Thus, in the 1970s, when faced with the choice between meeting the demands from below for the fulfillment of the hegemonic promises or the demands fr om capitalists for a restoration of favorable conditions for capi­tal accumulation, metropolitan states attempted not to choose. In response, capital went "on strike." An increasingly mobile capital "voted with its feet, " not only by intensifying and deepening the geographical relocation of pro­ductive capital to lower-wage areas but also by accumulating capital in liquid form in proliferating offshore tax havens. And to the extent that industrial production still took place in the core, technological fixes and a grow­ing reliance on immigrant labor became increasingly important capitalist strategies.

Initially, the financial fix further strengthened the bargaining power of workers in the Second and Third World states. In the 1970s (in sharp contrast to what would happen in the 1980s), loan capital flowed freely to Second and Third World countries. With capital "on strike" in the First World, and with an excess accumulation of petrodollars to re­cycle, First World bankers were eager to make loans on easy terms to Second and Third World governments. Thus, for example, in 1981 (the eve of the debt crisis), First World banks loaned approximately $40 billion (net) to Second and Third World countries (UNDP 1992). Debt became an important mechanism through which the contradictions of the post­war developmentalist social contracts were managed in the short run. In Poland, for example, extensive overseas borrowing allowed the Polish gov­ernment to promote rapid industrialization. At the same time, borrowed funds were used by the Polish government to accommodate the periodic upsurges of labor militancy in the 1970s, making it possible for the gov­ernment simultaneously to increase wages and food subsides, expand em­ployment, and maintain high levels of capital investments. In the 1970s, the Polish government expected that industrialization would lead to a surge in exports, allowing the government not only to pay back the loans but also to increase national wealth and finally deliver on the promises of socialism to a restive working class (Silver 1992: chapter 2; Singer 1982).

Needless to say, managing the contradictions of the developmentalist social contract through debt was a highly unstable solution. To the extent that Second and Third World states used the borrowed funds to promote further industrialization and/or expand state employment in social services, the marketplace bargaining power (and potentially the workplace bargain­ing power) of labor was strengthened. If they attempted to accommodate this growing strength of labor, they risked losing further access to foreign investment funds and/or becoming internationally uncompetitive and thus unable to pay the accumulated debt service through exports. If they failed to accommodate the growing strength of labor, they risked a crisis of legitimacy for having failed to deliver to the masses the expected ben­efits of national sovereignty (or social revolution) and industrialization! modernization. The social compacts in Second and Third World coun­tries thus faced contradictions analogous to those plaguing core social contracts.