long waves in the international financial system: debt-default cycles of sovereign borrowers

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Research Foundation of SUNY Long Waves in the International Financial System: Debt-Default Cycles of Sovereign Borrowers Author(s): Christian Suter Source: Review (Fernand Braudel Center), Vol. 12, No. 1 (Winter, 1989), pp. 1-49 Published by: Research Foundation of SUNY for and on behalf of the Fernand Braudel Center Stable URL: http://www.jstor.org/stable/40241115 . Accessed: 25/06/2014 06:43 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. . Research Foundation of SUNY and Fernand Braudel Center are collaborating with JSTOR to digitize, preserve and extend access to Review (Fernand Braudel Center). http://www.jstor.org This content downloaded from 185.2.32.106 on Wed, 25 Jun 2014 06:43:06 AM All use subject to JSTOR Terms and Conditions

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Page 1: Long Waves in the International Financial System: Debt-Default Cycles of Sovereign Borrowers

Research Foundation of SUNY

Long Waves in the International Financial System: Debt-Default Cycles of SovereignBorrowersAuthor(s): Christian SuterSource: Review (Fernand Braudel Center), Vol. 12, No. 1 (Winter, 1989), pp. 1-49Published by: Research Foundation of SUNY for and on behalf of the Fernand Braudel CenterStable URL: http://www.jstor.org/stable/40241115 .

Accessed: 25/06/2014 06:43

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

.

Research Foundation of SUNY and Fernand Braudel Center are collaborating with JSTOR to digitize, preserveand extend access to Review (Fernand Braudel Center).

http://www.jstor.org

This content downloaded from 185.2.32.106 on Wed, 25 Jun 2014 06:43:06 AMAll use subject to JSTOR Terms and Conditions

Page 2: Long Waves in the International Financial System: Debt-Default Cycles of Sovereign Borrowers

Long Waves in the International Financial System: Debt-Default Cycles of Sovereign Borrowers*

Christian Suter

of international financial capital into peripheral countries have become a major feature of the world-economy since the begin-

nings of industrial capitalism in the early nineteenth century. The present study attempts to identify and explain cyclical patterns of proc- esses taking place in the international financial system during this per- iod. Thus, an attempt is made to show that boom phases of government borrowing abroad, as happened in the case of the 1970's, and periods of widespread debt service difficulties, as in the early 1980's, are re- current phenomena throughout the era of industrial capitalism. For an illustration of this point one may remember the boom in interna- tional government financing during the 1920's and the subsequent pro- tracted depression which forced a great number of borrowing governments into default.

The paper shows that processes within the world-system are shaped by different types of long-term cyclical movements, reminding thereby that, apart from the usually considered Juglar, Kondratieff, and "lo- gistic" cycles, one has also to take into account Kuznets cycles which have been left undiscussed in a survey of long waves as capitalist pro- cesses recently presented by Wallerstein (1984). Thus, this study attempts to provide a theoretical framework for the integration of hitherto un- related cyclical paradigms. The paper relies on arguments of Kuznets

*A previous version of this paper was presented at the Annual Meeting of the Interna- tional Studies Association, International Political Economy Section, Anaheim, CA., March 25-29, 1986. The author acknowledges the helpful comments, suggestions and criticisms on earlier versions of this paper by Ulrich Pfister, Volker Bornschier, and Christopher Chase-Dunn.

REVIEW, XII, I, WINTER, 1989, I-49 1

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cycle theories on the one hand (cf. Bloomfield, 1968; Hall, 1968; Edel- stein, 1982), and on the theoretical concepts of Kondratieff waves as they have been developed within the world-systems perspective (cf., among others, Research Working Group, 1979; Wallerstein, 1979) on the other hand.

On the background of these basic ideas the present paper starts with the discussion of general theoretical models dealing with cyclical proc- esses in international financial relations (Part I). Part II looks for em- pirical evidence concerning such cyclical movements. In Part III the empirical findings are interpreted on the basis of the theoretical mod- els outlined in the second part. Part IV, finally, tries to provide a frame- work for an integration of the different types of cycles. For this purpose interactions among different types of cycles and between cycles and trend movements are referred to in order to specify and explain character- istics of consecutive historical phases of long waves within the world- system.

I. TWO TYPES OF CYCLES

There are various models of cyclical fluctuations in economic, so- cial, and political development. With respect to long-term processes of the international financial system two types of cycles are of special interest: the Kuznets cycle with a length of 15-25 years and the long wave or Kondratieff cycle with 45-60 years duration.1 What follows is a short sketch of these two types of cycles and the set of hypotheses and theoretical concepts that have been proposed as explanations of them. Special attention is devoted to statements regarding the role of inter- national financial relations between the core and the periphery in the respective cycles, and hypotheses relating to long waves in international financial relations are derived.

A. Kuznets Cycles The existence of long swings with a length of 15-25 years was first

mentioned by Kuznets (1930) and Burns (1934). During the 1950's and 1960's a lot of statistical material on this topic was compiled by differ- ent authors (cf., among others, Williamson, 1964; Easterlin, 1968). Kuz- nets cycles relate primarily to long swings in building investments. Accordingly, periods of rapid growth in residential and non-residential

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building are followed by phases of relatively depressed construction ac- tivities. The rhythm of these cycles has been mainly explained by intra- and inter-national factor movements (i.e., by migration of labor and capital).

In the context of the present study the most important specifica- tion of such an explanation of Kuznets cycles is based on the notion of an Atlantic economy characterized by inversely related Kuznets cy- cles of Great Britain on the one hand and countries of recent settle- ment (e.g., the United States, Canada, Australia, Argentina, New Zealand) on the other hand. The most comprehensive approach of long swings taking place within the Atlantic economy has been developed by Thomas (1954). In his model the cyclical fluctuations are basically generated by the demographic structure, e.g., by international migra- tion movements and gestation lags in infrastructure investment.2

According to Thomas (1968) the pattern of inversely related cycles between creditor and debtor nations starts with a large outflow of pop- ulation from the developed creditor country (e.g., Great Britain) to the less developed and underpopulated debtor country (e.g., the United States). Population growth in the New World leads to increasing in- vestments in house-building and infrastructure and thus provides a stim- ulus for other domestic investments, whereas demand for construction is reduced in countries of net emigration. The building boom in the New World attracts more labor and capital from abroad and induces an export boom in the European creditor countries. Eventually the con- struction boom reaches its ceilings. Due to overinvestment profits fall and European investors turn to the more profitable and secure do- mestic investments. The consequences are depression in and decreased immigration into the New World. The debtor country experiences a shift away from home construction to increased activity in the export sector built up in the previous period by the large infrastructure in- vestments.

This theory of the Atlantic economy, however, has been criticized by Habakkuk (1968) who argues that British building cycles are pri- marily determined by domestic factors, a view that has been confirmed by empirical evidence presented by Edelstein (1982: 231). Furthermore, Kuznets cycles seem to be limited in space and time. This holds espe- cially true for the narrow understanding of Kuznets cycles as long swings in migration, house-building, and railroad construction. From this point

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of view Kuznets cycles apply to immigration countries, such as the Un- ited States, and are most clearly visible during the time period of 1840-1914. Before 1840 and after the First World War there is, how- ever, only little evidence for the existence of Kuznets cycles. Thus, ac- cording to Rostow (1975: 729) the Kuznets cycle has no general validity.3

Several studies on international capital movements have referred to long swings of the Kuznets type. As such their main focus was on the relationships between foreign investment on the one hand and for- eign trade, population movements, and construction activities on the other hand (cf. Williamson, 1964; Bloomfield, 1968; Ford, 1968, 1971; Hall 1968). The statistical data of net capital movements of thirteen countries analyzed by Bloomfield (1968) clearly show long swings of the Kuznets type in the series for Great Britain and the United States (see also part II below). Kuznets cycles seem to exist also in the cases of Australia, Germany, Italy, and Sweden.

In a study on long swings in British foreign investments in Argen- tina Ford (1971) explains long-term cyclical fluctuations with the no- tion of a development cycle that is based mainly on two forces: first, the "animal spirit" of investors (excesses of enthusiasm and revulsion) and secondly, time lags between the investment decision and the re- alization of anticipated profits in the case of large infrastructure pro- jects. The development cycle starts with an upswing in capital imports leading to an investment boom with excessive lending and a conse- quent bunching of infrastructure projects. Debt service payments rise while output initially remains low due to the gestation lag of large in- frastructure projects. When investors realize their initially overopti- mistic assessment they stop lending with the result of debt service incapacity of the borrowing country. During default when profit rates and yields on foreign investment are low the infrastructure projects are gradually completed. Output and exports increase, and interest pay- ments can be resumed. The expansion leads to a revival of foreign in- vestment which is, however, of less speculative nature, since the capacity to meet debt service has improved (Ford, 1971: 657-59).

From this short survey of Kuznets cycles one may extract the fol- lowing hypotheses with regard to cyclical processes within the inter- national financial system: First, flows of foreign investment are expected to move parallel to long swings of domestic investment in borrowing countries and tend to be inversely related to domestic long swings in

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capital exporting countries. Secondly, debt service incapacity may oc- cur at the top of a first swing in foreign investment but does not gen- erally follow a cyclical pattern.

B. Kondratieff Cycles Kondratieff cycles or long waves relate to the cyclical pattern of long-

term economic growth. Initially, Kondratieff waves were identified mainly in price series. Long wave theories, therefore, have often been criticized as being limited to price movements (Garvy, 1943; Eklund, 1980; van Ewijk, 1982). Recent research, however, has revealed long- term cyclical fluctuations in time series of physical products as well (cf. van Duijn, 1983; Clark, 1984; Goldstein, 1986). The empirical evidence presented by van Duijn (1983) in particular shows that Kondratieff growth cycles can be identified after 1845 on a global level. Due to na- tional peculiarities individual countries, however, do not necessarily fol- low this pattern. Long waves, therefore, have to be understood primarily as a global phenomenon.

Thus, as suggested by van Duijn (1983), two different Kondratieff cycles appear to exist: First, a Kondratieff price cycle characterized by fluctuations in prices, and secondly, a Kondratieff growth cycle char- acterized by fluctuations in industrial production. As shown in table 6 below Kondratieff price and growth cycles largely move parallel until the 1930's but differ significantly in their dating during the post-war period.

The most prominent model based on the Kondratieff price cycle is the terms of trade approach of Rostow, who interprets Kondratieff cycles as fluctuations in relative prices of foodstuffs and raw material (1978).4

The various long wave theories relating to Kondratieff growth cy- cles can be classified with respect to their explanation of long cycles into economic and socio-cultural approaches. The former consist of in- novation theories (Schumpeter, 1939; Mensch, 1975; van Duijn, 1983) relating long waves to the clustering of innovation, and capital accumu- lation theories (Kondratieff, 1926; Mandel, 1980; Forrester, 1983) con- sidering changes in capital accumulation as the causal dynamic. The socio-cultural approaches stress factors like employment and social in- novations (Freeman, et al., 1982) intra- and inter-national inequality (Tylecote, 1984), social conflict and unrest (Screpanti, 1984), and changes

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6 Christian Suter

in cultural and cognitive codes (Weber, 1983). There are several long wave theories that take account of processes

of the international financial system. Rostow (1975: 739) in his terms of trade approach links changes in relative prices to international cap- ital movements. Increasing profitability and high prices of foodstuffs and raw materials give rise to surges of capital exports from industrial countries to primary producers. Foreign investment, according to this view, is mainly determined by favorable conditions in borrowing coun- tries, i.e., by pull factors. Conversely, Mensch and Mandel relate cap- ital outflows from core countries to deteriorating domestic investment opportunities, i.e., to push factors. According to the innovation approach of Mensch (1975) the technological stalemate is characterized by a shift from productive investment to investments in financial assets due to the exhaustion of the innovating potential. Similarly, Mandel (1980) understands capital exports to backward areas as the principal instru- ment to slow down the long-term decline of the profit rate - an argu- ment developed already by Marx and elaborated to the key thesis of Marxist imperialism theories by Hilferding and Lenin.

Pfister and Suter (1987) suggest a model based primarily on ar- guments from innovation and capital accumulation theories on the one hand, and on Vernon's discussion of worldwide aspects of the product cycle on the other hand. According to their perspective capital flows into the periphery occur in later stages of the long wave when markets of the core are saturated and profit rates begin to decline due to the exhausted innovative potential. Since returns on domestic equity in- vestment in the core are low, capital tends to flow into the more profit- able financial assets. This rising supply of international liquidity meets a corresponding demand from peripheral countries which have not been fully integrated yet into the development process of the long wave and where production in the leading sectors became profitable as their pro- ducts have become standardized in the course of the product cycle. Struc- tural constraints, however, such as shortfalls in export earnings caused by worldwide recession at the end of a cycle, low returns on external capital, and consumptive uses of external resources, cause low income effects of imported capital. This means that the profits from invest- ments financed by external resources do not match debt service obli- gations linked with these capital flows. Thus, peripheral borrowers tend to incur large debts towards the end of a long wave. As a consequence,

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the international financial system is overextended and increasingly prone to disruption and crisis. According to this view debt service incapacity of sovereign borrowers tends to be concentrated on depression phases.

From this sketch of long wave theories one may advance the fol- lowing partly conflicting hypotheses concerning international capital flows in the core-periphery relationship. First, according to Rostow cap- ital imports of sovereign borrowers occur during the upswing of the Kondratieff price cycle, whereas the approaches of Mandel, Mensch, and Pfister and Suter assume, secondly, a clustering of international financial flows from cores to peripheries towards the end of the upswing and during the beginning of the downswing phase of a Kondratieff growth cycle. During the recovery and the early stages of the upswing period capital exports are expected to stagnate on low levels. Thirdly, the incidence of general debt service incapacities is expected to fall into the depression period of a long wave. The first and second propositions are partially contradictory, especially for the time before the First World War when Kondratieff price and growth cycles went together.

II. LONG-TERM CYCLICAL FLUCTUATIONS IN THE INTERNATIONAL FINANCIAL SYSTEM: THE EMPIRICAL EVIDENCE

A. Introduction

In this part we look for empirical evidence for the existence of long- term cycles within the international financial system in terms of the relationships of core and periphery. For this purpose, three dimensions of international financial relations have been selected for examination: First, capital exports from core countries (section 2), secondly, exter- nal borrowings of peripheral and semiperipheral countries (section 3), and thirdly, the incidence of default and debt service incapacity of bor- rowing countries (section 4). A summary of the empirical evidence is presented in section 5.

There are basically three methods to estimate capital exports from cores and external borrowings of peripheries. First, some authors have computed capital exports by using statistics of new foreign capital is- sues (direct method); secondly, the value of total holdings abroad has been estimated by capitalizing the yield from foreign investment; and

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8 Christian Suter

thirdly, figures for net capital flows have been obtained by calculating the overall balance in the balance of payments accounts (indirect method).5 However, none of these three procedures is perfect. As in- dicated by Lévy-Leboyer (1977a: 10) the first method tends to over- estimate international capital movements since most foreign issues have been floated simultaneously at several places. The second method stands and falls with the availability of reliable statistics on incomes from div- idends and with the assumptions concerning the rate of capitalization. According to Platt (1980: 12) figures for foreign investment based on this procedure are usually overestimated. The third method is limited to net figures and does not allow the separation of separate capital ex- ports from capital imports.

Which one of the different methods one will finally resort to de- pends on the purpose of the analysis. Since the indirect method pro- vides annual data for long time series it appears to be most appropriate for the study of long-term cyclical fluctuations. Moreover, the critical surveys of Lévy-Leboyer (1977a) for France and Platt (1980) for Great Britain indicate that the general overestimation of foreign investment is least by using the balance of payments statistics. Therefore, section A, which deals with capital exports from core countries, uses prima- rily data resting on indirect estimates. A shortcoming of this method, however, is that different types of flows (e.g., short-term investment, private direct investment, and portfolio investment) are not disaggre- gated and that no geographical distribution of foreign investment is provided. Furthermore, the indirect method provides only net figures of capital exports. Thus, it is not possible to separate capital exports from capital imports. Due to these limitations additional data from var- ious sources and different methods will be used, particularly for the historical survey on external indebtedness of peripheral countries in section C.

B. Capital Exports from Core Countries

Cyclical fluctuations in capital exports from core countries are an- alyzed on the basis of net outflows of capital. Unfortunately, there are no series available that cover the whole period of industrial capitalism. Therefore, one has to put together the different individual series to ob- tain an idea of the overall long-term pattern of international capital exports.

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During the nineteenth century Great Britain and France were the major suppliers of long-term capital in the world-system. In addition, the smaller European cores like Belgium, the Netherlands, and Switz- erland exported some capital. During the second half of the century Germany and the United States rose to the status of core countries and subsequently became net capital exporters (Germany during the early 1870's and the U.S. from 1897 onwards). For Great Britain and France annual data for net outflows of capital going back to 1816 and 1820, respectively, are available (cf. the classical study of Imlah, 1958; and Lévy-Leboyer, 1977b). France is the only country for which the figures of accumulated credits abroad have been adjusted for losses. The es- timates for Germany are limited to the years 1881-1913 and do not seem to be reliable (cf. Bloomfield, 1968). Therefore, our analysis of long- term foreign investment before the First World War will be confined to Great Britain and France.

From 1920 onwards aggregate data for capital exports from the cores are available, including all major core powers. Figures before the Sec- ond World War are based on indirect estimates from the balance of payments accounts (for the limitations of this measure see the discus- sion above). For the post-war period direct estimates of capital flows from cores to developing countries are available. Figures of capital ex- ports of major core countries are plotted in charts 1-3.

Chart 1 shows the pattern of British and French net capital exports between 1816 and 1913. The series are dominated by cyclical fluctu- ations of different duration. In the case of Great Britain two and a half Kuznets cycles are clearly visible (1862-77, 1877-98, 1898-1913).6 For France the chart reveals short-term Juglar cycles on the one hand and, from ca. 1840 onwards, fluctuations similar to Kondratieff waves with troughs in the early 1840's and in 1876-94 and peaks in 1872 and 1909 on the other hand. During the first half of the nineteenth century no long-term cycles seem to exist for both Great Britain and France, though there is a slightly marked peak in the early 1820's.7

The two time series move partially parallel. Both show a boom in the early 1870's, a subsequent slump in 1876-80 and another heavy in- crease before the First World War. There are two major differences be- tween the pattern of British and French net capital exports. First, after the trough in the late 1870's the series for Great Britain displays a quick recovery and a new surge of capital outflows in the 1880's with a peak

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10 Christian Suter

Chart I Net Capital Exports of Great Britain and France, 1816-1913,

in Million Dollars

Sources: Figures for Great Britain are indirect estimates based on the balance of payments ac- counts and are derived from Imlah (1958: 72-75). They include net movements of long- and short-term capitals and errors and omissions, but exclude net export of gold and silver bullion and specie. Data for France are indirect estimates based on the balance of payments accounts as presented by Lévy-Leboyer (1977b: 119-21). They include net movements of long- and short- term capital, gold, and silver bullion and specie and errors and omissions. Figures for 1871-73 are not adjusted for indemnity payments to Germany. The data are converted into U.S. dol- lars on the basis of exchange rates before 1914 ($0.193 to 1 French franc, $4.867 to 1 British pound; cf. Bloomfield, 1963: 95).

in 1890 and a subsequent crisis that leads to a trough in 1898. How- ever, the only slight stagnation of British foreign investment during the 1870's compared with the French series might also partially be caused by the lack of adjustments for losses due to defaults in the British data. Secondly, the boom in foreign investment before the First World War was much more marked in the case of Great Britain.

The pattern of international capital movements during the inter- war years is presented in Chart 2, which shows net capital exports of six core countries (the United States, Great Britain, France, the Neth- erlands, Switzerland, and Sweden). During this period the most

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Chart 2 International Capital Movements of Six Major Core Countries During the Inter-War Period (Net Outflow), in Billion Dollars

Sources: The figures are indirect estimates based on the balance of payments accounts and have been derived from United Nations (1949: 10).

important lenders of long-term capital were the United States and Great Britain. There were large capital exports from core countries during the 1920's with peaks in 1924 (implementation of the Dawes Plan) and 1928 followed by a sharp decrease with troughs in 1931 and 1937. The decade of the 1930's is characterized by substantial net capital imports of core countries since exports of new capital virtually came to a stand- still and flows were dominated by amortization and repatriations of ear- lier loans. As shown in chart 2 there was no recovery of international financial flows before the outbreak of the Second World War.

The development of financial flows from cores to developing coun- tries during the post-war era is shown in chart 3. The series for total flows reveals one long-term cycle but virtually no short-term fluctu- ations as it has been observed for the period before the Second World War. There were moderate increases of net outflows in the 1950's and 1960's which were caused primarily by official lending of core states.

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12 Christian Suter

Chart 3 Net Capital Flows from DAC Countries to Developing Countries,

1956-1985, in Billion Dollars (Semi-log Scale)

Sources: The data relate to direct estimates of total net flows from DAC countries to developing countries and multilateral agencies. The figures include official development assistance, of- ficial and private export credits, direct investments, and bank and bond lending and are taken from OECD (1966: 165-67) for 1956-62; OECD 1974: 199-205) for 1963-73; (1980: 178-82) for 1974-78; and (1984: 204-06) for 1979-83.

From the late 1960's onwards capital flows began to rise more rapidly. Between the mid-1970's and 1981 a boom occurred which was based primarily on private flows. After the peak of net capital exports in 1981 financial flows declined rapidly in the years 1982-85.

The long-term cyclical pattern of capital exports from core coun- tries since the early nineteenth century may be summarized as follows. First, no clear evidence for long-term cycles can be found during the first half of the nineteenth century. Secondly, there are some indica- tions of long waves of the Kondratieff type with peaks in net capital exports from core countries in 1872, 1913/1928, and 1981. General pe- riods of rapid growth in foreign investment are the years 1860-72, 1904- 13/1921-28, and ca. 1967-81. Phases of stagnating capital exports from cores are the 1870's, the 1930's, and the years from 1981 onwards.

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LONG WAVES IN INTERNATIONAL FINANCIAL SYSTEM 13

Thirdly, long swings of the Kuznets type are visible in the case of Great Britain between 1860 and 1913. The fluctuations in capital exports dur- ing the inter-war period may also be interpreted as Kuznets cycles. There is, however, only little evidence for Kuznets cycles during the post-war era.

C. External Borrowings of the Periphery

Unfortunately, there are no aggregate statistical data available for external borrowings of the periphery during the whole period of in- dustrial capitalism. Therefore, one has to rely primarily on the em- pirical material from case histories of individual developing countries. Thus, in this section cyclical patterns of external borrowings of the pe- riphery are presented by two case studies and a summary of general boom periods. The case studies refer to the United States (before the First World War) on the one hand and Peru on the other hand. These two countries had rather different experiences with government bor- rowing abroad. The United States was a country of recent settlement within the framework of the Atlantic economy and are the principal example of the success of a development path associated with large cap- ital imports. Peru, on the other hand, was selected as an example of an economy essentially based on a large export sector and as a country that repeatedly failed to induce an autocentered development dynamic through external borrowing.8

In the case of the United States annual figures of capital imports based on indirect estimates derived from the balance of payments ac- counts are available. In contrast to most other borrowing countries there are also many estimates for foreign indebtedness of the United States calculated on the basis of the direct method (cf. in particular the over- views in Lewis, 1938; and Platt, 1984). The various direct estimates show significant differences concerning the level of external indebted- ness, but they largely correspond with the cyclical fluctuations of in- direct estimates of U.S. net capital imports between 1820 and 1913 shown in chart 4. Long-term cyclical movements similar to Kuznets cycles are clearly visible. Peaks of external borrowings occurred in 1835-89, 1853- 84 (though less pronounced), 1871-83, 1887-90, and 1909-10, troughs in 1840-89, 1858 (only slightly marked), 1876-81, and 1898-1901. As observed by Williamson (1964) these cycles move parallel to fluctua- tions in domestic investment: The rate of capital inflow tends to be

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14 Christian Suter

Chart 4 Net Capital Imports of the United States 1820-1913,

in Million Dollars

Sources: The figures relate to indirect estimates based on the balance of payments accounts and are derived from Williamson (1964: 255-57).

synchronous with domestic investment at troughs and to lead by about a year at peaks.

During the first cycle in U.S. capital imports most foreign funds were borrowed by states and municipalities; the federal debt, by con- trast, was paid off altogether in 1835 (Platt, 1984: 145). In the North the states financed mainly the expansion of the transportation and com- munication networks (canals, roads, railways) while in the South for- eign capital was mainly used for the expansion of the slave-based cotton economy (Lewis, 1938). 9 The expansion of external indebtedness was closely connected with the cotton boom of 1833-36 with high cotton prices and rapidly increasing land purchases. According to the mate- rial presented by Temin (1969) the boom of the 1830's was caused by the coincidence of rising British demand for American cotton, the ex- pansion of capital flows from Great Britain to the United States, and increases in the American stock of specie (due to declining silver ex-

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LONG WAVES IN INTERNATIONAL FINANCIAL SYSTEM 15

ports to Asia). In the years 1837 and 1838 cotton prices fell drastically. Substantial amounts of new foreign loans were used to finance spe- culative purchases and stock-keepings of cotton in order to stabilize pri- ces (Jenks, 1927: 88-98). In the early 1840's cotton prices finally collapsed. Since debt service was financed by cotton exports the credit standing of the borrowing states was drastically reduced, and no new loans were advanced, which forced several states into default (cf. sec- tion 4 below).

The long swing in net capital movements during the 1850's is sub- stantially less pronounced than of the other cycles. The peak in 1853 was only $56 million as compared with $62 million in 1836. The rel- atively low levels of foreign investment during the 1850's have been at- tributed to the Crimean War and the hesitation to invest in the United States due to the defaults of the 1840's. In addition California's gold production partly substituted for capital imports (North, 1961; William- son, 1964). It was the railway boom in the Midwest states associated with the considerable expansion of grain production caused by rising prices resulting from the Irish famine and the Crimean War that at- tracted foreign borrowings during the 1850's (Lewis, 1938). While cot- ton was still the main source of export revenues its importance within the national economy was substantially reduced. Northeastern indus- trialization and the opening up of the West became the prime growth factors (North, 1961).

Foreign investment during the third cycle of net capital inflows (1860's and 1870's) initially went mainly into federal bonds but shifted to rail- road securities during the boom of the early 1870's (Williamson, 1964: 124). Railway expansion was concentrated in the Midwest and the far West and was, as in the 1850's, related to the state of the grain market. During the railway boom of the early 1870's the share of foreign cap- ital in U.S. domestic net capital formation reached substantial levels (between 17% and 27% from 1869 to 1873 as compared with an av- erage of 4% -6% during the whole nineteenth century; Williamson, 1964: 147; Platt, 1984: 141).

Foreign investment during the fourth and fifth long swings in U.S. net capital movements was directed primarily into railways. William- son has estimated that up to 70% of foreign capital was invested into railway securities during this period (1964: 136). However, in contrast to earlier cycles the close relationship between exports of primary com-

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16 Christian Suter

modities (e.g., cotton, grain) and the movement of foreign capital dis- appeared entirely due to the declining importance of agriculture in the development of the U.S. economy (Williamson, 1964: 99). Further- more, by the end of the nineteenth century the United States grad- ually transformed from a debtor into a creditor country (Madden, et al., 1937).

Despite recurrent periods of massive inflows of foreign capital the average weight of external funds relative to the U.S. domestic economy was relatively small. As noted by Platt (1984: 145) the United States usually could take the initiative in marketing its own securities and could normally place the larger part at home. Similarly, although foreign in- vestment was concentrated on railway bonds U.S. railway construction was financed largely by domestic capital.10

In the first half of the nineteenth century, when larger amounts of foreign capital began to flow into the U.S. economy, there had already developed a substantial industrial segment in the Northeast (e.g., ship- building in New England). Thus, Chase-Dunn (1980) argues that the U.S. economy was divided into a core segment in the North (capital- intensive techniques with skilled labor and the production of highly proc- essed goods) and a peripheral segment in the South (labor-intensive techniques, coerced labor, and production of raw materials). Initially, the U.S. economy was largely dominated by the core segment. From the early 1830's up to the outbreak of the Civil War, however, the plant- ers of the South, allied with the farmers of the West, gained control over the Federal state and established free trade against the opposition of Northern manufacturers.11 Yet, Chase-Dunn (1980: 219) argues that core production (especially in the textile industries) was already well established by this period and no longer needed state protection. After the Civil War the hegemony of the core segment over the federal state and the U.S. economy was fully reestablished providing the basis for the subsequent upward mobility of the United States within the world- system.

To sum up, capital imports of the United States during the nine- teenth century follow a cyclical pattern similar to long swings of the Kuznets type. Foreign investment, however, remained relatively small in relation to domestic investment due to the existence of a substantial core segment. During the first half of the nineteenth century foreign investment supported mainly the expansion of the peripheral segment

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of the U.S. economy and thus contributed to the development of the duality in the economic and social structure. Due to the existence of strong core forces the United States, however, could prevent peripher- ization.

The Peruvian experiences with government borrowing abroad are presented in detail in table 1 and chart 5. Due to Peru's immense wealth in natural resources the country was integrated into world trade rela- tively early and represents, therefore, an excellent case for the study of long waves in the core-periphery relationship. External borrowings of Peru show a clear cyclical pattern parallel to the Kondratieff growth cycle with peaks in foreign indebtedness occurring towards the end of a Kondratieff upswing. Since the independence from Spain in the early 1820's four periods of rapid increases in public foreign debt occurred which were concentrated upon the years 1822-25, 1862-72, 1920-28 and 1970-80. Conversely, no loans were granted between 1826 and 1852, between 1873 and 1905, and between 1931 and 1953. Similarly, since the late 1970's relatively few new credits have been offered. The flow of external resources to Peru during those years was chiefly controlled by multilateral rescheduling arrangements, and therefore increases in

foreign debt were mainly due to the consolidation of accumulated ar- rears.

The first credits extended to Peru in 1822-25 were used to finance the struggle for national independence. After the money had been spent, however, no sources of state income were in sight yet, and the country defaulted on all its debts (cf. also section 4 below). The situation im-

proved only when guano began to be exploited and exported during the 1830's and 1840's. The four credits extended between 1853 and 1866 were used to convert or consolidate previous loans and to finance the war against Spain (1866). The large loans contracted during the years 1869-72, by contrast, were mostly used for investment purposes, namely, for railway construction. These railway lines, however, were not geared to an economic integration of existing centers of economic activity and, therefore, did not constitute a self-liquidating enterprise (Wynne, 1951). The 1870's saw a disintegration of Peru's guano economy. The main reason for this lies in the exhaustion of the best guano deposits and the increasing substitution of guano by artificial fertilizer in the de-

veloped countries. Hence, export receipts and, accordingly, the state's tax revenues dwindled rapidly during these years so that the country

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18 Christian Suter

Table 1

Peruvian Government Borrowing Abroad (Nominal Amount of Loans), 1822-1928 and External Public Debt, 1945-84

1822-25 Three foreign loans issued in London amounting to £1.8 million 1853 Loan of £2.6 million used for redemption of previous loans 1862 Loan of £5.5 million the proceeds of which were used for the redemp-

tion of all previous loans; the loan was secured through guano exports to Great Britain and Belgium.

1865 Loan of £10 million employed for the conversion of the 1862 loan and of some domestic debts.

1866 Loan of $2 million issued jointly with Chile 1869-72 Three loans totalling £36.9 million 1906 £0.6 million granted by German bankers 1909 Loan of £1.2 million used in part to repay the 1906 loan 1920-28 Nine loans partly denominated in pounds, partly in dollars amounting

to some $134.1 million. 1945-84 Growth of Peruvian external public debt (in million $): 105 (1945),

107, (1950), 229 (1955), 265 (1960), 694 (1965), 1,092 (1970), 4,002 (1975), 8,436 (1980), 12,654 (1984).

Sources: Hobson (1914: 101); Jenks (1927: 421); South American Journal, March 4, 1939; Wynne (1951: 107-95); Avramovic (1958: 163, 1964: 104); World Bank, World Debt Tables (1985-86); Uriarte (1986: 48); Suter, (1989).

could no longer meet its external obligations. The final blow to the first Peruvian development model based exclusively on the exploitation of guano came in the unsuccessful Pacific War against Chile (1879-81).

During the first decade after the Pacific War attempts were made to rebuild an economic structure based on exports. However, a serious recession during the early 1890's made foreign investment unattractive and weakened the government coalition oriented towards an outward- looking development path. The rest of the 1890's and the early years of the twentieth century saw a considerable degree of autonomy with regard to development (cf. Thorp & Bertram, 1978: ch. 3). On the one hand, new export sectors developed (sugar, wool, rubber, and cooper in particular) that were mostly in domestic hands. On the other hand, conditions were favorable for an import-substituting industrialization. Hence, capitalists engaged in the thriving export sector reinvested part of their immense profits of the late 1890's in the industrial sector pro-

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LONG WAVES IN INTERNATIONAL FINANCIAL SYSTEM 19

ducing for a domestic market. However, the first two decades of the twentieth century saw a considerable denationalization of Peru's econ- omy and a slowdown in industrialization; peripheralization, in a cer- tain sense, was accentuated once again. In most cases, large foreign firms (mostly of North American origin) bought up existing (and profit- able) Peruvian enterprises (Thorp & Bertram, 1978: ch. 6.2).

Under the dictatorship of Leguia (1919-30) Peru experienced its third wave of heavy government borrowings abroad (cf. table 1). The exter- nal resources were used to cover general budget deficits and to finance investment in public works within the framework of a general policy that could be labelled as proto-populist. According to Thorp and Lon- dono (1984) the country suffered considerably from waste and corrup- tion in the utilizing of foreign funds. The resulting financial weakness manifests itself in the fact that 1927/28 fresh loans had to be taken up simply to honor debt service obligations incurred earlier.

The years between the end of the Leguia regime and 1948 were marked by a certain degree of autonomy regarding economic devel- opment which was, however, less pronounced than in other Latin Amer- ican countries. This seems to be due to the fact that the recession was less severe than in other countries leaving a substantial part of the outward-looking forces developed during the previous expansionary phase untouched. Hence, economic policy during the 1930's largely fol- lowed a liberal path. However, the increasing weight of the popular sec- tor (labor, urban petty bourgeoisie) which was organized in the APRA movement called for more interventionist policies from the late 1930's onwards. Subsequent administrations during the 1940's, though at least partially based on the APRA, did not manage to formulate a consis- tent policy package designed to promote domestic development. Rather, a permanent conflict emerged between externally oriented interests and the popular sector which finally led to the breakdown of the model of import-substituting industrialization. Initiated by the presidency of Gen- eral Odria (1948-56) Peru followed an export oriented growth pattern again during most of the following two decades (Thorp & Bertram, 1978: ch. 10.1).

Under heavy participation from foreign private capital, exports ex- panded rapidly until the 1960's. Beginning as a vertical integration of export enterprises (export processing, subsidiary industries) import sub- stitution of durable consumer goods became important again during

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20 Christian Suter

the 1960's, particularly during the Belaunde administration (1963-68; cf. Thorp & Bertram, 1978: ch. 13.2). This government supported the penetration of foreign capital (both private and in the form of public indebtedness) to increase employment of the urban population.

However, most of the gains of economic growth during this period went to capital; wages increased barely in real terms (Weeks, 1985: ch. 7). Hence, political pressure towards a redistributive populist policy grew. Under Belaunde the rising demands of the popular sector were met by an expansion of government spending partly financed through external borrowing (cf. table 1). The military government under Gen- eral Velasco (1968-75), which attempted to resolve the problems that had emerged out of the development strategy of the previous regimes, pursued an internally oriented state capitalist development path with massive nationalizations and attempts at a redistributive income pol- icy (for the period 1968-80, see Cline, 1981; McClintock & Lowenthal, 1983; Uriarte, 1986). Initially this development effort was relatively suc- cessful. From the early 1970's onwards, however, the intersectoral im- balances associated with the unplanned way import substitution was pursued began to make themselves felt in rising balance of payments deficits which were acerbated through external events (worsening terms of trades after the oil shock, export losses due to declining fishing op- portunities). These difficulties were met by a new increase in foreign debt (cf. table 1).

To sum up, Peru appears to be a standard case for the occurrence of long waves in external indebtedness associated with the Kondratieff growth cycle: The integration of Peru into the world-economy through foreign capital (private equity investment or external public debt) oc- curred discontinuously in a cyclical pattern. The integration process resulted in a duality of the economic and social structure, which in turn gave rise to social conflicts. These social conflicts were sometimes mit- igated by consumptive state expenditure financed partially by external debt. Thus, unlike the United States, the Peruvian economy has been largely acting as states located in the periphery usually do and has ex- perienced only relatively few and short periods of autocentered devel- opment.

The phases of heavy borrowing shown for the United States and Peru move largely parallel to general boom periods in external financ- ing of the periphery as a whole as they are summarized in table 2. Seven

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Chart 5 Nominal Value of Foreign Bonds (In Million $,

5-year Moving Averages, Left Scale) and Net Flow of Foreign Loans (In Million $, 3-year Moving Averages, Right Scale)

of Peru 1850-1985

Sources: Suter (1989); sources given for table 1.

boom phases with shifting geographical focus may be identified. They fall into the early 1820's, the late 1830's, the 1860's and early 1870's, the late 1880's, the decade before the First World War, the late 1920's, and the years between 1975 and 1981.

During the first wave international capital flows were concentrated on the European periphery and the Latin American countries. During the 1830's individual U.S. states became the principal debtors. The main borrowers of the boom in the 1860's and early 1870's were the United States, Russia, the Ottoman Empire, Egypt, and Spain. In the late 1880's, besides the United States, Austcalia and Argentina emerged as

heavy borrowers. Before the First World War the principal debtors were Russia, Canada, South-Africa, Argentina, and the Balkan states. Dur-

ing the inter-war period Germany was by far the most important re- ceiver of international capital. The last boom was concentrated on

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22 Christian Suter

Latin-America and the European periphery with Brazil, Mexico, and Spain as heavy net borrowers.

Sequences of boom periods in external borrowing may be associ- ated to both Kuznets and Kondratieff cycles. Between 1860 and 1930 they seem to be closely related to Kuznets cycles (peaks in the U.S. Kuz- nets cycles were in 1871, 1892, 1912, 1927). The boom period of the 1830's also coincides with an upper turning point of the Kuznets cycle, but there was no general boom during the peak of 1853. 12 The first wave of external borrowing between 1822 and 1825 falls into a trough of the U.S. Kuznets cycles, and after the 1930's external borrowing of the periphery seem to function independently from Kuznets cycles. The boom periods of 1822-25, 1864-75, 1905-13/1924-28, and 1975-81, how- ever, may be related to Kondratieff cycles (peaks in the Kondratieff growth cycle were in 1825, 1872, 1929 and 1973). Yet, the late 1830's and 1880's do not fit into the pattern of Kondratieff waves.

Where peaks of Kuznets and Kondratieff cycles do not coincide (late 1830's, late 1880's) expansionary phases of international capital flows seem largely confined to the area covered by the Atlantic economy. Dur- ing 1886-90, for example, all three major borrowers (the United States, Australia, Argentina) were countries of recent settlement.

D. Debt Service Incapacities of Sovereign Borrowers

The recurrence of debt service difficulties experienced by borrow- ing nations has already been observed in the discussion of the pattern of U.S. and Peruvian external indebtedness. This section starts with a brief discussion of the case histories of the United States and Peru and presents empirical evidence for the cyclical emergence of general debt crises in the periphery as a whole.

Although the federal government of the United States never faced payment difficulties, individual states had a bad debt record: After the collapse of the cotton boom in the late 1830's nine states had to re- pudiate their external debt in 1841-42. 13 The sum of defaulted debt amounted to roughly 25 million pounds (or some 60% of the total in- debtedness of the American states) of which approximately two thirds were held abroad (Lewis, 1938). Yet, with the exception of Mississippi and Florida, all states resumed payments rather quickly in 1845. 14 A second wave of defaults occurred in the wake of the depression of 1873. Ten states, mostly in the South, with outstanding debts of some $150

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Table 2

Boom Periods in External Borrowings of Peripheries

Period Major Borrowers (with principal lender in brackets)

1822-25 Spain, Naples, Denmark, Prussia, Greater Colombia, Mexico, Austria- Hungary, Russia, Brazil, Greece (all GB)

1834-39 U.S. States (GB), Portugal (GB), Spain (F) 1864-75 United States (GB), Russia (GB/F), Ottoman Empire (GB/F), Egypt

(GB/F), Spain (F/GB), Italy (F), Austria-Hungary (F), Peru (GB), Ro- mania (F)

1886-90 United States (GB), Australia (GB), Argentina (GB) 1905-13 Russia (F), Canada (GB), South Africa (GB), Argentina (GB/F), Bal-

kan states (G), Turkey (G), Austria-Hungary (G), Brazil (GB/F), Mex- ico (U/F), Cuba (U)

1924-28 Germany, Argentina, Australia, Japan, Canada, Cuba, Brazil 1975-81 Brazil, Mexico, Spain, Venezuela, Korea, Argentina, Algeria, Turkey,

Yugoslavia, Poland, Romania, Egypt, Indonesia

(): GB = Great Britain, F = France, G = Germany, U = United States Sources: Hobson (1914); Jenks (1927); Feis (1930); Lewis (1938); United Nations (1949); Cairn- cross (1953); Cameron (1961); Mauro (1977); Stone (1977); Falkus (1979); Edelstein (1982); OECD (1982).

million (of which roughly $45 million may have been held abroad) went into default (Winkler, 1933; Lewis, 1938). 15

During the nineteenth and twentieth century Peru repeatedly ex- perienced debt service incapacities. Table 3 presents a summary of Peru- vian payment difficulties and debt settlements. Peru was in default in 1825-49, 1876-90, and 1931-53 and had to restructure debt service pay- ments by rescheduling arrangements for the years 1968-72, 1978- 80, and 1983-85. The Garcia administration limited debt service payments to 10% of export revenues in summer 1985 thus implying partial de- fault. One may conclude that every major boom period in Peruvian external borrowing (cf. section C) was followed by a period of prolonged debt service incapacity. With the exception of the minor crisis of 1968- 69 all periods of debt service incapacities fall into downswing phases of the Kondratieff growth cycle.

The pattern of payment difficulties as presented for Peru is no iso- lated case. General cyclical fluctuations in debt service incapacities ex- perienced by sovereign borrowers of the periphery are shown in chart 6 and table 4. The indicators selected are, first, the number of sov-

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24 Christian Suter

Table 3 Debt Servicing Difficulties and Debt Settlements of Peru, 1825-1985

1825-49 All loans in default; 1849 debt settlement agreed with creditors: con- version of outstanding principal into new bonds and capitalization of arrears of interest at 75% into deferred bonds; payments secured by guano sales to Great Britain.

1876-90 Default on all external obligations; a settlement with bondholders was reached in the Grace contract of 1890; the loans of 1869-72 cancelled altogether in return for (1) the assignment of the state railways for 66 years, (2) 3 million tons of guano, (3) annual payments of £80,000 for 30 years from custom revenues, and (4) the concession for the opera- tion of steamboats on the Titicaca lake.

1931-53 Default on all external obligations (roughly some $100 million; a settle- ment with bondholders reached in 1953; payments resumed during the same year; 90% of arrears of interest cancelled and interest rates re- duced to three percent.

1968-69 Two reschedulings with U.S. and Canadian banks and European gov- ernments; debt service payments due in 1968-72; altogether some $500 were restructured.

1976 Balance of payments loan granted by private banks as part of a stabili- zation program prepared in collaboration between the Peruvian gov- ernment and the banks since Peru resisted entering into a stand-by agreement with the IMF. The agreement failed, however, since Peru's payment crises worsened and the banks were unable to enforce compli- ance with the targets set in the agreement.

1978 IMF stabilization program and rescheduling of $520 million with official creditors (Paris Club), $886 million with private banks, and $140 million with the U.S.S.R.

1983-85 Three further reschedulings amounting, respectively, to $400 million (1983, official creditors), $380 million (1983, banks), and $2.4 billion (1985, banks, maturities 1983-85).

Sources: Wynne (1951); Corporation of Foreign Bondholders (1960: 316); Hardy (1983); World Bank (1985-86); Suter (1989).

ereign borrowers in default between 1820 and 1985 and, second, the occurrence of multilateral rescheduling arrangements between 1955 and 1986. The measure of reschedulings relates to the consolidation period of rescheduling agreements. Until 1982 rescheduling arrangements usu- ally covered a consolidation period of one year. In the wake of the debt crisis of the 1980's, however, some long-term reschedulings involving consolidation periods of several years have been concluded.

During the post-war era there were only few cases of outright de- fault on external obligations. 16 From the 1950's onwards debt servicing difficulties have generally been settled within the newly emerging in-

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LONG WAVES IN INTERNATIONAL FINANCIAL SYSTEM 25

stitutional framework of rescheduling agreements. The emergence of comprehensive multilateral rescheduling mechanisms took place in the context of increasing cooperation among core actors who established creditors' clubs (cf. Lipson, 1981; Wood, 1985). 17 The formation of co- operative creditor clubs together with their principal instrument of re- scheduling has undoubtly enhanced considerably the capacity of the international financial system to deal with debt service difficulties of peripheral borrowers. In the context of an analysis of cyclical fluctu- ations in debt service incapacities, however, default and rescheduling may be regarded as equivalent in the sense that they represent differ- ent solutions to the same structural problem.

Chart 6 clearly shows a cyclical movement with respect to the num- ber of sovereign borrowers facing debt service incapacities (i.e., the num- ber of countries in default or involved in reschedulings). Peaks may be found in 1827-41, 1875-82, 1932-45 and 1982-86, troughs in 1820-24, 1857-66, 1905-13 and 1955-78. Thus, fluctuations in debt service in- capacities of sovereign borrowers appear to move largely parallel to Kon- dratieff waves with high default propensity during downswing periods. In addition to these long cycles there are also fluctuations of shorter duration. The slight clustering of defaults in 1891-98 and 1914-21 to- gether with the periods mentioned above of the 1870's and 1930's may be interpreted as cycles of the Kuznets type.

The geographical focus of major debt crises is shown in table 4. The principal defaulters in the first half of the nineteenth century were the United States (state bonds), Portugal, Greater Colombia (Colom- bia, Ecuador, Venezuela), Mexico, and Spain. During the debt crisis of the 1870's the Ottoman Empire, Spain, and Egypt were by far the largest defaulting countries. In addition, substantial amounts were de- faulted by Peru and Mexico. In the 1930's the center of debt service incapacity shifted to Europe and Latin America with Germany, Ro- mania, Brazil, and Mexico as main defaulters on foreign dollar bonds. Similarly, in the course of the present debt crisis debt service difficul- ties are concentrated on Latin America (e.g., Brazil, Mexico, Vene- zuela, and Argentina), the peripheral areas of Europe (e.g., Yugoslavia, Poland, and Turkey) and Africa (Nigera, South Africa, and Morocco). The main finding visible from this shifting pattern is that countries that borrow heavily are not necessarily those that go into default in the cri- ses following a boom period. Apart from the southern U.S. states in

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26 Christian Suter

Chart 6 Number of Sovereign Borrowers in Default (1820-1985, Solid Line) and Subject to Multilateral Reschedulings (1956-86, Dotted Line)

Sources: Suter (1989). The data for governmental default are mainly taken from the annual re- ports 1873-1985 of the Corporation of Foreign Bondholders. Additional information was com- piled from the following sources: Jenks (1927); Blaisdell (1929); Feis (1930); Winkler (1933); Madden et al., (1937); Lewis (1938); Wynne (1951); Landes (1958); Rippy (1959); Broder (1976); Corm (1982); Platt (1984). Figures for countries involved in reschedulings relate to the con- solidation period (i.e., the period for which payments have been restructured). A debtor has been coded as a rescheduling country in a given year if the consolidation period covered more than six months. Figures for reschedulings are based on Bittermann (1973); Hardy (1983); IMF (1983); World Bank, World Debt Tables: Euromoney (1980-85); Institutional Investor, 1980-85; and Fiancial Times, 1984-85

the two crises of the nineteenth century and of Germany in the 1930's the countries figuring among the more highly developed ones (mostly the former European periphery but also the U.S. government during the 1870's, Australia, Canada, Japan, Argentina during the 1930's, and Spain and Korea during the 1980's) are much less represented among defaulting countries than among the main recipients of international capital. Rather, it appears that global debt crises usually break out in the periphery of the world-system.

The two smaller default cycles during the 1890's and between 1914

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Table 4 Debt Crises and Major Countries in Default

or Involved in Reschedulings

Period Country (in brackets estimated amount of defaulted/rescheduled debt in millions of U.S. dollars)

1826-42 Spain (100)*, 9 U.S. States (ca. 80), Portugal (44), Greater Col- ombia (32), Mexico (ca. 30), Brazil (18), Greece (14), Peru (9).

1875-82 Ottoman Empire (1,000), Spain (850), Egypt (ca. 440), Mexico (170)**, Peru (150), 10 Southern U.S. States (45), Colombia (32), Tunisia (30)***, Honduras (26), Uruguay (15), Costa Rica (13), Bolivia (8).

1931-40 Germany (2,200), Brazil (1,267), Romania (580), Mexico (500)****, Greece (380), Chile (376), Austria (325), Yugoslavia (320), Poland (300), Hungary (250), Colombia (151), Peru (150), Turkey (140), Uruguay (130).

1982-86***** Mexico (74,000), Brazil (28,000), Argentina (24,000), Poland (22,000), Venezuela (21,000), Nigeria (11,000), Turkey (11,000), Yugoslavia (10,200), South Africa (10,000), Chile (9,400), Ecua- dor (6,800), Philippines (4,200), Morocco (4,000), Romania (4,000), Sudan (3,600), Peru (3,000), Uruguay (2,700), Zaire (2,400).

Sources and notes: *Suspension of 1824; **Suspension of 1866; ***Suspension of 1867; ****Sus-

pension of 1928; *****Estimates for total amount of rescheduled debt for the years 1982-86, in the case of Turkey for the years of 1979-86. Sources are Suter (1989) and the references

given for chart 6.

and 1921 were caused by repudiations of Argentina, Portugal, Serbia, and Greece on the one hand, and Mexico, Russia, China (revolutions), Turkey, Bulgaria, and Austria-Hungary (suspension of payments to en-

emy countries during the First World War) on the other hand.

E. A Summary of the Empirical Evidence

Before entering into the discussion of possible explanations of cycli- cal movements the main empirical findings of this part will be sum- marized. First of all, there is empirical evidence for long waves in the international financial system that are associated to Kuznets as well as to Kondratieff cycles. A summary of these relationships together with the chronology of Kuznets and Kondratieff cycles is presented in ta- bles 5 and 6. It is clearly visible that the relative importance of Kuz- nets and Kondratieff cycles differs among the three dimensions of international financial relations. In addition, one can observe temporal

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28 Christian Suter

and spatial limitations of the different cycles. Kuznets cycles are most clearly visible for British capital exports be-

tween 1860 and 1913 and U.S. net capital imports before the First World War. Furthermore, sequences of boom periods in external borrowings of countries strongly integrated into the Atlantic economy (countries of recent settlement) before the depression of the 1930's may be inter- preted as Kuznets cycles.

Kondratieff waves seem to be present in French capital exports between 1840 and 1913. During the whole period of industrial capitalism there are Kondratieff cycles with respect to external borrowing by periph- eral countries outside the inner circle of the Atlantic economy (see in particular the case of Peru) and the number of countries facing debt service incapacities. Thus, Kuznets cycles seem to be typical for the period between 1850 and 1930 with respect to international capital move- ments within the Atlantic economy whereas Kondratieff waves may be regarded as characteristic for the occurrence of debt crises in the pe- riphery as a whole.

Concerning the hypotheses discussed in part 1 relating to Kuznets and Kondratieff cycles one may draw the following conclusions: With respect to Kuznets cycles there is evidence for fluctuations in international capital movements that move parallel to long swings of domestic in- vestment in borrowing countries and inversely to domestic long swings in capital exporting countries for Great Britain (1860-1913) and the United States (1820-1913), but not in the case of France and Peru. Ford's hypothesis of a development cycle associated with a singular occurrence of debt service incapacity may apply to individual countries (e.g., Ar- gentina, the United States), but is not supported for the periphery as whole by our empirical material (cf. table 5).

With respect to Kondratieff cycle theories the thesis of the terms-of- trade approach of Rostow that rapid growth in foreign investment fall into upswing phases of Kondratieff price cycles is confirmed for the 2nd and 3rd Kondratieff (1848-73, 1896-1920) but has to be rejected for the 1st and 4th Kondratieff upswing (1790-1815 and 1933-51). The no- tion of Pfister and Suter (1987) that boom periods of foreign invest- ment are expected to cluster round the peak of long waves in economic growth applies for all four Kondratieff cycles (peaks in 1825, 1872, 1929, 1973). The present long wave, however, differs from earlier cycles since the boom in international finance starts only after the peak. The boom

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LONG WAVES IN INTERNATIONAL FINANCIAL SYSTEM 31

periods of the 1830's and 1880's, nevertheless, remain unexplained by both long wave approaches. The hypothesis concerning the clustering of general debt service incapacity during depression periods of the Kon- dratieff growth cycles as suggested by Pfister and Suter is largely confirmed by the empirical material. However, the debt crisis of the 1980's emerged only ten years after the peak in the Kondratieff growth cycle (cf. table 6).

Apart from the empirical evidence for cyclical movements there are two further regularities. First, before the First World War government borrowing abroad seems to be concentrated on the European periphery and on countries of recent settlement. During the post-war era the cen- ter of external borrowing shifted to peripheral countries outside Europe.

Secondly, international debt crises of sovereign borrowers (i.e., the incidence of default and rescheduling) always broke out at the periph- ery of the world-system. Some heavily indebted semiperipheral coun- tries, on the other hand, could avoid state insolvency during periods of widespread debt service incapacity.

III. GENERAL EXPLANATIONS OF CYCLICAL PATTERNS WITHIN THE INTERNATIONAL FINANCIAL SYSTEM

As the summary of the previous section shows, the empirical ev- idence at hand does not conform in full to the expectations of most hypo- theses that were derived from the survey of the relevant literature in the opening part. Hence, the present part attempts to develop own ex- planations of cyclical patterns in international finance. In part, this will be a synthesis of previously discussed concepts and hypotheses, in part some new considerations will be introduced. First, we deal in detail with the different cyclical processes, centering on Kuznets and Kon- dratieff cycles. Thereupon the two other major regularities summar- ized in part II, E are briefly discussed.

For the explanation of Kuznets cycles in British and U.S. net capital movements one may rely on arguments put forward by the different authors within the framework of the theory of the Atlantic economy (see also part I). Quantitative research presented by Bloomfield (1968), Edelstein (1974, 1982), and Williamson (1964) revealed that a combi- nation of push and pull factors, i.e., declining investment opportuni- ties in Great Britain and profitable conditions and prospects in capital

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32 Christian Suter

importing countries like the United States or Argentina, may explain the cyclical flow of capital. According to Edelstein (1982) British cap- ital exports were dominated by pull factors in the 1860's and by push factors during the decade before the First World War, a process that may be attributed to the hegemonic decline of Great Britain. In the case of the United States declining opportunities of British domestic investments seem to be the main determinant of capital imports, espe- cially between 1870 and 1913 (cf. Williamson, 1964: 148; Bloomfield, 1968: 37; Edelstein, 1974).

The absence of Kuznets cycles in French capital exports has been attributed to the fact that France was a net immigration country dur- ing the late nineteenth century and, therefore, not affected by the proc- esses underlying the Atlantic economy (cf. Lévy-Leboyer, 1977b: 132). The same argument applies to peripheral countries, such as Peru, which (unlike the United States) were no major countries of recent settlement.

The limitation of Kuznets cycles to the period between the middle of the nineteenth century and the early twentieth century has been noted by several Kuznets cycle theorists. According to Rostow (1975: 729) this may be explained by the fact that Kuznets cycles are confined to mi- gration, house-building, and railroad construction. After the First World War railways were no longer one of the leading sectors of the world- economy. We do not conclude, however, as Rostow does, that Kuznets cycles should be set aside, but suggest an explanation of the spatial and temporal limitation on the basis of interactions with trend movements (see part IV).

Kondratieff cycles in French capital exports between 1845 and 1913 may be related to long waves in other series. Cyclical fluctuations in French foreign trade with peaks in 1872 and 1914 and troughs in 1848 and 1896 have been mentioned by Kondratieff (1926) himself. Furthermore, in a sample of five core countries France was the only case for which the existence of Kondratieff waves in industrial production could be confirmed by an empirical test (cf. van Duijn, 1983). Thus, France seems to be particularly influenced by processes relating to Kondratieff cy- cles, at least so during the second half of the nineteenth century and up to the First World War.

In the case of Peru the cyclical pattern of government borrowing abroad together with the occurrence of debt service difficulties at the end of each boom period of external borrowing fit well into the model

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of long waves within international financial relations as suggested by Pfister and Suter (1987). The sequences of phases of heavy borrowing followed by periods of protracted defaults are related to changes from primarily outward oriented growth policies to more domestically based policies. Thus, the years 1840-70, 1895-1930 and 1948-62 were peri- ods of export-led growth while, the phases of 1870-95, 1930-48, and from the late 1960's onwards have been characterized as crises of the export economy (Thorp & Bertram, 1978). The accumulation model prevailing during the 1890's and the 1930's and 1940's has been described as locally- generated and more autonomous (Thorp & Bertram, 1978), a strategy intended also by the governments of Velasco and Garcia dur- ing the present crisis. The evidence presented in tables 1-4 suggests that the experience of Peru may be of general validity for peripheral countries not integrated into the processes of the Atlantic economy.

The cyclical occurrence of defaults and reschedulings of sovereign borrowers may well be interpreted by the long wave approach suggested by Pfister and Suter (1987) outlined in the first part. The relative weight of the three principal determinants of debt service incapacity (declin- ing export earnings, consumptive uses of external capital, and credit rationing by lenders) differs in each crisis. Credit rationing seems to be present in all major debt crises, perhaps least so in the 1980's. Con- sumptive uses of foreign capital were the main factor during the debt crisis of the late 1820's, since most of the defaulting governments had used the external resources to finance their wars of liberation (e.g., the Latin American states, Greece; cf. Jenks, 1927). 18 Debt service inca- pacities during the 1870's seem to have been caused by both consump- tive uses and declining export earnings. The first factor is reported to have prevailed in the case of the Ottoman Empire (cf. Suvla, 1966; Corm, 1982) and Egypt (cf. Landes, 1958), the second for Peru (cf. Thorp & Bertram, 1978). Conversely, the wave of defaults during the 1930's was to a large extent triggered by the collapse of world trade in the years following the 1929 crisis and the ensuing unwillingness of lend- ers to extend further credits to peripheral countries (Kindleberger, 1973: 151). The deterioration in the terms of trade of peripheral countries together with a rise of protectionist trade policies in core countries has been regarded as a principal factor leading to the debt crisis of the 1930's in Latin America (White, 1986). The main determinant of the drastic rise in the number of reschedulings during the 1980's was the substan-

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34 Christian Suter

tial decline of export revenues of peripheries (cf. IMF, 1981; Pfister & Suter, 1987).

Another indication for the existence of Kondratieff cycles is evi- dent in the dating of the major boom periods of external borrowing. As noted in section E of the previous part the boom periods of the late 1830's and 1880, however, do not fit into the models of Kondratieff price and growth cycles. A more detailed analysis of these two periods shows that they are both characterized by short-lived price increases of pri- mary products. The rapid expansion of external indebtedness of the American states was closely connected with the cotton boom of the 1830's (cf. part I, C). Similarly, in the case of Argentina external borrowings between 1886 and 1890 rose parallel to the surge in export prices (Ford, 1962: 141). Thus, both periods may be partially explained by short- term counter movements within the Kondratieff price cycle.

The lack of clear cyclical movements of the Kondratieff type in cap- ital exports of core countries may be partially attributed to shortcom- ings in the indicators used: First, the measures for capital exports from cores are limited to net figures. Secondly, data for net capital move- ments include financial flows that are not expected to be dependent on long wave fluctuations (like capital exports to other core countries, short-term investment, or flows of private direct investment). Thirdly, there are shortcomings in statistics for net capital exports which may result in an overestimation of capital exports during periods of wide- spread defaults (lack of adjustments for losses due to defaults).

Besides the existence of Kuznets and Kondratieff cycles we have ob- served two other regularities, i.e., the shift of international financial flows to countries outside Europe and the inner circle of the Atlantic eco- nomy, and the fact that international debt crises always broke out at the periphery of the world-system. The first process may be related to the expansion of the world-system throughout the whole era of indus- trial capitalism. The spread of capitalism to more backward regions has usually been attributed to the growth of capitalism as a system (i.e., a trend movement, see also part IV). This is explained by Marxist theory with the expanded reproduction as a fundamental law of capitalism (cf. Berend & Rânki, 1982, with respect to the integration of the Eu- ropean periphery).

The fact that debt crises break out at the periphery of the world- system can be related to the specific structure of the peripheral eco-

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nomy: The processes that determine the occurrence of defaults and re- schedulings as discussed above (i.e., shortfall of export earnings, consumptive uses of external capital, and low returns of external finan- cial flows) take place within the specific structural context of the peri- phery.

The structural features of peripheral economies relevant for the emergence of debt servicing difficulties have already been extensively discussed within the framework of dependency theory. From such a point of view the occurrence of general default marks the failure of an out- ward oriented dependent development path. In the structural context of the peripheral economy externally financed growth is expected to have adverse effects on long-term economic and social development (e.g., destruction of traditional, more adapted forms of production, estab- lishment of enclave segments with modernized production, but limited ties to and multiplicator effects on the rest of the economy; cf. Singer, 1950; Furtado, 1970; Cardoso & Faletto, 1979). Therefore, income gen- erated by external financial flows does not rise parallel to debt service obligations, and eventually state insolvency has to be declared.

Conversely, cores and upwardly mobile semiperipheries are usu- ally not confronted with severe debt service difficulties despite relatively high levels of indebtedness. On the background of dependency the- ories this may be explained by their potential for autonomous capital accumulation and the presence of positive spinn-offs between the var- ious sectors of a balanced and well-integrated economy (Galtung, 1971).

IV. COMPARISON AND SPECIFICATION OF INDIVIDUAL DEBT CYCLES

The previous discussion has shown that despite the presence of cycli- cal patterns no homogeneous sequence of cycles throughout the period of industrial capitalism can be established. In this last main part of the present study we attempt to provide a framework for the integration of Kuznets and Kondratieff cycles. For this purpose the peculiarities of individual debt cycles are described in greater detail. The analysis begins with a systematic comparison of the features of the major debt crises. Its results are then used to specify the individual characteristics of each cycle. Finally, explanations of these peculiarities are proposed by referring to interactions between various types of cycles, and be-

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36 Christian Suter

tween cycles on the one hand and trends on the other hand. It has been noted in the second part that major debt crises since

1800 as visible in the number of sovereign borrowers in default cluster around the years 1826-43, 1875-82, 1932-45 and 1982-86. In what fol- lows these four principal global debt crises are compared with respect to, first, the share of blocked credits and, secondly, the number of de- faulting countries.

The comparison of the four major debt crises as presented in table 7 shows three major differences: First, there is a general increase in the number of defaulting or rescheduling countries over the whole peri- od considered. The number of countries affect by debt servicing difficul- ties rose from 10 to 1828 to 17 in 1877, to 24 in 1933 and to 33 in 1984. Secondly, from the 1870's onwards the estimated share of credits blocked in defaults or reschedulings becomes higher. In the present crisis some 40% of outstanding international credits seem to be blocked compared with 35% in the mid-1930's and 20-25% during the late 1870's. A third finding relates to differences in the severity of the four debt crises: The debt crisis of 1932-45 was most widespread (40% of all states affected) and rather deep (35% blocked credits). Conversely, the crises of 1826-42 and 1875-82 (only with respect to blocked credits) were less severe. In addition the crisis of 1875-82 was rather quickly overcome, while the crises of the late 1820's and the 1930's were protracted (cf. chart 6).

This comparison of the major debt crises allows us to specify the individual characteristics of the cycles whose general patterns have been discussed in the previous parts of this paper: (1) There is relatively lit- tle evidence for the general existence of Kuznets and Kondratieff cy- cles for the first half of the nineteenth century. This period is characterized by protracted defaults with only a gradual resumption of international financial flows into the periphery. (2) The second Kon- dratieff wave shows a marked expansionary phase and a relatively short and mild financial crisis with financial flows to debtor countries quickly recovering on the part of Great Britain. (3) The second and third Kon- dratieff waves are characterized by clearly visible Kuznets cycles. (4) The third Kondratieff upswing is a period of rapidly increasing capital exports from all major core countries. The financial crisis of the third long wave is marked and long lasting with a complete disruption of international financial flows. (5) The post-war era is characterized by little evidence for Kuznets cycles and a relatively long period of little

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Table 7 Comparison of the Four Major International Debt Crises

(In Brackets Year of Measurement)

1826-42 1875-82 1932-45 1982-86

Number of Default- 15 17 24 33 ing Countries (1828) (1877) (1933) (1984)

Defaulting Countries as a Percentage of 29% 37% 39% 27% All Independent Nation States (1828) (1877) (1933) (1984)

Estimated Share of ca.22% ca.23% ca.35% ca.40% Blocked Credits (1828) (1878) (1935) (1983)

Sources: For number of defaulting countries see sources given for chart 5. Figures for defaulting countries as a percentage of all independent nation states were computed by dividing the num- ber of defaulting countries by the total number of independent nation states, taken from Banks (1981). Countries with a population of less than one million in 1980 have been excluded. The estimated share of blocked credits for 1827 and 1878 are obtained by dividing the total amount of debts in default (cf. sources given for chart 6) by the sum of accumulated foreign invest- ment abroad of Great Britain and France (cf. sources given for chart 1). The figure for 1935 is based on estimates of Madden, et al. (1937: 123); Lewis (1938: 398); and Abbott (1979: 24). Data for 1983 are preliminary estimates by Pfister and Suter (1985) based on the World Bank's World Debt Tables (yielding 80% of Third World country debt service being blocked in re- schedulings in 1983) and other data series. For more details, see Suter (1989).

debt service difficulties (1950-80) despite the fact that relative prices of raw material were declining. Moreover, during the debt crisis of the fourth long wave the international financial system has not collapsed (yet) though the portion of frozen assets is relatively high. Debtors which are virtually insolvent in contrast to the 1930's nevertheless receive some new loans.

The following explanation of the differences between individual pe- culiarities of long waves as summarized above is based on hegemonic cycles on the one hand and on trend movements on the other hand.

World leadership or hegemonic cycles are characterized by the rise and de- cline of hegemonic powers. A hegemonic cycle starts when a core coun- try becomes the world's leading power shaping the economic and political order of the world-system according to its specific (hegemonic) inter- ests. When a state holds a hegemonic position the power structure of the world-system is unipolar or unicentric. With the decline of a world hegemony global economic and political power becomes more equally

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38 Christian Suter

distributed among several core states.19 Financial supremacy has been considered as an important dimen-

sion of hegemony (Bousquet, 1980). Due to its supremacy in produc- tion and commerce a hegemonic power is the principal center of international capital accumulation and becomes, therefore, the main source for long-term borrowing. An important element of financial su- premacy refers to the role of the hegemonic power as a protector of international financial stability. Because of its dominant position within international capital accumulation the metropolis of the hegemonic power rise to the financial center of the world and its currency becomes the principal medium of exchange. For this reason the leading power becomes a kind of lender of last resort. It may be assumed that the presence of a lender of last resort softens international financial crises whereas its absence results in longer, more widespread and deeper dis- ruptions of international financial relations (cf. Kindleberger, 1978).

Thus, hegemonic cycles may explain the relatively short mild finan- cial crises of the late 1870's on the one hand and the deep, widespread and protracted disruption of the international financial system during the 1930's on the other hand. During the 1870's the world-system was characterized by a unipolar structure with Great Britain as the heg- emonic power. Conversely, after the First World War the world-system had become multicentric and competitive. As argued above financial crises are expected to be less deep and protracted when the world-system is structured in an unipolar fashion due to the stabilizing role of the hegemonic power.

The most important trend movements within the world-system relate to growth and expansion on the one hand and structural changes to- wards concentration and integration on the other hand. As noted by the Research Working Group (1979: 483) it is generally agreed upon that capitalism is characterized by long-term growth and expansion. Outward expansion processes may be observed for the whole period of the modern world-system (cf. in particular Bergesen & Schoenberg, 1980); the present study, however, concentrates on developments dur- ing its "industrial" phase. Structural changes towards integration and concentration are closely related to the general expansion of the world- system. We will briefly discuss two models concerning structural changes towards integration and concentration during the phase of industrial capitalism.

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LONG WAVES IN INTERNATIONAL FINANCIAL SYSTEM 39

Pfister and Suter (1987) suggest a trend towards increasing insti- tutionalization of financial relations. This trend consists of two closely related developments: first, the increased domination of international financial relations by a few large actors at high system levels (states, international banks, and international organizations, as contrasted with individual capitalists) and secondly, a process of functional integration and the emergence of cooperative institutional arrangements (e.g., multi- lateral rescheduling mechanisms). A similar model has been suggested by Lipietz (1984), who describes these developments as a change from extensive to intensive capital accumulation. Extensive capital accu- mulation is characterized by laissez-faire capitalism and low wages, and intensive capital accumulation, which prevailed after the Second World War, by centralized production, a more active role of the state, and the institutional arrangement of rising real wages parallel to produc- tivity increases.

Trend movements as discussed above may explain, (1) the only slightly marked Kondratieff cycle during the early nineteenth century, (2) the rising number of countries faced with default and reschedul-

ings, (3) the combined pattern of Kuznets and Kondratieff cycles dur-

ing the second and third long wave, and (4) the characteristics of the

post-war period. (1) The only slightly marked presence of the Kondratieff growth cy-

cle in the first half of the nineteenth century may be explained by the low level of expansion of industrial capitalism. During those years the industrial segment of the world-system was just emerging, and its influ- ence on the dynamics of total economy and society, therefore, still lim- ited. Similarly, the long period of disrupted financial relations between cores and peripheries before 1845 may be attributed to the low degree of institutionalization of the international financial system which is re- lated to the generally low levels of integration of peripheries into the

world-system during the early phases of industrial capitalism. (2) The rising number of countries faced with default and resche-

duling may be explained by the expansion of the international state

system and the integration of backward areas into the world-system. The differences in the number of defaulting countries between the debt crisis of the 1820's and the crisis of the 1870's is caused by the emer-

gence of new nations in Latin America (e.g., the disintegration of Greater Columbia and of the Central American Confederation). In the

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40 Christian Suter

depression of the 1930's several of the new nation states of eastern and southeastern Europe established between 1880 and 1920, went into de- fault. Similarly, the higher number of countries confronted with debt service difficulties during the present debt crisis is due to Third World nations that obtained their political independence after the Second World War.

(3) The particular period during which Kuznets cycles seem to ex- ist (ca. 1850-ca. 1930) roughly coincides with the historical phase of extensive capital accumulation. Thus, one may suggest linkages between Kuznets cycles, the Atlantic economy, and extensive capitalism. Re- examining Kuznets cycles for the U.S. economy Abramovitz (1968) spe- cifies the conditions for the occurrence of long swings. He argues that the basic forces are the substantial immigration movements determin- ing population, labor force, and hence waves in house building. Further conditions relate to territorial expansion processes based on railway con- struction and the insignificant role of state activities. These essentials of an (national) economic structure producing Kuznets cycles may be well integrated into the general concept of extensive capitalism as dis- cussed above. Limited state activities (e.g., no countercyclical policies) are a characteristic feature of the model of extensive capitalism. Fur- thermore, demographic forces and expansionary processes may be ex- pected to be of great importance for the development dynamic of extensive capitalism. Qualitative expansion of capitalism as it happened after the Second World War was limited under the structural condi- tions prevailing during extensive capitalism.

(4) After the Second World War when the model of intensive ac- cumulation succeeded cyclical fluctuations of the Kuznets type lost their influence. The relatively long period of little debt service problems dur- ing the post-war period may be explained by the newly established pat- tern of intensive capital accumulation associated with, first, high general economic growth; secondly, specific types of financial instruments (i.e., private direct investment, development assistance from official and multilateral sources) that cause debt problems only indirectly and in the long run, and, thirdly, the existence of relatively few large actors on high system levels (national states, international organizations, bank syndicates) capable of cooperative actions. The fact that financial re- lations have not yet collapsed during the present debt crisis has been associated with an institutionalizing trend that had rendered the inter-

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LONG WAVES IN INTERNATIONAL FINANCIAL SYSTEM 41

national financial system more resilient against adverse developments (cf. Pfister & Suter, 1987). Furthermore, the existence of international bodies as lenders of last resort (e.g., International Monetary Fund, Bank for International Settlement), which is part of the institutional basis of the model of intensive accumulation, reduces the destabilizing for- ces associated with the decline of the hegemonic power.

From the discussion of differences among long waves one may con- clude that, with respect to international financial relations, the era of industrial capitalism may be divided into three major periods. The first phase may be regarded as the initiation period during the first half of the nineteenth-century with relatively little evidence of long-term cy- clical processes. The second phase lasting from ca. 1850 to ca. 1930 is characterized by extensive capital accumulation with the combined pattern of Kuznets and Kondratieff cycles. The third phase covers the post-war period, which is characterized by the shift to intensive capital accumulation initiated by the United States and Kondratieff waves as dominant long-term cyclical processes.

V. CONCLUDING REMARKS

This paper has examined empirical evidence concerning long-term cyclical fluctuations within the world-system and general theoretical models to explain these processes. The two types of cycles considered, the Kuznets and Kondratieff cycles, seem to co-exist within financial relations between the core and the periphery. We have not attempted to specify which one of these different cycles may be the most funda- mental or general process. Rather, we have found it more appropriate to consider fluctuations in international financial relations as the re- sult of a combination of various processes and to focus on their mutual interactions.

We do not suggest, however, a model of perfectly integrated cycles of different duration, as proposed by Schumpeter (1939) relating to Kon- dratieff, Juglar, and Kitchin cycles. Rather, we have tried to combine the various structural forces (i.e., types of cycles and trends) to specify different phases within the development of the world-system. On this basis one may also gain a new understanding of Kuznets cycles as spa- tially and temporally limited movements. Thus, Kuznets cycles can be regarded as typical for processes taking place within areas belonging

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to the inner circle of the Atlantic economy during the regime of ex- tensive capital accumulation that prevailed in the second half of the nineteenth and in the early twentieth century.

This study has presented relatively detailed empirical material con- cerning the existence of cyclical patterns in international financial re- lations: Flows of capital from core countries to the periphery are related to the Kondratieff growth cycle clustering towards the end of an up- swing period and international debt crises occurring during the down- swing of the Kondratieff growth cycle. Future empirical research may concentrate on the relations between these debt/default cycles on the one hand and cyclical fluctuations in other world-systems variables on the other hand. Thus, it has been argued above, cycles within the inter- national financial system are partly related to hegemonic cycles. In con- junction with this one may also show that since the sixteenth-century international financial centers moved geographically with the emer- gence of new hegemonic powers from the northern Italian city-states (e.g., the Medicis of Florence) to the large banking houses of southern Germany (e.g., the Fuggers of Augsburg) and later to Antwerp, Am- sterdam, London, and New York.

Empirical evidence concerning different cyclical processes within the world-system have been presented by a number of studies. Berge- sen and Schoenberg (1980) analyzed colonial expansion and observed two waves of colonialism (a first one with a peak in 1770 and a second one with a peak in 1921) which they closely linked to hegemonic cycles. Similarly, Krasner (1976) showed that relative openness and closure in the international trading system corresponds partially to periods of ris- ing and declining hegemony. Goldstein (1985, 1986) reported results for cycles in great power war severity from 1495 to 1975 which are re- lated to Kondratieff price and growth cycles. Goldstein suggests a se- quence of growth cycles leading war cycles by five-ten years and price cycles by ten-fifteen years.

A cursory inspection of the movements of financial cycles and other cyclical processes within the world-system suggests no simple correla- tions. Thus, in the early 1820's colonial expansion and capital exports are inversely related (downswing in colonial expansion and boom in sovereign borrowings). The boom in capital exports from cores during the 1860's and early 1870's, however, occurred during a period of stag- nating colonial expansion whereas the upswing in foreign borrowing

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before the First World War is associated with rising colonial expansion - a pattern assumed by Lenin in his theory of imperialism. Similarly, the relationship between cycles of colonial expansion and defaults seems to be ambiguous: The peak in defaults in 1828 coincides with a trough in colonial expansion whereas the defaults during the 1930's occurred during a peak in colonialism. In any case there is no evidence that de- faults generally lead to formal political control of debtors by creditor nations as it might be suggested from the experiences of individual pe- ripheral debtors (e.g., Egypt).

More promising is the combination of the default cycles with pe- riods of openness and closure in international trade. Thus, one may argue that troughs in the default/rescheduling cycles (1855-71, 1905-13, 1955- 78) coincide with periods of relative openness in international trade (i.e., 1820-79, 1900-13, 1945-70) whereby the trade structure leads on the default/rescheduling cycle by some years. Conversely, peaks in the default/rescheduling wave (1876-80, 1932-45, 1982-) are roughly associated with phases of closure in international trade (1978-1900, 1918-39, 1975-). This relationship corresponds with the reasoning of this study that one principal factor contributing to the emergence of debt crises is the decline in export revenues of peripheral debtor coun- tries partly caused by recession and protectionist trade policies of core countries.

This short discussion of relations among different world-systems cy- cles clearly reveals the need for further theoretical and empirical work. At present there is only a very limited knowledge about the exact cau- sal relationship between different types of world-systems cycles.

NOTES

1. Apart from Kuznets and Kondratieff cycles other long-term cyclical movements have been discussed in the literature as well, i.e., the world leadership or hegemonic cycle (100-150 years) and the "logistic" cycle (roughly 200 years). An important elaboration of the cycle con- cept is suggested by Goldstein's discussion of "cycle time" (1986).

2. In a re-examination of his approach Ihomas (19/2) takes into account monetary îor- ces to explain the change from expansion to contraction in the course of a long swing.

3. Contemporary supporters of Kuznets cycles, however, have tried to broaden the con- cept of Kuznets cycles into a more general theoretical model (cf. Easterlin, 1968).

4. The terms of trade data used by Rostow, however, have recently been criticized by Bairoch (1986: 205) who argues that Hilgerdt's estimates (on which Rostow's cycles are based)

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are heavily biased. Bairoch argues that the terms of trade of primary goods exporting de- veloping countries improved durine the nineteenth century and up to the end of the 1920's.

5. Direct estimates of new foreign capital issues have been developed by Jenks (1929: 419-426), Hobson (1914: 219), Cairncross (1953: 183) and Simon (1967). The second method (capitalizing yields) has been used by Paish (1909) and Feis (1930), and the indirect method based on the balance of payment accounts by Hobson (1914), Cairncross (1953), and Imlah (1958) for Great Britain; White (1933) and Lévy-Leboyer (1977b) for France; and Williamson (1964) for the United States.

6. The statistical material presented by Simon (1967) shows the same cyclical pattern for direct estimates of new foreign capital issues in Great Britain. The geographical break- down suggests that this pattern of Kuznets cycles is confined to North and South America, i.e., to the principal areas integrated into the Atlantic economy (e.g., the United States, Ca- nada, Argentina). Conversely, the figures for Continental Europe show cyclical fluctuations of the Kondratieff type.

7. The peak in the 1820's for the British series becomes more clearly visible when growth rates of total accumulated credits abroad are calculated.

8. More case studies representing a wider variety of experiences are given in Suter and Pfister (1989) and Suter (1989).

9. Cotton was the most important commercial commodity of the antebellum economy. It was the largest export good accounting for roughly half of total U.S. exports during the 1830's (Temin, 1969).

10. The contribution of foreign capital to the development of the U.S. railway system before the Civil War has been estimated at only 10% (Platt, 1984: 159).

11. Chase-Dunn (1980: 218) argues that the free farmers of the West are virtually core producers. The rising grain prices of the late 1840's and early 1850's, however, caused the farm- ers to shift from supporting protectionism to favoring free trade.

12. The series for the United States and France show, however, high levels of net capital movements in this year (inward for the U.S. and outward for France).

13. The nine states were Arkansas, Florida, Illinois, Indiana, Louisiana, Maryland, Mich- igan, Mississippi, and Pennsylvania.

14. However, the state of Mississippi was still in default in 1985 (sic!) with respect to two bonds issued in the 1830's amounting to $7 million (Corporation of Foreign Bondholders, 1985).

15. The ten states were Alabama, Arkansas, Florida, Georgia, Louisiana, North Car- olina, South Carolina, Tennessee, Virginia, and West Virginia. In addition, Minnesota was in default since 1859.

16. The principal cases were the repudiations of Czechoslovakia in 1959, Cuba in 1961, and North Korea in 1974. Between 1957 and 1959 Egypt was in default, too (Corporations of Foreign Bondholders, Annual Reports).

17. The two most important forums of creditors are the Paris Club of official creditors which emerged from the 1956 rescheduling granted to Argentina, and the London Club es- tablished around 1980 by international banks.

18. One may, however, argue that the financing of liberation is a productive investment in the long run since it establishes the nation-state which is an institutional prerequisite of the industrial-capitalist mode of accumulation.

19. There is a growing literature dealing with the concept of world leadership cycles; among others see Chase-Dunn (1978), Modelski (1978), Research Working Group (1979), Bousquet (1980), Vàyrynen (1983), and Goldstein (1985). The various approaches differ with respect to the explanation of hegemonic cycles. Chase-Dunn, the Research Working Group, and Bous- quet link leadership cycles closely to the course of Kondratieff growth cycles. According to their view hegemony is based on competitive advantages in the world-economy due to the first re- alization of new basic innovations. Conversely, Modelski relates the emergence of world lea- dership to global war cycles.

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