The Haves and the Have Nots

As the world has proceeded from the “oil crisis” of 1973-1974 to the confrontation between the beneficiaries and the victims of the existing international order, which is the overriding issue looming up in 1976, it has become obvious—if it was not obvious before—that we stand at a watershed in world history. What is at issue is the validity, or at least the acceptability to the majority of the world’s inhabitants, of the economic system which has dominated the world since the great outward thrust of the industrialized West a century ago.

But if the issue is straightforward enough in absolute terms, it is a good deal less straightforward in practice. Anyone can see why the Third World countries, with 70 percent of the world’s population, reject a system which awards 70 percent of the world’s income to the other 30 percent of its inhabitants. The real question is whether their proposals for a “new international economic order” are viable, and whether they have the strength and resolution to carry these proposals through.

No one supposes that the rich nations are simply going to capitulate to the demands of the poor nations, but no one supposes, either, that the views and interests of the poor nations can simply be ignored, as they were ignored in 1944 and 1945 when the present economic system was put together. On the other hand, those who reject the whole idea of a “new international economic order” as utopian and impracticable have still to show how it is possible to make concessions to the developing countries sufficient to satisfy their demands, and yet maintain the existing system intact.

It is hardly necessary to add that there are other complications, too. The Third World is certainly not a single homogeneous bloc, but neither are the advanced industrial nations. Though the developing countries have held together so far a great deal better than many observers predicted, it is still too early to say that they will succeed in maintaining their solidarity; but the same is true of the rich Western countries, whose interests conflict at least as sharply as those of the poor.

It is not merely a question of defections and the breakdown of existing alignments. There is also the possibility of the formation of new fronts, or new economic blocs, cutting across the present dividing lines. Furthermore, no assessment which leaves out the Soviet Union and the other socialist countries is likely to get us very far. The role of the communist countries is hard to define, but it cannot simply be ignored. As a writer who is not a Marxist recently pointed out, Moscow may turn out in many respects to be the best bet for Asians, and there is a “real possibility” that China may emerge as “one of the great bridging nations between the industrialized and non-industrialized worlds.”¹

All these are considerations which any realistic assessment of the current situation must take into account. It is far too easy to assume that the demise of one international order will automatically be followed by the rise of another, and that “those who resist change” (as the spokesman for one underdeveloped country recently proclaimed) will be “swept away by the relentless march of events.”² That, alas, is not my interpretation of history. The tenacity of the old order should not be underestimated.

But even if those who resist change are eventually swept away, there is still the question whether the outcome will be a “new international order” or a new international anarchy, to say nothing of the alarms and tensions we shall experience during the interval. As the Indonesian diplomat Soedjatmoko once observed, there is no “automaticity” about the emergence of a new international system, and nothing could be more deceptive than to suppose that the changes apparently under way at present are more than stages down an uncharted road.³

I

Signs of change had been visible—for those who wanted to see them—ever since the first meeting of the United Nations Conference on Trade and Development (UNCTAD I) in 1964. The first three UNCTADs, it is true, were more a portent than a threat. The dissatisfaction of the Third World was obvious, but so was its inability to do anything about it except grumble. The two events that changed the situation were the oil crisis of October 1973 and the formation of a common front between OPEC and the other developing countries at Algiers in March 1975.

To begin with, the short-term effects of the sudden, sharp rise in the price of oil got much more attention than the long-term consequences. In retrospect, the long-term consequences were far more important. The adverse effects predicted for the Western economies were greatly exaggerated; the Western countries quickly learned to live with expensive oil, and almost to like it. The long-term implications of the OPEC action were far more significant. This (as one shrewd observer put it) was “the first time since Vasco da Gama” that the “peripheral countries” had wrested mastery over “a crucial area” of economic policy from the “center countries” of the industrialized world.⁴ The question thereafter was whether it would be the last.

What is certain is that, by the summer of 1975, the threat was sufficiently acute to force the Western countries to revise their tactics. There is no need to trace once again the stages in the evolution of Kissinger’s policy.⁵ The simple fact is that the industrial nations were faced, or thought they might at any moment be faced, by the possibility of a revolt of the underprivileged, which threatened at least to limit their access to the raw materials upon which their manufactures depended.

Though oil and food, the questions which had loomed largest in 1973 and 1974, still remained important as weapons in the global confrontation lying ahead, the key issues were now commodities and commodity agreements, the operation of the international monetary system, and the assertion by the developing countries of the right to control their own resources and their own economic development, without hindrance from the West.

These were the dominant issues when the Seventh Special Session of the United Nations assembled in New York last September. It looked at first as though they would produce a head-on collision between the Third World and the industrial nations. In the end confrontation was avoided, though the issue hung in the balance until the very last moment. The reason—or at least one operative reason—was that the rich countries, instead of seeking a showdown with the Third World, chose to concentrate their efforts on “bringing order into world raw material markets, not to mention ensuring their own raw material supplies.”⁶ That they did so “out of a spirit of self-interest rather than charity” is not particularly surprising or particularly important.

When the special session adjourned on September 16, both sides claimed to have achieved most of what they set out to do. In fact, the West, particularly the United States, appeared to have got the better of the bargain.⁷ On paper at least, the poor nations accepted the dilution of most of their more radical propositions. In particular, their demand for a “new international economic order”—the demand Kissinger had so vehemently denounced in his Kansas City speech the preceding May—was side-stepped and ignored in the final resolution.

They also retreated on specific points, such as “indexation,” or the tying of the price of raw materials to the price of manufactures, a proposal viewed with horror in the West as likely to lead to steep increases in manufacturing costs. “We broke the back of indexation!” an exultant Moynihan exclaimed. But if the developing countries got less than they had bargained for, so also did the West. In particular, the final resolution specifically avoided the question on which the industrialized countries set greatest store: namely, guarantees of stable commodity supplies. In spite of verbal compromises, in short, no one gave anything away in substance.

The truth is that the special session marked a beginning, not an end; and though the world heaved a sigh of relief when the meeting passed without an open breach, it is still far too soon to say that the danger of confrontation has passed. A conflict postponed, the old adage has it, is often a conflict avoided; but while this may be true provided both sides are operating within a given framework of ideas, what if they are not?

II

The Seventh Special Session is the obvious place to begin any assessment of the current situation, and anyone who takes the trouble to read through the long, tediously repetitive documentation will soon be forced to ask whether, in spite of the present lull, the aims and interests of the industrialized countries and those of the developing countries are ultimately reconcilable.

Analysis of the documentation must, it is true, be undertaken with caution. The real work of the session was done behind locked doors, and little is known in detail about what went on. What we have are the set speeches, most of them addressed to the gallery or prepared in advance with the object of scoring debating points. We should certainly be foolish to take them all at face value. Nevertheless they enable us to pinpoint the main arguments and to perceive both the short-term tactics and the long-term objectives of the different groups and parties.⁸

It was the Jamaican representative who put the central issue in a nutshell. “The developing nations,” Mr. Thompson said, “seek not a new deal, but a new order.” What the United States and most of the other industrialized countries proposed was a new deal. They offered, in the words of the Washington Post correspondent, “the patching up of the existing system to compensate the poor for the disadvantages they suffer under it.”

On the face of it, the American proposals appeared to recognize the validity of some at least of the Third World complaints. Kissinger and Moynihan agreed that “the methods of development assistance of the 1950s and 1960s are no longer adequate,” and accepted the Third World view that fluctuations of commodity prices and export earnings “can make a mockery of development plans.” But when they descended from generalities to practical measures, the American proposals, as set out in the US position paper and elaborated in Kissinger’s speech, soon dispelled any notion of a meeting of minds.

Granted that the old methods were inadequate, the practical question was what to put in their place. With official aid down from the target figure of 0.7 percent of gross national product to a beggarly 0.3 percent (0.2 percent in the case of the United States), the developing countries proposed, instead of voluntary transfers, dependent on the fluctuating political will of the rich nations, a system of international financing from such sources as royalties from sea-bed mining and a tax on nonrenewable materials. Kissinger’s reply was to direct them to “the vast pool of private resources” (in other words to the Eurodollar market), although everyone knew, as William E. Gibson of the Chase Manhattan Bank was quick to observe, that the likelihood of “private capital flows” on any appreciable scale was minimal.⁹

In addition, Kissinger put forward a scheme for the creation in the International Monetary Fund of “a new development security facility to stabilize over-all earnings.” It was scarcely the solution the developing countries had in mind. Their aim, as the London Sunday Times correspondent observed, was not to place themselves even more tightly in the clutches of the IMF, where the rich countries had a preponderant voice, but “to see the prices of their exports stabilized inside proper internationally negotiated commodity agreements.” In their view, Kissinger’s proposal was “a means to sabotage any such plan.”

If one key point in Kissinger’s message was that the developing countries must depend on private loans and investments, not on official aid, for their capital needs, the other was an unqualified rejection of a comprehensive and coherent commodity policy, such as had been put forward earlier in the year by the UNCTAD secretariat. ¹⁰ In the eyes of the developing countries, this was the only way to ensure steady development, free from market fluctuations. Kissinger, on the other hand, insisted that “there is no single formula that will apply equally to all commodities,” and advocated instead a “case-by-case” approach.

Whether this was an attempt, as the Iraqi representative alleged, “to drive a wedge between the developing countries” and “prevent them from co-operating among themselves,” is perhaps a matter of opinion. What was certain was that a “case-by-case” approach created more problems than it solved, and the position was not improved when Kissinger declared his readiness to negotiate agreements on copper and tin. As everyone knew, these were the two commodities, apart from oil, in respect to which the United States was peculiarly vulnerable, and the very fact that he was prepared to compromise over them encouraged the suspicion that he had no intention of budging where other Third World products were concerned.¹¹

What Kissinger offered was an intricate package of innocuous-looking but suspiciously complex provisions, most of which were contingent upon action by someone else. He promised $200 million to the Fund for Agricultural Development, but only if other countries contributed at least $800 million; he offered to support the International Development Association, but only on condition that a “significant contribution” was forthcoming from the oil-exporting countries—a proviso that immediately provoked the latter to retort that, however much aid they provided, it was not to be regarded as “a substitute for the assistance that should be provided by the more advanced countries.”

The trouble with Kissinger’s “gimmicky schemes” (as the Sunday Times correspondent disrespectfully called them) was that they went nowhere toward “compensating for insufficient trade and aid.” What was needed, the Swedish representative remarked, was not a “proliferation of new funds,” but increased use of existing channels.

More fundamental than these criticisms, however, was the fact that Kissinger’s piecemeal proposals rested on three basic assumptions which almost directly controverted the postulates of the developing countries. The first was the soundness of the existing economic system, the assumption that it had only temporarily been thrown off keel and would soon be working smoothly again. The second was the reciprocal interest of the industrial countries and the developing countries in maintaining and developing it. The third was the dependence of the poor upon the prosperity of the rich.

“If global progress in economic development falters,” Moynihan assured an incredulous assembly, it was the poor countries—not Italy, teetering on the edge of bankruptcy, or the United Kingdom—that would be “submerged.” “The economic health of the industrial countries,” Kissinger pontificated, “is central to the health of the global economy”; or, as an American commentator somewhat disingenuously put it: “The most important single thing the OECD countries can do for the Fourth World is to continue to prosper.”¹²

For the countries of the Third World these hypotheses were a good deal less self-evident than Kissinger and Moynihan chose to assume. The Guyanan representative refused to believe that “improvement in the condition of the developing world” must “remain a mere footnote to the prosperity of the developed world.” But the most explicit rejection of Kissinger’s arguments came from Indonesia. The problem, Mr. Malik argued, was not “a temporary breakdown or stagnation in the machinery of world economic development,” and therefore “one that may be overcome by patchwork solutions,” but “structural imbalances” and a “structural crisis” that “require integral and institutional reform.” In other words, it was the system itself, “as it now operates,” and the maladjustments inherent in it, that were “the source of the present upheavals.” That was why the developing countries called for a “new international economic order.”

Mr. Malik’s diagnosis went to the heart of the matter. Anyone reading the speeches of Third World spokesmen at the Seventh Special Session might be excused for supposing that, when they alluded to “structural imbalances” and called for a “new economic order,” they were simply complaining about Western preponderance in institutions such as the IMF and the World Bank, about trade discrimination, or the alleged manipulation of developing economies by Western-based multinational corporations. All these things loom large—perhaps too large—in Third World rhetoric. They were seen, not without reason, as symbols of the current disbalance. But the real issue went deeper.

More votes at the World Bank, new rules for the operation of multinational corporations, or reduced tariffs and better terms of trade were useful short-term objectives; but by themselves they could never eradicate the “tradition of unequal development” which condemned the developing countries to a subordinate place in the world economy. In the long term, as delegate after delegate pointed out, there was only one way to bring about a “new economic order,” and that was “to accelerate the industrialization of the developing countries.” Behind all the rhetoric at the Seventh Special Session—and there was plenty of it—this was the essential point; and characteristically it is the one that has received least attention. Comment at the time, and later, seized on the short-term demands of the developing countries; but on any long-term assessment by far the most important objective they announced was their determination to raise their share of world industrial production from its present level of 7 percent to 25 percent by the year 2000.

It is important to understand what the realization of this target would mean for the Western economies. An increase from 7 percent to 25 percent over a period of twenty-five years may, as one Third World delegate claimed, be “a very modest objective.” Conceivably, it could be absorbed without dislocation, if we assumed a continuing high level—8 percent per annum or more—of world industrial growth. On current projections of an average annual growth rate of 5 percent—projections more likely to be optimistic than pessimistic—the picture is very different. According to the calculations of Arthur M. Okun of the Brookings Institution, this is barely more than is necessary just to keep unemployment in the United States down to its present inflated level.¹³ If, moreover, in addition to the 25 percent of world industrial production to which the developing countries are laying claim, we allow for the share of the socialist countries, which is also growing at a rapid pace, the only possible conclusion is that a “new international economic order” means a radical change in the structure of world industry, a new international division of labor, and a drastic shift in the relative position of the Western world.

It implies, in short, that by the year 2000 the wheel which carried the West to pre-eminence in 1900 will have turned again. The question is whether a change of this magnitude is really in the cards, or whether the West will fight back and manage to keep the existing order more or less intact.

Down to the spring of 1975, Kissinger’s policy was to build a common Western front to oppose the Third World’s demands. In retrospect it is remarkable how little success he had. Few things at the Seventh Special Session were more surprising than the extent of support for the Third World’s position forthcoming from Western countries. The British foreign secretary unequivocally endorsed the view that “the balance between the rich and poor countries of the world is wrong and must be remedied.” The Dutch questioned and rejected the stock American argument that the prosperity of the rich benefited the poor “by a more or less automatic process of ‘trickling down’ “; the Swedes challenged Kissinger’s reiterated assertion that “the present international economic system has served the world well”; and the French foreign minister, M. Sauvagnargues, stated point-blank that “the forces of the marketplace…are blind and merciless to the weak.”

These were all striking endorsements of the Third World position. It was noteworthy also that the European Economic Community came out officially in favor of an “over-all approach” to the question of raw materials, which the United States had rejected out of hand. But perhaps the most striking fact of all was the support given by a number of Western countries, notably France and Norway, to the long-term demand of the Third World for an increased share of industrial production, notwithstanding the far-reaching changes in their own economies such a redeployment of world industry would necessitate. The “whole problem,” the French foreign minister declared, was whether the rich countries were ready to accept “the principle and the consequences of accelerated industrialization” in the Third World or not. This, in the words of the Norwegian representative, was the “challenge” all industrialized countries must ultimately face; but nothing in Kissinger’s speech indicated that the United States was ready even to consider it.

These differences are significant because they show how little likelihood there is of lining up the industrial nations in a solid bloc behind the United States, in the event of a confrontation; which, no doubt, was one reason for the more conciliatory position adopted by Kissinger. At the same time, it is true that similar differences were apparent among the Third World delegations—between the shrill denunciation of “multinational sharks” and “aggressive imperialist machinations” by the Afro-Asian People’s Solidarity Organisation, for example, and the measured call by Brazil for “co-operation based on mutual interest” and “equivalent concessions.”

If we ask why the Seventh Special Session ended with a long, innocuous, and almost meaningless compromise agreement, the answer will be found, ultimately, in the lack of solidarity on both sides. Instead of the expected line-up of the “have-nots” against the “haves,” it looks more likely, on present showing, that the outcome will be the emergence of new blocs and a return on a global scale to the conditions of the 1930s, which Moynihan described as the recipe for “economic and political disaster.” To this we shall return.

Meanwhile the United States finds itself in an unenviably exposed and vulnerable position. Even in the industrialized world only two countries, West Germany and Japan, share whole-heartedly the American belief in the continuing efficacy of the free-market economy. “Our task,” the Japanese spokesman proclaimed, “is to continue to make the best use of the merits of the free trading system—indeed, to improve and strengthen” it.

But it was the representative of the German Federal Republic who was most outspoken in defense of the existing system. Dr. Genscher did not mince words. The remedy for the problems of the underdeveloped countries, he asserted, lay “in the improved functioning of market mechanisms.” The aim must be “reform of the existing free market system,” not a “flight into worldwide bureaucratic dirigism,” which would paralyze its efficiency. The “task of reform” was “to preserve the efficiency of the market, but at the same time to link it with effective help for the weak.”

Dr. Genscher’s arguments encapsulated the classical defense of the capitalist economy. They were important because they brought into the open the fundamental issues which Kissinger, anxious to ease the growing tension between rich and poor, did his best to gloss over. The question is whether, behind the differences of formulation and tactics, there is a difference of aim. Most of the delegations at the United Nations thought not. That is why, having listened to Moynihan setting forth the American proposals at length, their response was to ask what Kissinger’s “real motives” were. The answers they came up with were less than encouraging.

III

On a purely tactical level Kissinger’s objectives were never in doubt, and he made little effort to conceal them. His target was still the oil-producing countries, his aim to sow dissension and drive a wedge between OPEC and the other developing countries by blaming the oil producers for the plight of the poor and deriding the amount of OPEC aid. “Nations with radically different economic interests and with entirely different political concerns,” Moynihan declaimed, “are combined in a kind of solidarity that often clearly sacrifices practical interests.” And to make his meaning plain he warned the poor that, if they divided the world into competing blocs, they would cut themselves off “from the sources of capital and markets essential to their progress.”

Kissinger’s first objective was to prise apart the solidarity of the developing nations. His second was to keep the Third World open for private enterprise by defending the role of the multinational corporations (this, he said, was the “test of our capacity to accommodate mutual concerns in practical agreement”) and by forcing the developing nations to turn to private investors and the private capital market for finance, at the same time warning them that “investment will only take place if the conditions exist to attract or permit it.” He also insinuated that only “developing countries ready to enter long-term capital markets” could expect “technical assistance and expertise.” On the very last day of the meeting, the US delegation put up Jacob Myerson to reject, on Kissinger’s behalf, “any system that would artificially regulate world trade,” and to register, for the record, a protest that the United States “cannot accept any implication that the world is now embarked on establishing something called “the new economic order.’ “¹⁴

Not surprisingly, the OPEC countries reacted strongly to the accusation that they were failing “to meet their responsibility for assistance to the poorer countries.” When Moynihan contemptuously assessed their aid disbursement at two billion dollars, Iran, Iraq, Saudi Arabia, Kuwait, and others all produced facts and figures of a totally different dimension. Western experts have spent much time examining these figures and trying to determine exactly what they amount to.¹⁵ It is not a very useful exercise. What is abundantly clear is that, by comparison with the paltry Western contribution, down to 0.33 percent of GNP in 1974, the oil producers were giving on an incomparably larger scale, and this not only in percentage terms. Even in absolute terms, the representative of the United Arab Emirates asserted, his country’s aid effort “exceeded that of many of the major developed countries.”

Behind this barrage of tedious charges and countercharges there were, of course, more fundamental issues. In seeking to discredit OPEC, Kissinger’s aim was to persuade the developing countries that their interests would best be served by cooperation with the West. These (some readers may recall) were the tactics employed twenty years ago when Dulles and Khrushchev were competing for the allegiance of the uncommitted peoples of Asia. All that has changed today is the adversary. Twenty years ago the upshot was Walt Rostow’s once famous “take-off” theory—an overtly political instrument of cold war ideology¹⁶—designed to convince the nonaligned countries that the West, not the Soviet Union, held the key to successful development, and that it was to their advantage to climb on to the Western band wagon. The equivalent today of Rostow’s “take-off” theory is the thesis of interdependence. The one is as specious and as politically inspired as the other.

For twenty fateful years the underdeveloped countries largely accepted Rostow’s argument that the shortest road to prosperity was development on the Western model and integration into the capitalist economic system. By the beginning of the 1970s confidence in his underlying assumptions had worn thin. What, economists began to ask, if the “Western paradigm” were “false,” or at least if it were inapplicable to the “structural conditions which prevail in today’s underdeveloped nations”?¹⁷ The Western reply was to soft-pedal the thesis of “take-off” and replace it with the concept of interdependence, coupled with an assurance that the existing system can be reformed in such a way as to produce greater equality and make interdependence a reality.

This is the refrain of organizations such as the Trilateral Commission and the Institute on Man and Science,¹⁸ it might almost be called the new American consensus. The trouble is that the promise of “gains to all parties within a benevolent framework” (to quote the words of a Twentieth Century Fund report) is too good to be true. As the Tanzanian representative at the United Nations acidly observed, interdependence “among unequal partners” can only result in “the exploitation of the weaker partners.”

It is, of course, perfectly true, as the system works today, that the economies of the developed and underdeveloped countries are interdependent. Moynihan was simply stating a fact when he told the Seventh Special Session that “exports of primary products—raw materials and other commodities—are crucial to the incomes of developing countries.” At the present time between 80 percent and 90 percent of their export earnings are derived from primary products; more than 80 percent of their foreign exchange accrues from exports to the industrial countries.¹⁹ But it is quite another thing to assume, as Western comment almost uniformly does, that the international division of labor which this implies reflects an immutable law of economic life.

The picture of the world presented by the Trilateral Commission—a world in which the developing countries serve as “sources of raw materials” for Western industry and as “export markets” for Western manufactures²⁰—has an engaging symmetry; but only those stuck in the imaginary world of old-fashioned textbook economics will suppose that this arrangement is preordained by divine purpose. It may be true, as the distinguished Princeton economist Sir Arthur Lewis long ago pointed out, “that the prosperity of the underdeveloped countries has in the past depended on what they could sell to the industrial countries; but there is no reason why this should continue.”²¹

For the underdeveloped countries of the Third World the corollaries of rejecting the “Western paradigm” are far-reaching. The first, clearly enough, is the need for a new and radically different development strategy. The second is the awakening of doubts about the desirability of integrating their economies in the Western system. As the Hammarskjöld Foundation has pointed out, the assumption that the development of Third World countries would be promoted by integration into the free world economic system has simply not been borne out by events. On the contrary, “integration increased dependence and reduced the capacity for self-reliance.” It meant that “a country had to produce what the system would buy at a price the system would pay,” and not “what the majority of its people needed.”²²

To see what this means in practice it is only necessary to look at the consequences for those underdeveloped countries supplying agricultural produce—pineapples, peanuts, asparagus, coffee, or whatever else—to the world market. The first problem is the diversion of land—almost always the best arable land—from basic food crops (millet or sorghum, for example) to profitable cash crops for export. The almost inevitable result is that it becomes necessary to import an increasing quantity of basic foodstuffs from abroad. In fact, cereal imports of developing countries rose from 12.4 million tons to 60 million tons between 1951 and 1974, and prices rose accordingly. Theoretically, exports should have paid, or more than paid, for imports. In real life it proved different. In the Ivory Coast, for example, imported protein in canned meat, milk, and fish cost eleven times more than the revenue derived from protein exported in the form of peanuts and oilseed cake.²³ The result of subordination to the world market, in short, was that, by the end of 1975, the non-oil-producing developing countries were spending almost as much on imported grain as on imported oil.²⁴

The conclusion to be drawn is obvious enough. Put at its simplest, it suggests that “the strategy of integration into the world economic system…is bankrupt,” or at least is bankrupt “on the only terms on offer.”²⁵

It would require far more space than is available to show, even in bare outline, why this is the case and how disadvantageously interdependence has worked out for the underdeveloped world. But two points are particularly relevant. The first is that, since marketing and processing are in the hands of foreign and multinational enterprises, the bulk of “value added” (and therefore of profit) goes to the middleman and not to the developing countries. According to recent calculations, only 10 percent of the final value of their primary exports accrues to the developing economies; which means, among other things, that they are denied the capital accumulation so necessary for their development.²⁶

The second point is that this disadvantage, far from being mitigated, is compounded by the operation of the international monetary system. “The fundamental weakness of the existing international economy,” a contributor to a recent Brookings Institution symposium concluded, “is the arbitrariness of the international income distribution, and the unwillingness of the international community to take coherent action to redistribute income.”²⁷

Calculations by Professor Robert Triffin of Yale University show only too clearly what this means in practice. In spite of “pious resolutions…calling for an acceleration of capital exports” from the rich countries to the poor, Triffin has demonstrated, the former received 97 percent, the latter only 3 percent of the $103 billion of international reserves created during 1970-1974.²⁸ Meanwhile, the “surpluses obtained in Third World countries were being transferred to the owners of capital, technology and managerial skills in the developed countries.” Not surprisingly, the Tanzanian representative at the United Nations concluded that “the principle of free movement of capital” had not benefited and cannot benefit the poor nations. ²⁹

What is at issue in the end is the concept of interdependence itself. Whether or not the leaders of the Third World are justified in regarding interdependence as simply another Western confidence trick, the Indian economist Samuel L. Parmar is certainly correct when he says that it is “an optimistic oversimplification” to suppose that “a facile complementarity can be brought about between the interests of developing and developed nations by making a few changes in the patterns of international economic relationships.”³⁰

That is why the concept of a “global economic bargain,” as sponsored by the Institute on Man and Science, rings so hollow.³¹ If, as Western writers constantly assert, “steady growth and high employment in the industrial countries are essential conditions for…economic progress in the non-industrial nations,” it is high time they answered the question why the Third World lagged behind so disastrously between 1950 and 1970, when the Western economies were growing at phenomenal speed. So far they have not done so.

The truth about interdependence as conceived in the West is (in the words of a member of the US Army War College) that it is “asymmetrical.” It is, in other words, “a lopsided interdependence…in which the United States is seen as gaining most,” ³² and no one has yet shown how, short of revolutionary changes in the whole international economy, the lopsidedness can be eliminated and the system made to work equitably.

This is the fatal weakness of all proposals for reform. Merely to maintain their “steady growth,” Samuel L. Parmar points out, the industrial countries must continue to appropriate a totally disproportionate share of the world’s raw materials and energy output, and redistribution would only be possible if the developed nations were willing to accept “a new style of life” and “a new economic system.”³³ Anyone who believes the United States is about to do this, except under irresistible pressure, is living in cloud-cuckoo land.

What all this adds up to is the need, so far as the Third World is concerned, for a new development strategy. It must be a strategy which does not rely, as plans for the First and Second United Nations Development Decades relied, on the generosity and good will of the industrialized nations. Essentially, the strategy of the First and Second Development Decades was based on aid and trade—that is to say, on the undertaking of the wealthy nations to make 0.7 percent of their gross national product available as Official Development Assistance (ODA) and to dismantle tariff and non-tariff barriers hampering the trade of the developing countries. Today, with the United States’ ODA down to 0.2 percent and GATT bogged down in interminable wrangling, it is obvious that neither is forthcoming.³⁴

But it is not merely that the policy of reliance on the West has proved a broken reed. More important is the realization that it was a mistaken strategy. The idea that what was needed was more foreign assistance, more foreign investment, and more imported technology has not helped to solve the Third World’s basic problems. That is why, since 1974, “the developing countries have set their own priorities for a new international economic order instead of accepting the industrialized world’s perception of its own particular interdependence with raw material suppliers.”³⁵

IV

Ever since Sir Arthur Lewis shocked his fellow economists by asserting that there was no reason on earth why the countries of Asia, Africa, and Latin America should not continue to develop, “even if all the rest of the world were to sink under the sea,” the cat has been among the pigeons.³⁶ Lewis, after all, is one of the most respected of international economists and consultants; he has served simultaneously as president of the Caribbean Development Bank and as James Madison Professor of Political Economy at Princeton. His statement not only implied a rejection of the “interdependence thesis”;³⁷ it also called in question, whether deliberately or not, the hallowed principle of liberal economists that the key to economic progress is an open world economy.

As Seyom Brown of the Brookings Institution has observed, economic interdependence involves “the capacity of societies to harm one another as well as to advance one another’s welfare”;³⁸ and the burden of Lewis’s argument is that the free flow of trade and investment—at least in recent times—has done more harm than good to the underdeveloped countries. Even the Institute on Man and Science now admits that some of them “might be better off closing themselves off from the West.”³⁹ This conclusion, incidentally, is amply borne out by the experience of the 1930s.⁴⁰

Lewis’s contribution was to demonstrate, clearly and coolly, the errors and inadequacies of the development strategies hitherto pursued by Third World governments. Did it make sense, he asked, for the developing countries to try to compete with OECD in OECD markets, instead of building up trade among themselves? Was it really true that “the chief way to expand tropical trade” was “to sell more to the temperate countries”? What sense was there in using their best lands to grow coffee, tea, cocoa, sugar, cotton, and rubber, “all of which are a drag on the market,” when there is “a booming market” for cereals, livestock products, and feeding stuffs? And as for industrialization, was it good policy to develop light manufactures—textiles, footwear, electronics, and the like—where competition is cut-throat and the market rapidly saturated? No law of nature, Lewis asserted, laid down that the developing countries must concentrate on light rather than heavy manufacture and import their machinery from the industrialized world instead of establishing their own metal-using industries, “which is where employment is really to be found.”⁴¹

The cardinal error of the underdeveloped countries was to adopt the ideology of growth and gear their industrialization to gross national product rather than to employment. Investment creating employment, Lewis argued, was preferable to “investment that would increase GNP rather faster.”⁴² Nothing was easier than to use foreign investment to boost industrial growth; but growth rates of 8, 10, or even 15 percent per annum were “more spectacular as statistics than in their contribution to national income.” Actually, Lewis demonstrated, something like 75 percent was being milked off by the foreign investor, or remitted abroad for interest, capital repayments, or machinery replacement. Hence the absurd result that “the underdeveloped country’s savings give employment to the machine-makers of foreign countries.”⁴³

Furthermore, while industrial investment might boost aggregate GNP, there was no guarantee that it would meet the real needs of underdeveloped societies. What the developing countries needed most, Lewis asserted, was not more factories, but “big rural public works programmes.” Still less did they require (as another writer pointed out) the night clubs and high-rise condominiums that meet us in city after city, from Bangkok to Brasilia, when the crying need is for schools, hospitals, and slum clearance. The conclusion was obvious. Concentration on economic growth before the inherited colonial pattern of the economy had been changed could only serve to strengthen the foreign at the expense of the domestic sector, distort the use of resources, and aggravate maldistribution by widening the gap between the small affluent class and the large low-income groups. ⁴⁴

V

Lewis’s analysis was important because it showed that the development strategy pursued by the majority of developing countries in the 1950s and 1960s had got the priorities wrong. At the same time it indicated clearly enough what the main features of a new development strategy must be. This strategy—set out tentatively in documents such as the Cocoyoc Declaration, the Karachi manifesto, and the Charter of Economic Rights and Duties adopted by the United Nations in December 1974⁴⁵—does little more than translate Lewis’s conclusions into a positive plan of action. Its essential points may be summarized as follows:

1. The need to eliminate, once and for all, the traditional dependence of the underdeveloped on the industrialized world, and for the developing countries to adopt policies reflecting their own social and economic conditions.
2. Rejection of the assumption that the existing international economic order reflects “natural” economic laws which cannot be interfered with without destroying its efficiency; or (as a recent Trilateral manifesto maintained) that radical measures by the Third World to change the global distribution of wealth will simply “throttle the goose” that lays “the golden eggs of growth.”⁴⁶ What the inventor of this bright simile apparently forgot is that, for most poor countries, the eggs the capitalist goose has laid have turned out to be addled and unpalatable.
3. The experience of the industrialized world is largely irrelevant to the needs of developing countries. Their goal should not be to close the “gap” or to “catch up” with the West (this, of course, is a direct refutation of the Rostow thesis), but to make better use of their own resources, of which the most important is manpower.

4. In countries where up to 80 percent of the population still lives on the land, the first priority must be agriculture and agricultural reform. The basic problem of growth, as the president of the World Bank has stated, is quite simply that growth is not reaching the poor and the poor are not contributing significantly to growth. “Development strategies, therefore, must be reshaped in order to help the poor to become more productive.”⁴⁷

5. Agricultural reform is an essential precondition because, in countries where agriculture is the dominant sector, only the elimination of rural poverty can create an expanding consumer market and generate a demand for manufactures. The belief that the only way to increase agricultural productivity is by organizing huge mechanized farms is false. With proper support the small farmer can triple or quadruple his yield, thereby improving his own well-being and creating a vast new market for industry and services.

6. The Western model, with its emphasis on industrialization as the engine of modernization, is therefore quite unsuited to conditions in the underdeveloped world. This does not mean that industrialization should be rejected or slowed down. It does mean “that in contrast to the Western paradigm, where agriculture played a supporting role to urban industrialization, industrialization must now serve the needs of rural transformation.”⁴⁸

7. While it has not proved difficult, in a number of developing countries, to achieve high rates of growth with inputs of foreign capital, machinery, and technical skills, they have not reduced, and in many cases have aggravated, the burden of unemployment and poverty. The lesson is that, instead of following the industrialized world in “increasingly sophisticated modes of production,” they should “aim at a better utilization of locally available factors of production.” ⁴⁹

8. In part, this means supporting and fostering, instead of strangling, the traditional small-scale industries, which not only make use of available resources and skills but also generate more employment per unit of capital invested. Far more important in the long run, it means that instead of importing machinery and technology from the West, the developing countries must concentrate on producing the capital goods (machines, tools, and equipment) necessary for exploiting their own resources.⁵⁰

9. Such policies are impossible without domestic determination of development priorities. Hence the demand, in the Charter of Economic Rights and Duties, for “full permanent sovereignty” of every state over its “natural resources and economic activities,” including the right to nationalize, expropriate, and transfer ownership whenever necessary to ensure effective control.⁵¹ Hence also the mounting hostility to multinational corporations, whose “anarchical exploitation” of their resources is regarded by developing countries as a major threat to orderly development.

10. Orderly, planned development is out of the question so long as the economy is subject to the vagaries of the market and the interests and pressures of foreign investors. That is why, in the words of the Cocoyoc Declaration, “self-reliance at national levels” also implies “detachment from the present economic system.”⁵² As the Hammarskjöld Foundation points out, what the Third World countries need is not “total integration” but “selective participation” in the international economy; “establishing realistic criteria for selectivity” is an “essential component” of any effective development strategy.⁵³

11. The corollary of closing themselves off, at least selectively, from world markets is cooperation in their own markets. This was spelled out in detail at the Dakar conference on raw materials in February 1975.⁵⁴ It includes, among other things, preferential trade agreements, joint financing of development projects, and the setting up of regional and interregional enterprises to process raw materials and ensure complementarity (instead of competition) in industrial production.

12. Finally, the developing countries must set up their own financial institutions, including a “Third World Monetary System” and a “Third World Clearing Union,” not linked with the currencies of the industrialized nations. This will free them from dependence on Wall Street and the City of London. In particular, the creation of a “Third World Investment Bank” is a key requirement, since this, and only this, will make possible “a lending policy geared to, rather than controlling, its members’ development strategies.”⁵⁵

VI

If I have outlined the main features of the new development strategy in some detail, it is because it is the crux of the matter. Without the new development strategy the new economic order would be a dragon without teeth.

Contrary to general assumptions, many of the demands put forward by the developing countries at the Seventh Special Session of the United Nations were not incompatible with the existing economic order and could probably be accommodated without too much difficulty by the West.⁵⁶ The new development strategy is a very different proposition. Here is a program which, if implemented in its entirety, would disrupt the West’s traditional hold over the world economy and drastically limit its ability to manipulate it in its own interest. The practical question is whether there is any likelihood of its being implemented in its entirety.

It would certainly be a mistake to prejudge the outcome at this early stage. All one can say at present is that the way things have developed since September 1975 has discouraged many people who believed the Third World was on the point of making a dramatic breakthrough and encouraged those who have always maintained that its bark is worse than its bite. One commentator, it is true, has suggested that the developing countries never expected to get very far at the Seventh Special Session and are “taking a long-term view of the struggle.”⁵⁷ The fact remains that their performance at the conference of rich and poor countries in Paris in December 1975 and at the meeting of the International Monetary Fund in Jamaica in January 1976 was, to say the least, unimpressive.

There is, no doubt, no logical reason why pressure on the West for immediate short-term concessions should not be combined with a long-term policy of self-reliance. The conditions the developing countries inherited from their colonial past—their dependence, for example, on commodity exports—cannot be remedied overnight, and the idea that they were ever in a position to carry out a world economic revolution at one stroke was never much more than a fantasy. But as time passes and nothing is done to bring their program nearer realization, it begins to look as though what we are witnessing is not a real contest but an exhibition of shadow boxing, and that some at least of the developing countries are more interested in extorting concessions from the West than in improving their position by their own efforts.

When the Seventh Special Session concluded its business last September, political commentators immediately summed it up as a prelude to “ten years of detailed negotiations.”⁵⁸ Subsequent events have certainly not proved them wrong. Nothing was more significant, when the rich and poor nations met in Paris last December, than the way the substantive issues were shelved, and the conference turned instead to procedural questions, setting up commissions to examine the different problems, and jockeying and haggling for seats on the commissions. “The real battle in Paris,” one cynic remarked, “was about membership.”⁵⁹ Certainly there was no sense of urgency. Two months later the commissions appointed in Paris got desultorily to work; a further meeting was scheduled in six months’ time to examine their progress (if any); and finally, if all went well, it was planned to hold a “full-scale ministerial conference” at the end of the current year “to provide new momentum.”⁶⁰

No wonder the pantomime is being watched with growing cynicism! “They’ll meet again—and again,” The Guardian commented; but it carefully avoided suggesting that they would actually do anything.⁶¹ If, as “knowledgeable sources” in Washington have alleged, Kissinger’s object is to “talk them to death,” the strategy seems to be working according to plan.⁶² Considering how long it has taken “to move an imperceptible distance forward,” the best bet today is that “progress may cease altogether when real issues come to be discussed.”⁶³

How are we to account for this sudden collapse, for the relaxation of tension and the shift from the mounting pressures of 1975 to the snail’s pace of 1976? One reason, no doubt, is that the confrontation expected last September did not materialize and the sense of urgency evaporated into thin air. A second, perhaps, is the shift away to political issues in Angola and the Middle East. A third is the economic recovery of the West, or rather the signs that the West may at last be on a recovery tack, which has dispelled the feeling of overhanging doom aroused by the oil crisis of 1973 and the food crisis of 1974, and replaced it by a mood of confidence and complacency.

But the main reason for the change of mood is different. If nothing seems to be happening at present on the economic front, the reason, quite simply, is that both parties are engaged in a holding operation. Kissinger and the OECD countries are temporizing and maneuvering until the free world economy is on its feet again and the West can confront the Third World with confidence in its own stability.⁶⁴ The Third World countries are playing a waiting game until their development policies have reached the point of “take off,” which cannot, on any realistic calculation, occur within much less than ten years. For them to act now would be altogether too like cutting off their noses to spite their faces.

The conclusions to be drawn need little elaboration. The first is that the critical period is unlikely to come before 1980-1985. Even if there is renewed confrontation at the next meeting of the UN General Assembly, little is likely to come of it. At present the time is not ripe and neither side is ready to put the issue to the test. The second conclusion is that the present lull is deceptive. It may be true that 1975 was “a year of non-calamities,”⁶⁵ but all that means is that the decisions have been postponed, not that the struggle for a new economic order has been eliminated. The third conclusion is that there is not much point, in this situation, in anxiously analyzing every event, and nonevent, and trying to attach a significance to it which it simply does not possess.

That is why it would be a mistake to read too much into the apparent slackening of Third World initiative during the last six months. The short-term maneuvers of the different parties are fundamentally uninteresting. What is required is a realistic assessment not merely of their long-term objectives—these are not too difficult to perceive—but of the likelihood of either side achieving them and, more important still, of the way things may be expected to develop if, as is more than probable, neither side attains its goals.

The first possibility, clearly enough, is that the developing countries will prove incapable of putting their own house in order. What, for example, if they fight shy of the internal reforms which are the fundamental requisite of any viable development policy? What if some of them prefer half a loaf today, or the crumbs from the rich man’s table, rather than a hypothetical whole loaf in twenty years’ time? What if the solidarity they have shown so far collapses under the strain of waiting?

These, no doubt, are the calculations upon which Kissinger is building, together with the expectation that, once the West recovers, it will again have the resources to spare with which to buy the developing countries off. But what if the confident prognostications of Western recovery prove false? What if the rally we are witnessing today turns out (as not a few seasoned economic experts expect) to be a flash in the pan, a short-term boom in a long-term bear market? What if, by the 1980s, standards of living in the United States (to say nothing of Western Europe) are lower than today, the affluent society turning only too perceptibly into a stockade society?

These possibilities and their implications need further analysis than is possible here and now. All it is necessary to say at the moment is that they are not negligible. Both sides, it seems to me, are gambling on eventualities which are unlikely to be realized, or at least are unlikely to be realized in anything like full measure. Moreover, even if the new world order remains an unfulfilled dream the struggle to achieve it is bound to cause disruption, even if it does not tear the whole fabric of the existing system apart. That is why, even if the underdeveloped countries fail to reach their goal, it does not follow that the rich countries will benefit or that the old economic order can be put back on its feet again.

That is also why, on present indications, the prospects for a new world economic order look slim and those for a new world economic disorder look alarmingly large. The challenge of world poverty is too insistent to be shrugged off with half-measures and cheap palliatives; but the only way to cope with it is to make the economy the servant of man instead of making man the servant of the economy. Otherwise, on any long-term view—that is to say, on any view which looks beyond this year and the next—the prospect is a world more embittered and more divided, and a revolution of rising frustrations—in the West as well as in the underdeveloped regions of the world—which may engulf us all.

(This is the fourth in a series of articles on the world economic crisis.)