening of the economic recession in the industrialized countries, which caused decline in world trade; sharp oil price rises, which greatly contributed to worldwide balance-of-payments deficits; and high interest rates and high rates of international inflation (together with the rapid rise in the value of the U.S. dollar), which contributed to the worsening of Zambia's foreign indebtedness and deterioration in its balance-of-payments deficits. The worsening of the economic recession (which was in large part caused by phenomenal increases in oil prices) in the industrialized countries led to the weakening of demand for Zambia's exports due to reduced economic activity in these countries. This in turn greatly retarded Zambia's efforts (dominated by the public and parastatal sectors) to accumulate capital as it substantially reduced the country's export earnings (see table 114 and figure 12) required to pay for further means of production. Depressed world export markets adversely affected Zambia's exports, whose nominal value in dollars fell by 40.5 percent in 1975, by 4.7 percent 588 in 1980, by 16.5 percent in 1981, and by 13.3 percent in 1982. Sharp oil price rises (first, between 1973 and 1974, and second, between 1979 and 1980) seriously impeded the state's ability to initiate and sustain the process of capital accu mulation. Unprecedented increases in oil prices signifi cantly contributed to the swelling of Zambia's balance-of- payments deficits between 1973 and 1981. For the period 1975 to 1981, the rise in the cost of imports of oil and deriva tives accounted for nearly 44 percent of the increase in the current account payments deficits. High interest rates, together with the rise in the value of the U.S. dollar and high rates of inflation, had a nega tive impact on the state's ability to accumulate capital. This was especially due to the fact that the country's new and outstanding external loans were contracted on floating or market-related (not fixed) interest rates and substantially denominated in U.S. dollars. Another important fact was that for the period 1979 to 1982, medium- and long-term loans to Zambia, which had risen sharply, were made by international banks and other private creditors. Apart from carrying high interest rates, the loans were contracted on hard terms (nonconcessional). This meant a heavy debt-servicing burden for the country. This fact, together with the fact that the market fluctuations in interest rates were rapidly passed on to the cost of debt service, worsened Zambia's accumulation problems. The 589 unprecedented upsurge of interest rates in international financial markets (for U.S., interest rate volatility is shown in figure 13) sharply exacerbated Zambia's balance-of- payments deficits, particularly from 1978 to 1982. High interest rates, together with high international inflation rates, had the effect of an unusual rise in the price of imports. This made the financing of any given volume of imports high. This in turn resulted in higher levels of external debt as imports were mostly financed through additional short-term borrowing. The problem of outflow of the country's real resources was compounded by the fact that the same forces that pushed up import prices forced down export prices of primary commodities (including copper, Zambia's major export commodity) as shown in tables 115 and 116, and figures 14 and 15. These market conditions, together with the erosion in the present real value of the country's disbursed external debt, eroded Zambia's purchasing power for needed imports. Finally, Zambia's policy response to the aggregate negative impact of external shocks discussed above confirms the hypothesis that these shocks will tend to influence the country's specific economic policies and political actions. This was especially in response to the balance-of-payments effects of these external shocks, resulting from deteriora tion in the terms of trade and the slowdown of foreign demand for Zambia's exports (especially copper), as well as high 590 prices for imports. Following the quadrupling of oil prices and the ensuing world recession, together with high interest rates and increasing debt-service burden (which threatened the coun try's creditworthiness) resulting from a sharp rise in private debt obligations with short maturities, the govern ment adopted a package of measures mostly favorable to the interests of foreign capital (especially international banks and other international creditors). The policy measures that were implemented through "stabilization programs" required, as a precondition, deval uation of the Kwacha (Zambia's national currency) by 20 percent against the U.S.' dollar. The policy measures included controlling the growth of the money supply through bank reserves, inordinate borrowing from the Bank of Zambia (central bank) by the government, credit control by enforcing ceilings for domestic commercial bank lending, drastic cuts in government expenditure (including elimination of subsi dies) , price control and wage increases restricted to 5 percent (in some cases wage freeze), and a ban on strikes. These policy measures aimed at reducing inflation and achiev ing an overall balance-of-payments equilibrium by 1980. These measures, which also aimed at increasing domestic savings, were complemented by other monetary and fiscal policy measures intended to attract foreign direct invest ments . The implication for capital accumulation is that the 591 austerity measures that caused cuts in aggregate demand precipitated an adverse effect on real economic growth. Between 1978 and 1979 the economy slipped into a deep reces sion, resulting in an annual growth rate of minus 9 percent. During 1981, the growth rate averaged about 2 percent of the real GDP. Per capita growth rate between 1978 and 1979 averaged about 2 percent, while between 1980 and 1981 per capital growth rate was zero. The country's external posi tion continued to worsen during the adjustment program period, thus, making it difficult for the state to facilitate the accumulation of capital independently from foreign capi tal holdings. Hypothesis 2 This hypothesis is confirmed by the data in the study that show that the fundamental issues of capitalist property relations are not resolved by the preponderance of state ownership of the means of production. After massive state takeover of major foreign-owned and -controlled means of production a new generation of state-owned and -controlled companies that emerged were incorporated under the legal principles (the Companies Act, Chapter 686 of the Laws of Zambia) designed to protect the interests of private capitalism. Thus state capitalism that emerged operated in the same manner as did private capitalism. State-owned companies under the Zambia Industrial and Mining Corporation (ZIMCO) 592 Limited and the Industrial Development Corporation (INDECO) Limited have the legal authority to borrow funds in the money markets and to trade in stocks. The state required these companies to be operated effi ciently and in such ways and under price structures that they cover their operating expenses, including depreciation and interest on any debt owing to government and other creditors, and a profit. The expected rate of profitability is between 12 and 16 percent of the capital invested. To meet these capitalistic objectives, INDECO borrowed heavily between 1973 and 1982 (see table 41). Between 1979 and 1982, INDECO's total debt was a record high of K1.5 billion, the bulk of which was spent on expansion and modernization, and diversi fication of the means of production. The new policy that required state-owned enterprises to show profits or close down their operations (indeed, less efficient companies were closed down) forced them to operate under strict rules of capitalism (profit maximization). What followed was a strategy embracing concentration and centralization of capital. Under INDECO, each of the subsid iary companies became a focus of concentration by combining the means of valorization on an increasing scale. INDECO and its subsidiary companies were strictly required to cut down on overhead costs and other costs of production (since valorization is inevitably involved measures for relative saving on labor costs). INDECO's levels of consolidated 593 profits are shown in tables 42 and 43. Following the establishment of ZIMCO in 1970 and redemp tion in 1973 of all outstanding ZIMCO bonds issued to minor ity shareholders at the time of the takeover of the copper mining companies, a strategy of centralization was imple mented under which a number of companies disappeared, absorbed by others, while others fused together by consoli dation. This was a qualitative change that refashioned the autonomy of state-owned companies (including INDECO) and established new relationships of competition. A new stage of monopoly state capitalism was reached under which ZIMCO came to control 120 companies in 1982, with a share capital of K500 million and a turnover of K2.2 billion (68.8 percent of GDP), assets totaling K3.1 billion, and a total employment of 122,871 persons (31 percent of total national wage employment). The tremendous financial power (the rate of surplus-value, which is the pivot of capital accumulation) that ZIMCO acquired through centraliza tion enabled it to reshuffle control over the means of production and to pursue an aggressive strategy of accumula tion, which included investments in large-scale productive enterprises, on its own and in partnership with foreign capital. Expanded state ownership and control of the means of production put the state at the center of the process for reproduction of capitalist relations of production. Hypothesis 3 is also supported by the data relating to policies regulating relations of production under state 594 capitalism following the second economic reform. The analy sis of labor policies presented in the study shows that a form of state intervention in matters relating to employment and unemployment conditions, while changing, remained condi tioned by the specifically capitalist characteristics of the use of labor-power. These characteristics embodied one of O the ever-present qualities, namely work discipline. In particular, the Industrial Relations Act of 1971 gave the state complete power to intervene in relations of produc tion. Although workers could still bargain (through labor unions) over conditions of employment, this came under the close scrutiny of both the Labor Commission and the Indus trial Relations Court established under the Act. The purpose of these measures was to directly subordinate labor to ^Commonly, the specifically capitalist characteristics of the use of labor-power embody two distinct but complemen tary qualities; work discipline and insecurity of employ ment. Insecurity of employment, which is a prerequisite of work discipline, mainly relates to the reproduction of waged labor-power. For this reason, its effect on work discipline is only implied in the above discussion. Insecurity of employment concerns insecurity resulting from being unem ployed, which deprives workers of the means of subsistence. It thus contradicts capital's requirements for unlimited quantities of potentially wageable labor, since if the unem ployed are deprived of all means of subsistence they cease to function as the reserve to supply the labor market. But, importantly, their maintenance falls outside of the general formula for capital, M > C > M'. This implies state inter vention in the management of labor-power to ensure its availability to the capitalists. State intervention is conditioned by the prevailing state of class struggle and changes within capitalist accumulation. Ordinarily, the mechanisms employed in the reproduction of waged labor-power involve means and institutions external to capital enter prises . 595 capital. Other policy measures taken by the state included wage and price freezes, and by proclamation in 1969 the president imposed a ban on strikes, while thé Special Regula tions that prevented employers (predominantly the state) from firing workers without just cause were lifted in January 1970. Thus the broad policy measures under which state-owned enterprises operated clearly facilitated the reproduction of capitalist relations of production. This confirms the hypothesis that state ownership of the means of production in Zambia did not resolve the fundamental issues of capitalist property relations. The imperatives of capitalist production demand maintenance of the same relations of production as those under private ownership of the means of production. Hypotheses 2 and 2 These hypotheses predicted the instrumental role of the Zambian State in setting in motion the process of indigenous accumulation of capital and the emergence of the national bourgeoisie, and the use of state powers by Zambians to accumulate capital. Both hypotheses are supported by the data in chapters V and VII. The data confirm that massive state ownership of the means of production and accompanying massive investment in infrastructure and economic services effectively promoted indigenous capital accumulation and capitalist class forma tion in Zambia. It was due to the interventionist nature of 596 the state and the resulting increased indigenous control over the entry and expansion of foreign capital that an embryonic national bourgeoisie began to emerge. Importantly, as state capital leaped to a hegemonic position (and the fact that the state had already acquired a relatively high degree of autonomy from local classes) the state became able to regulate economic opportunities to promote indigenous capitalism. Included in the policy of indigenization was a deliberate action aimed at carving out a special niche for the indigenous capitalist class and protecting it from foreign capital. Thus foreign capital was dislodged from certain businesses and areas in which to do business in order to protect the interests of the emerging indigenous bourgeoisie. The use of state powers by Zambians to accumulate capi tal was a crucial factor in the development of an indigenous bourgeois class that has the ability to maintain accumulation independently from foreign capital. It was as a result of using state powers that Zambians entered the arena of owner ship of the means of production from which they were effec tively excluded by the colonial policies. For this reason, the Zambian State systematically intervened in the economy to promote and foster ownership interests of a strictly nonex isting national bourgeoisie. It is in this respect that the power and growth of the national bourgeoisie largely depend on its relationship to the state. The state is a very important resource provider 597 and a vital means of access to the means of production. It is in this respect that the national bourgeoisie's ability to maintain accumulation is not independent of the state. Hypothesis J5 The hypothesis that private capital can expand only in a capitalist economy is confirmed by accumulation policies pursued by parastatal companies. These policies function as mechanisms for transforming the noncapitalist economy to capitalist, thereby establishing linkages that provide possibilities for private capital accumulation. This hypothesis is especially supported by the data relating to the agricultural sector. State intervention in the agricultural sector quantitatively transformed a rela tively large part of this noncapitalist sector to capitalist. This established possibilities for private capital accumula tion, which led to the creation of the new capitalist classes (commercial farmers). The state fostered the growth of these classes through direct government investment in the agricultural sector aimed at providing the sector with the required infrastructure and economic services (see table 67). The degree of expansion of capitalism in the agricultural sector is shown in table 70, which relates to employment of wage-labor. Other parastatal companies (notably the Development Bank of Zambia, Zambia Agricultural Development Bank, Cattle Finance Company, Tobacco Board of Zambia, and the National Agricultural 598 Marketing Board) actively functioned as mechanisms for transforming the agricultural sector to capitalist. Also, during fiscal 1980 investments by the state (K44.5 million) and private and corporate investments (K7.7 million) totaled K52.2 million. Noncapitalist enclaves in the urban areas were in similar fashion transformed to capitalist. Under these conditions of unprecedented expansion of the capitalist economy, linkages that provide possibilities for private capital accumulation were established. Hypothesis % This hypothesis is concerned with contradictions engen dered by strategies and processes of accumulation. Two sets of contradictions of class interests are hypothesized. One set of contradictions is with respect to indigenous capital and foreign capital; another set of contradictions is with respect to class interests of the indigenous bourgeoisie (indigenous private capital), and the parastatal companies and the Party (United National Independence Party— UNIP).^ Zambia is a one-party state after the promulgation of the Second Republic in December 1972, and the ruling party, UNIP, initiates and approves most public policies for legis lative action by the executive branch. These policies include those that regulate private and state ownership of property, and doing business. Importantly, top-level execu tives in the state-owned corporations or parastatal companies are appointed from the Party and state functionaries and approved by the Party's Central Committee or are acceptable to it. In addition, the Party owns business enterprises in the commercial and real estate sectors. Also, because the state functions as the organ of the Party, class interests of the parastatal companies and the Party are synonymous (not withstanding their separate legal existence). 599 Both sets of hypotheses are supported by the data in chapters V, VII, and VIII. It has been shown that the contradictions between indigenous capital and foreign capital primarily stemmed from the very purpose for which transna tional corporations invest abroad. Essentially, foreign corporations invest overseas in order to maximize their profits on a world scale. For this purpose, they are oriented to the world, not to the individual countries where they invest. Thus, as may be expected, all their decisions to invest, repatriate profits, what to produce, what prices to charge, how to produce, and to expand are not made out of considera tion for the interest of the host countries. Indigenization policies and cancellation of management and marketing contracts with foreign corporations after 1973 directly caused contradictions between indigenous and foreign capital. Foreign capital was no longer able to make the above tradi tional decisions aimed at maximizing profits. Although foreign corporations are encouraged to invest in technology-intensive industries (mostly in partnership with the state) because of their technical sophistication, they are subjected to strict foreign-exchange regulations that affect distribution and externalization of profits (although due to the technological nature of the country's economic structure certain concessions are made to attract 600 foreign investment) Thus it has been shown that although the concrete capi talist relations necessitate cooperation between foreign capital and indigenous capital (private and state) in order to protect certain material interests relative to the reality of history, such cooperation is not without contradictions. The data also support the hypothesis that there are contradictions between class interests of the indigenous bourgeoisie (indigenous private capital) and class interests of the parastatal companies and the Party (respectively state and party capitals). The data show that the attitude of the state and Party toward the development of indigenous private capital contradicted broad intentions of the indigenization policies. The state and the Party perceive private l^Zambia is highly dependent on imports due to the level of reproductive importance of its production process in the manufacturing and mining industries. For instance, in such consumer-goods industries as motor assembly it is dependent on the import of the means of production (various parts and machinery) for these industries. For the agricultural industry, for which the country produces fertilizers and other chemicals (means of production), Zambia is dependent on imports of goods that are at the highest level of reproduc tive importance, that is, producer-goods for such producer- goods industries as the Zambia chemicals industry. Since payments for imports make heavy demands on the country's foreign exchange, the export linkages are crucial. Zambia's export dependence is worsened by the composition of its exports; it exports a few products, with copper averaging more than 90 percent of the country's export earnings. Due to prolonged depressed prices of copper, Zambia experienced serious shortages of foreign exchange and shortages of imports. For this reason, more concessions were made under the Industrial Development Act of 1977 to attract export- oriented and foreign exchange-saving foreign companies. 601 f 1 "î enterprises as bastions of capitalism.^ To curb the growth of indigenous private capital, the state took certain measures, including the abolition of freehold titles to land, a cut-off point (in terms of levels of profitability and the number of people employed in the enterprises) beyond which the enterprise would be taken over by the state, and by developing policies that favor state-owned enterprises. Parastatal companies receive preferential treatment when borrowing funds from the commercial banks (table 82) and are given priority in allocation of import licenses and foreign exchange. State-owned enterprises are assisted by the state to outcompete indigenous private enterprises. After the formation of the National Import and Export Corporation (NIEC), private wholesalers were prohibited from doing busi ness in the wholesale sector, and NIEC took over their func tion in the economy as a whole. The role of the state with respect to the sponsorship of indigenous private capital is characterized by ambiguity. Suggestions for Further Research While there is a preponderance of evidence from the data in this study supporting the thesis that state intervention is pivotal to accumulation of capital and class formation in Zambia, careful analysis of data used in this study and evaluation of the research design have led to a substantive ^^See United National Independence Party, Take Up the Challenge, pp. 35-56. 602 conclusion that further research is needed to identify the effects of various policy instruments (independent variables) of state intervention on accumulation of capital on one hand, and the emergence and growth of indigenous bourgeoisie on the other. In this regard, and since this type of research will inevitably be based on data collected from observational records, a research design that utilizes multiple regression and correlation analysis to identify the patterns of associa tion (and clusters of interrelated variables) between groups of independent variables (grouped under the rubric of state intervention) and dependent variables (respectively, accumu lation of capital and class formation) is suggested. Multiple regression and correlation analysis is pre ferred as an improvement (albeit limited) on the present research design because it offers more possibilities for multitrend analysis. The inclusion of multiple correlation analysis in the scheme of data analysis will enable the researcher to compute the coefficient of multiple determina tion (R^), which is the ratio of the explained variation to the total variation in the dependent variable. However, it is necessary to stress that in the present type of research multiple regression and correlation analysis would be much too narrow in focus as it would only usefully apply to a set of core indicators. For this reason, its use as a tool for data analysis would not be without limitation due to the complexity of the phenomena under study. On the other hand, despite the expected limitation 603 mentioned above, the multiple regression and correlation analysis model allows the researcher to examine the effects (that is, the strength of association between independent and dependent variables) of several independent variables simul taneously on the dependent variable. Thus, importantly, because the multiple regression model has the power of disag gregating the effects of several independent variables on the dependent variable, the analytical frameworks emerging from the line of research suggested could be deployed to guide selection of policy instruments available to the state for intervention in the economy. A second line of inquiry suggested as a result of the learning experience obtained from this dissertation is a research design that incorporates the use of survey technique to specifically collect data relating to private Zambian- owned (whether 100 percent or 51 percent ownership) medium- scale and large-scale firms^^ in the six major sectors of the economy. 13 IZgizes of firms are determined on the basis of total assets, total turnover, and total number of workers employed (100-500 workers for medium-scale firms and 501 and over for large-scale firms). A survey research, as suggested, would employ a technique of simple random sampling of the firms. This technique would be possible because all medium-scale and large-scale companies are listed in the country's company register as required under the Companies Act. A survey research is necessary because the data being sought are not available from other sources. ^^Commerce, manufacturing, construction and engineering, property and investment, transport, and agriculture. 604 The survey would focus on determining the extent to which Zambians own the means of production in these sectors, and the extent to which they have transcended their essen tially petty-bourgeois character. The data would also enable the researcher to determine how many Zambian-owned companies are jointly owned with foreigners. 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