The Situation Is Desperate But Not Critical

“There is a real danger that in the year 2000, a large part of the world’s population will be living in poverty.” This is a quotation from the foreword to the so-called Brandt Report. A more realistic assessment of the present state of the world economy, and of social and political forces that might bring about a change, should lead to the conclusion that not only in the year 2000, but for many years into the twenty-first century, hundreds of millions of people in Asia, Africa, and Latin America will continue to live in conditions of utter destitution that ceased to exist a hundred and fifty years ago in advanced industrialized countries.

What the report dramatically identified in its subtitle as a program for survival is essentially a fervent appeal to the political establishment of the Free World, imploring it to organize a vast transfer of goods and services to the less developed countries with the specific aim of narrowing the so-called income gap between the poor and the rich regions.

The credentials of the members of Brandt’s commission are most impressive. They are ex-prime ministers, ex-presidents of parliament, governors or ex-governors of national central banks, ex-ambassadors, and so on. In other words they are, in fact, members of the very establishment to which their appeal is addressed. The question naturally arises—what chance is there for the implementation of an elaborate plan whose authors offer it as private members of an independent commission when they were admittedly unable to implement it while acting in their respective official capacities?

Save for repeated and insistent references to moral values and warnings of dire consequences that will follow if its recommendations are not acted upon promptly, the report goes over familiar ground. Hardly anything that has been already said on the subject is overlooked, but nothing new of any importance is added. This, of course, is not surprising considering the volume of official and unofficial technical and popular writing devoted to these problems in recent years.

“After two years of consultation together and with many of the world’s most eminent people from various fields of international development,” the members of the Brandt Commission state they “are convinced that there are gains for all in a new order of international economic relationships and hope for humanity in achieving them.” Some of the seventeen chapters lead to specific recommendations such as, “Intermediate steps toward an international strategy on energy should be taken” or “the strengthening of indigenous technological capacity often requires a more scientific bias in education.”

The commission seeks “to eliminate mass hunger and malnutrition,” and wants “increased stability of international exchange rates, particularly among key currencies…through domestic discipline and coordination of appropriate national policies.” The Emerging Program for 1980-1985 demands “a large-scale transfer of resources to developing countries” and “increased food production, especially in the Third World, with the necessary international assistance,” and so on.

If only very little has happened up to now by way of practical large-scale action, it is not because of the lack of appropriate institutional arrangements or of specific technical devices that can be used to transfer economic resources directly or indirectly from one country to another. Such arrangements and techniques range from direct governmental grants, concessional investment and trade credits, to the removal of trade barriers that now prevent the third world from gaining a greater share in the expanding world market for its newly established manufacturing industries. All of them and many more are mentioned in the report.

Technical jargon occasionally obscures the discussion of these issues. “Price stabilization” usually means increase of the average price received by the seller. Permitting the less developed countries to “play greater roles in the management of international monetary systems” means letting them partake in the privilege—reserved up to now for the rich developed countries—of printing international money and using it to pay for imported goods and services or to discharge old debts. To visualize the amount of assistance that the less developed countries would need even to begin to narrow the income gap between them and the rich developed countries, one must think of the volume of economic aid that the United States gave to its beleaguered allies in Europe during the last world war. We worked day and night using all our available industrial and agricultural capacity and sent a stream of fully loaded ships across the ocean without sparing efforts or counting costs, month after month and year after year.

The choice of ways and means by which economic assistance can be given by the developed to the less developed regions is very wide indeed. That up to now very little use has been made of any of them can be explained by the lack of will to do so. This brings us to the crux of the so-called “North-South dialogue.” Behind the governments and commissions are the different social and political groups pursuing doggedly their mostly incompatible immediate material interests—interests that are seldom spelled out explicitly and fully in public discussion. I remember having heard a representative of a powerful Western trade union at an international meeting encourage his poor brethren from less developed countries to fight for wage rates equal to those prevailing in the United States and Western Europe. If carried out successfully such action would certainly protect the jobs of European workers from goods imported from India and Latin America. But it would also hamper the economic growth and expansion of new industrial employment in the less developed countries.

The vocal protests of our Western farm organizations against the grain embargo imposed recently on Soviet Russia are another example of how high moral principles and patriotic sentiments are weakened or become reinterpreted as soon as those who proclaim them loudest discover that their practical application would involve sacrifices of their own immediate material interests. In foreign policies no less than in domestic politics, considerations of moral righteousness and justice seem to carry most weight if the immediate material interests of the group in question do not appear to be jeopardized, or at least not jeopardized directly.

Thus it is not surprising that in rich Western democracies it is still practically impossible to mount political support for large-scale economic assistance to poor, less developed regions. On the receiving side, such assistance for obvious reasons is usually welcomed—not, however, without notable exceptions. The governing groups in the less developed countries lose their enthusiasm for foreign aid if it seems to threaten the internal balance, or should one say imbalance, of economic and political power in their country.

By contrast to the hortatory and at the same time somewhat bland approach of the North-South report, Rich and Poor Nations in the World Economy, a study sponsored by the Council on Foreign Relations, provides a deeper critical insight into the relationship between developed countries and the less prosperous regions. Although published a few years ago, this study seems all the more interesting now, since the policies it considers are still the main ones being offered, and we now have more evidence of their prospects. One of the four contributors to this volume, Albert Fishlow, who served at one time as assistant secretary of state for Latin American affairs, offers “two simple principles to serve as a basis for a restructuring of North-South economic relations. One is a joint commitment toward extending and making markets more effective; the other is greater participation of the developing nations of policing such markets and making specific rules.”

To Fishlow, “a competitive model with its inherent constraints on the exercise of economic and political power and its attractive allocative properties, is an attractive normative ideal to guide the international economy.” He believes that the premises of such a “competitive model are [now] more nearly satisfied than before,” and he is convinced with Milton Friedman that “efficiency and equity can go hand-in-hand in the international market if it is allowed to work.” However, he also admits that the definition of equity implied by this general proposition allows for the existence of an “equitable” distribution by which the income of some groups will fall below the level required to satisfy what is conventionally referred to as the basic human needs.

Friedman wants to respond to this admittedly unsatisfactory situation by transferring income from the rich to the poor by means of a negative income tax. Following the same train of thought, Fishlow proposes to earmark revenues from one or more international taxes for distribution to the lowest income countries. Willy Brandt’s committee offers a similar recommendation.

The basic principle of textbook welfare economics underlying this approach is that free trade, operating under conditions of unrestricted competition, will automatically bring about a most efficient use of all available resources and thus maximize the total output of goods and services for the world as a whole. If the distribution of income among various regions and different groups within each region established under this condition does not satisfy the requirements of equity, it can and should be corrected by supplementary transfers of income from rich countries to the poor. But will it be? Those who feel able to change the distribution of wealth in their own favor, even if it means breaking the rules of the competitive game, certainly will attempt to do so. The less developed oil-producing countries have actually succeeded in doing so. The percapita income of those countries, including their increased oil revenues, is in some cases still lower than that of the rich developed countries: for them the shift is toward more equitable distribution. (At the same time, the effects of OPEC prices on some of the less developed countries that have no oil have been to make the distribution of wealth less equitable.)

From an orthodox free trader’s point of view, what is objectionable about OPEC is, however, not the change in income distribution that its formation has brought about but rather the method employed to attain it. OPEC’s monopolistic action carried out on a grand scale destroys the functioning of the competitive price system which, in turn, leads to the misallocation of economic resources and thus reduces the global income below its highest possible, ideal level.

But if the new income distribution is admitted to be more equitable than the old, according to Fishlow’s orthodox prescription, the proposal to restore a competitive oil market should be linked with an offer to compensate the OPEC countries for the loss of oil revenues they would have to sacrifice in order to restore the competitiveness and efficiency of the world’s price system. The logic of the orthodox argument furthermore demands that the amounts needed for these compensating payments should be drawn from the general government revenue of the rich oil-consuming countries. If these payments were raised through imposing a tax on imported oil, the price (inclusive of tax) paid by consumers would turn out to be exactly the same as it is. Consequently, the misallocation of resources would also remain the same as it was under the OPEC monopoly.

The procedure suggested above would restore the harmony between competitive efficiency and distributive justice. Although impeccable in its theoretical elegance, needless to say it would hardly be accepted by those in the West who criticize the use of crude monopolistic power to change income distribution, even if it were in the desirable direction. Incidentally, the danger that other less developed countries will find an opportunity to use the same device in other fields is very slim indeed. One of Fishlow’s proposals for redistribution to the lowest income countries would be a tax on exports of non-renewable resources. Imposed on exported oil, such a tax would have, of course, the same “price distorting” effects as the present high monopoly profits of the oil exporting countries.

Carlos Diaz-Alejandro’s interest in the problems of less developed countries goes back to his well-known, thoughtful studies of socialist Cuba, which was placed under a complete trade embargo by its traditional trade partner, the United States. Thus, it is not surprising that the policy or, rather, the ideology, of “delinking” the less developed countries from dependency on the richer ones is the subject of his contribution to this volume.

While some of the less developed countries—South Korea, Taiwan—made great success of wholehearted participation in international division of labor and world trade, some others, mostly exporters of minerals, staple products of tropical agriculture, and importers of everything else (prior to the organization of OPEC the Middle Eastern oil-producers belonged to this group), found themselves in a continued state of mass poverty combined with economic dependence on advanced industrialized countries. Delinking was seen by its proponents as a means of regaining control over their own fate.

The promise of self-reliance is often combined with the proposed introduction of so-called “intermediate technology.” This yet to be developed technology should, according to its proponents, be more labor intensive than the highly mechanized methods of production now used in advanced, industrialized countries.

Unfortunately, intermediate technology seems to be more of an idea than a fact. What actually happens when new plants are built in less developed countries is that they turn out to be practically identical with those constructed in the developed countries except that some of the auxiliary equipment is omitted. But even if it is not, since wages are much lower and pressure to provide employment very great, many more workers are hired than are used to perform the same amount of work, with the same equipment, in Western Europe, Japan, or the United States.

Those who speak of intermediate technology seem to be unaware of the fact that developing new technology of any kind is an extremely costly enterprise requiring an investment not of millions, but of hundreds of millions and even billions of dollars. Only the United States, the Soviet Union, two or three countries of Western Europe, and Japan can tackle such investment on a sufficiently large scale to justify such outlays.

In the few cases in which delinking has actually occurred, it was imposed from the outside, as in the case of Cuba, or occurred because of exhaustion of mineral reserves or shrinkage of demand for a traditional agricultural export such as jute. It was usually followed by the establishment of new links or creeping stagnation.

The lively debate on the role of multinational corporations, which for better or for worse constitute the most dynamic link between the less developed and the developed regions, calls for a similarly melancholy observation. If confronted with a clear-cut choice between keeping the multinationals in, predatory as they are, or keeping them out, most less developed countries would probably decide to keep them in. While it can be legitimately questioned whether the economic advance that they promote contributes much to improve the condition of the large masses of rural poor, there can hardly be any doubt that they do contribute much to the prosperity of the ruling upper classes.

Roger Hansen’s essay offers as a minimal proposal—which, one might add, Willy Brandt would certainly accept—adoption of a Basic Human Needs approach, a kind of global Salvation Army action for the elimination of acute destitution in all parts of the world. Such a strategy would deemphasize lofty goals for long-range development and concentrate on direct action designed to improve the living conditions of the desperately poor, even if this meant reduced aid to middle income countries. Hansen realizes that the ruling elites in the poor and less developed countries are likely to sabotage such action because of a well-justified fear that strengthening the hand of the poor might endanger their own position. He therefore suggests that “it would be far easier for many developing countries’ governments to enter into serious discussion of new international norms of behavior” if the negotiators sitting on the other side of the table insisted on satisfying the minimum human needs of the poor and indicated their willingness to ease up on their demand for satisfaction of their political rights, i.e., for establishment of political freedom.

This approach, of course, raises the question whether Cuba or Nicaragua might not turn out to be more reliable partners in carrying out Hansen’s Basic Human Needs Program than, say, the Philippines or Guatemala. In this connection I was interested to learn from Richard Fagen’s paper that the Swedish Development Agency, I suppose at the time of Olof Palme’s government, “decided to send its Latin American aid exclusively to the equity-committed Castro and Allende regimes.” It took a political scientist such as Fagen to point out that the chain of the long arguments concerning the relationships between the North and the South leads back to where it begins: improvement in the condition of the poor in the less developed countries will to a large extent depend on distribution of economic and, consequently, political power in the developed countries. Closely examined, the process of helping the poor turns out to be a rather vicious circle.

Notwithstanding Willy Brandt’s appeal, the other northern governments are most likely to continue to view economic and social conditions in the South in the same way in which skeptical observers described the state of the Austro-Hungarian empire. “The situation is desperate but not critical.”