Another Chance for the North?

If one thing more than any other was made abundantly clear by the whole series of international negotiations in the 1970s, it is that the industrialized democracies-which, with Australia and New Zealand as appendages, and with the Soviet bloc, make up "the North"-have no strategy and no vision when it comes to their dealings with the three-quarters of the human race that lives in the developing "South." For over a decade, the North has been discussing with the South the problem of their long-term economic relations-the so-called New International Economic Order. But wherever the focus has been-the five meetings of the United Nations Conference on Trade and Development (UNCTAD), the various special sessions of the U.N. General Assembly, the fumbling and finally negative two-year talks of the Commission for International Economic Cooperation (the ironic name given to a series of North-South consultations in Paris), the fiasco of the latest conference called by UNIDO (the U.N. Industrial Development Organization), or the virtually nonexistent outcome of the so-called Economic Summit of Western leaders in Venice-wherever the place, whatever the context, whoever the parties, the outcome has been virtually the same. In short, it has been nothing.

There are tiny exceptions: the ludicrously inadequate amounts promised to underpin more stable world commodity prices; the guarantees limited to one group of developing states under the Lomé Convention negotiated by the European Community; the £1.2 billion pledged by the wheat producers (in wheat and long-term low-interest loans) for food relief. But these minor and unrelated acts only throw into clear perspective the utter lack of strategy on a worldwide and sufficient scale.

This is the difficult and discouraging background to the publication early this year of the Report of the Brandt Commission entitled North-South: a Program for Survival.1 The Commission, with West Germany's former Chancellor, Willy Brandt, as Chairman, was composed of distinguished citizens drawn from North and South and from the widest spectrum of interest-former prime ministers, finance ministers, bankers, publishers, the oil producers, trade unions. Its very composition, spanning a range from a young radical leader in Algeria to the chairman of Lehman Brothers Kuhn Loeb of New York, suggested to more cynical observers that the chance of a unanimous report was virtually nil. The fact that the recommendations were unanimously accepted is at the very least a factor of encouragement in the generally dreary international scene.

But the character of the recommendations is more remarkable still. The temptation faced by all such potentially divided and conflicting groups is that of the lowest common denominator-the shuffling, half-muffled, half-uncommitted, half-arguments stretched as far as they will go to cover the basic failure to achieve consensus. There is little sign of this in the Brandt Report. Its general philosophy is quite simply that Planet Earth is a community of peoples in need of the underpinnings of any genuine social order-a floor under poverty, sufficient food, access to education, participation in decision-making, the promise of work. The need for unity expressed in these common purposes should far outweigh the warring interests of nations, cultures and beliefs. The Report's particular recommendations cover the "underpinnings" of unity and are best summed up in its four-point program of immediate action, which expresses a profound sense of the "common good" in practical fashion. The policies cumulatively reinforce each other and in essence extend to the whole of mankind the principles and priorities now largely accepted within civilized nation-states.

II

The four priority points, briefly summarized, cover a large-scale transfer of resources to the developing countries, an international strategy for dealing with the energy crisis, a global food program and the first steps in transforming today's chaotic international economic system into a workable and reliable monetary and commercial order. Clearly, the proposals overlap at many points just as they do within a nation: farmers' support prices depending upon governmental revenue, revenue depending upon tax levels, tax levels reflecting economic restraint or expansion as a government objective. The domestic range is vast. An international version must be vaster. But if priorities are correct and action is secured, positive results are as possible at the international level as at the national level.

But it is, of course, at this point that the critics move in on the Report and attack either its general direction or its particular proposals as utterly irrelevant to the "realities" of the 1980s. The concept of a planetary community must surely be left on the back shelf of contemporary idealism-with the Russians in Afghanistan, the Vietnamese in Cambodia, the Middle East in turmoil and Soviet spokesmen making it clear that the vital point today is not New International Economic Orders or more stable North-South relations but the spread of communism throughout the developing world. Abandon capitalism, go communist, and appropriate development toward "unity" may follow. True, China and its rejection of Soviet communism are left out. But this is only one more reminder of division. What is the use of even thinking of world community when the facts amount to violent hostility between groups of nations or, at best, an uneasy oscillation between deterrence and détente?

The critics are equally determined in their attack when they turn from the general principles to particular proposals. We can include the separate principle of food aid in the general proposals for transferring resources, since aid to Third World food production is coming to be one of the highest priorities in many aid strategies, replacing the almost exclusive attention to industrialization, export promotion and infrastructure of earlier decades. There is wide derision at the Commission's general recommendation that the level of official aid, at the present at 0.35 percent of gross national product (GNP) for the industrial democracies, should be raised to the already promised 0.70 percent by 1985 and widened to one percent by the year 2000. This would imply an annual transfer of $50-$60 billion in aid by 1985. Yet, honorable exceptions apart-the Dutch, the Scandinavians-aid has either fallen in absolute terms or barely kept pace with inflation. Most of the industrialized countries are members of the Development Assistance Committee (DAC) and its latest figures show there was very little increase in the flow of official aid between 1965 and 1977, when inflation is taken into account. Yet during this period, the Committee members' GNP actually doubled.

Perhaps the most unfortunate example of delinquency comes from the largest and internally wealthiest of all the democratic states. Official aid from the United States has fallen from just under 0.50 percent of GNP in 1965 to about 0.20 percent in 1980, an exemplary action highly unlikely to put fresh heart into other, poorer donors. If this is the pattern, say the critics, what folly it must be to stress higher aid giving. They do admit that the goals may be desirable. Few critics, for instance, attack the new emphasis on agriculture, which would entail additional annual aid expenditures of some $13 billion a year (in 1980 dollars) as part of the $30-$40 billion needed annually to expand food output to feed the six billion human beings who will be on the planet by the year 2000. But it has to be seen in terms of realism. The trend is the other way. And would it not be the course of wisdom to try to understand why, and examine the reasons?

III

The governments of the industrialized democracies have no doubts about the fundamental cause of their retreat from their promises of greater aid-it is the action of OPEC (the Organization of Petroleum Exporting Countries) in quadrupling the cost of crude oil in 1973. (That the great Soviet "grain raid" on American reserves tripled world grain prices at about the same time is conveniently forgotten.) Since that vast and sudden upheaval, it has proved impossible to bring the industrialized democracies back to anything like the rhythm of growth which prevailed for over two decades after the spectacular postwar recovery originally fired by the Marshall Plan.

After OPEC's action, the Northern balance of payments fell from a surplus of nearly $20 billion in 1973 to an almost equal deficit in 1974. Internally, the determination of large pressure groups-unions, conglomerates-to keep their incomes at the old levels allowed the external pressure of at least $35 billion less in real income to permeate the whole economic system with an inflationary bias. Profits were squeezed, investment fell, governments deflated. Annual variations in per capita incomes changed dramatically from four percent a year growth to an actual fall in value in 1974, and unemployment grew from three to over five percent.

But prices went on rising. Between the onset of the oil price rise (and the grain raid) and the beginning of 1975, inflation rates doubled. There was a small measure of recovery after 1975, but inflation, unemployment and the levels of world trade all remained in uncomfortable contrast with the "golden" 1950s and 1960s. The growth in world trade, for instance, was only half its earlier average, although the industrialized democracies were a little helped by their ability to pass some of the real costs on to Third World nations, which had to pay 40 percent more for their "Northern" imports (mainly of manufactured goods) between 1973 and 1975 alone. But it was basically a very unstable economic system in which the next round of OPEC oil price increases (not agreed to but reached nonetheless) coupled with the turmoil in Iran drove average oil prices in 1979 from $12.90 to $22.70 a barrel. One thinks with incredulity of the less than two dollars a barrel of the earlier decades.

The year 1979 also brought with it a virtual certainty of an erratic but fairly predictable and continuing upward movement in oil prices. Oil prices are now around $30 a barrel. How, then, say the critics, can governments escape the resulting unsupportable inflationary pressures if they add more aid to all this growth of income? How can they check inflation? To propose more aid is like pouring a bucket of water over a drowning man. As all Northern leaders represented at the Venice Summit agreed, controlling inflation is, virtually, the sole aim of governmental policy. So why even talk about aid?

It is this same background of "stagflation" in the industrialized democracies and unpredictable yet upward movements in the oil market that also helps to explain the critics' dismissal of the two remaining Brandt emergency proposals: an energy strategy, and the beginnings of reform of international economic institutions. A dialogue with the oil states is conceivable-the "Northern" states offering restraint, regular markets and inflation-linked payments, the oil exporters keeping production steady and price rises to an agreed percentage. Then all the wealthy states, together, whether Northern or oil-exporting, could agree on means and mechanisms to offset the particularly catastrophic results of oil price rises on the non-oil producers in the Third World. In 1973 their balance of payments deficit was a relatively modest $6 billion. By 1975 it had reached $39 billion. Then after the brief semi-recovery of 1977-78, it will be some $63 billion in 1980, and countries such as India and Tanzania can find themselves paying up to 45 percent of their export earnings simply to keep a minimum flow of fuel going to industry and the farms.

But, say the critics, who can honestly imagine such a dialogue? A Sheikh Yamani, as Saudi Arabia's oil minister, may see that a stable and growing Northern market is a precondition of prosperity among the oil producers. But can an Ayatollah Khomeini see that? Palestinian leaders pressing on other Arab producers? Who can rule out another fundamentalist upheaval, like the one in Iran? There are uncertainties, too, on the side of the North. Americans still pay only half the price for gasoline that Europeans do. Yet President Carter's efforts to get even a ten-cent tax on each imported barrel of oil was defeated by Congress. Conservation still has few official proponents and fewer programs anywhere in the North. The final dissociation from reality came when the Venice Summit leaders (whose nations' GNP exceeds the oil exporters at least tenfold and is based not upon a single asset but upon completed development) virtually suggested that OPEC might be left to care for the problems of those Third World countries without oil. All in all, it is difficult to imagine a more likely scenario for a dialogue of deaf-mutes.

Lack of contact and trust between the North and OPEC is also in some measure responsible for the Northern failure to take any significant action to strengthen international monetary and commercial institutions. At one point, it seemed all but certain that the industrialized democracies would seriously discuss ways in which OPEC surpluses, over and above those spent in developed markets, could be deposited not in uncertain currencies but in an internationally secured "substitution account" probably under the aegis of the International Monetary Fund (IMF) and, with strict guarantees of maintained value and returnability, judiciously lent for development in the most productive areas for investment (many of them, by definition, in the Third World). But all the steam ran out of the proposal in 1980, and the OPEC surpluses have begun to overhang the financial markets as ominously as wild foreign lending helped to precipitate the Wall Street crash of 1929.

The private banks, it is true, handled the 1974-75 surge of surpluses with exemplary skill. Nonetheless, the mere fact that they have already "borrowed short and lent long" makes it more difficult for them to enter into a new round of lending. But, say the critics, government guarantees or IMF funding will simply stoke the inflationary fires. Once again, we are back to "Catch-22." Act to meet the recession, and inflationary wage and price demands set the ball spinning again. Do not act, and risk a recession on a redoubled scale.

It is perhaps a valid criticism of the Report that it underestimates the difficulties with which Northern governments feel themselves confronted. Northern concepts of their own interests do not much enter the debate and may prove a real bar to the persuasiveness of the recommendations. Yet to be without a forward policy for three-quarters of humanity, to expect that what is in essence the continuance of a semi-colonial relationship can be passively endured, that the degree of solidarity achieved in the emergent South will in some convenient way remove itself-all these assumptions which must underpin the "policy of no policy" are simply examples of an unrealism to which "realists" may too easily succumb. No one can claim that the Brandt strategy solves all conflicts and reconciles all differences. But for each of the criticisms, it has at least a partial answer and the sum of its proposals would give the North a renewed sense of the direction and purpose which proved to be the most notable victims of the troubled 1970s.

Take first the criticism that a greater transfer of resources, a sustained strategy for food and energy, and the beginnings of structural economic changes in monetary and commercial policies are irrelevant because local political differences, communist pressure and Soviet "expansionism" are what is really at stake. No one denies the pressure. But if Third World leaders in political and popular difficulties knew that they could count on resource transfers from the North, might not this be an argument for avoiding a much more arduous and irremovable Soviet involvement?

The revolution in Nicaragua may be lost to the Marxist Sandinistas because Congress held up U.S. aid proposals for over a year. A vital land reform in El Salvador may be undermined by the same arbitrary behavior. One factor in Robert Mugabe's readiness to accept an open election in Zimbabwe and remain nonaligned was the degree of disillusion Samora Machel displayed over Soviet "aid" and farming models in Mozambique. Yet the paradox is that in these critical months when both nations must rebuild economies devastated by war, the needed financial support to do so has not been forthcoming. The chance of their genuine nonalignment (which should be the Northern goal) may be lost for the equivalent of less than one-thousandth of the United States' annual military expenditure. What the Brandt Report in fact proposes is to institutionalize the availability of Northern resources-which, in turn and by definition, increases the measure of choice of Third World leaders, parties and movements.

One could perhaps take the argument a step further and suggest that if the superpowers can reach a SALT III stage of negotiation, the transfer of a percentage of arms spending to international aid transfers might be separately on the agenda. The Soviets' pitiful 0.03 percent of GNP in aid to countries other than Cuba would be seen in a new perspective, and the percentage proposed would only have to reach 25 days of the world's military spending to equal the whole extra $30 billion proposed by the Commission.

IV

All this does not argue that Third World governments-or indeed, the superpowers-will make the constructive choices. It merely suggests that a sustained, accepted and certain transfer of Northern resources would greatly increase the elbow room within which all our disturbed and unquiet systems have to work and that this wider area of choice is itself a worthwhile objective. It becomes even clearer when we look at other elements of the Brandt package for, here, to the factor of widening choice is added the near certainty that many of the proposals are actually to the direct advantage of the North, quite apart from their "Southern" value.

The order in which these issues are taken is relatively unimportant. To a very real extent, each supports the other. The food strategy, for instance, is from certain points of view one aspect of the wider plan for more stable primary produce prices. The somewhat imprecise concept of a World Development Fund is intimately bound up with increases in aid. An oil strategy is essential to any degree of monetary stability. This in turn is a critical part of the proposed development and funding of more effective international monetary systems. And their expansion would assist in sustained investment in Third World food, energy and mineral resources; in the uncertain 1970s, each tended to slip below the level needed for actual maintenance, let alone to meet the prospects of expansion in a hoped-for revival in the world economy as the 1980s advance. But this interdependence should not seem surprising. It is embedded in the underlying reality of a planetary economic system, however much governments may still believe in the short-term benefits of carving the larger slice from the shrinking pie.

One or two concrete examples of constructive alternatives must suffice to offset the criticisms we have outlined of the whole Brandt approach. Probably no one doubts that in the monetary field the greatest source of unease and the greatest pressure on the ability of the banking community to continue to recycle existing and unpredictably growing oil money is explained by the existence of some $800 billion unsustained by anything but America's own ability to repay. If every holder of dollars-petrodollars, Euro-dollars, plain ordinary dollars in foreign accounts-were at some point to demand repayment, there could follow the kind of collapse in confidence that sent the world economy over the precipice in 1929.

This is the fundamental rationale for giving to the IMF a new mandate to turn dollars over to a "substitution account" which would guarantee uncertain dollar-holders against a possible collapse of confidence, basically by putting a safety net under the dollar. The new assets should probably be under the tripartite control of a special IMF affiliate representing not simply the predominant North, but OPEC and Third World countries as well. (Here the example of the International Fund for Agricultural Development-IFAD-in which the Northern democracies, OPEC and the Third World have a third each of control-is a hopeful augury of new thinking.) At the same time, interest rates on the new special assets should be set by the market and the assets based upon the world's five or six major currencies in the so-called basket.

In a sense, this is organic growth from the Special Drawing Rights which for the last decade have been in marginal use in holding international exchanges relatively predictable and stable. (Perhaps a more convincing name might be invented for the strangely unconvincing SDR. Why not a bancor or a ducat?) But the fundamental issue of greater security is not in doubt, and this is one reason why the concept of a "substitution account" has at least reached (although without too much success) the level of finance ministers' discussions. It could be a first step in the Brandt proposals for international monetary reforms.

Price stability is at the center of three of the Brandt proposals-the food program, the joint energy approach and support for a measure of stabilization of primary product prices, still the Third World's main exporting sector. Northerners too easily forget that the price rise in 1973 grain (when the Russians cleared out the American reserve) affected North and South alike. Indeed, since a Northerner can consume nearly a ton of grain a year, mainly in meat equivalent, to India's average of some 400 pounds, there can be little argument about Northern interest in stable prices. Yet given the combined certainty and unpredictability of droughts (either in North America, the only major surplus area, or the monsoon belt) the basic elements of a good program are inescapable-a reserve regularly maintained for "the lean years" and a big increase in Third World agricultural productivity.

If a Korea or a Taiwan can reach a rice yield of four to five or more tons per hectare, an Indonesia less than three and an India less than two, the possibilities for a local boosting of supplies are vast. But-and here we return to the transfer of resources-the cost as we have seen has been put as high as $40 billion a year, and rising oil costs will bite deep into the mechanized and fertilizer sectors. The part of direct aid in this-the $13 billion estimate-is perhaps a very small price to pay for food price stability and for local hope and opportunity. In how widely starving a world would it be safe for the rich to hope to live?

The Northern need for a more stable flow of resources is not confined to food. If one takes America's imports of vital materials-aluminum, chromium, nickel, tin, cobalt to name only a few-dependence on external supplies is never less than 77 percent. Chromium and nickel are in the 100-percent class for the Common Market and Japan. The troubled 1970s meant inadequate investment in future supplies, which in turn will mean a new inflationary spurt as economies recover and the demand for materials revives. An agreed strategy, using aid and recycled currencies for adequate investment, together with a new distribution of processing facilities to favor the South, could give greater stability to the whole world's industrial sector and at the same time increase the Southern states' derisory nine percent of world industrial production. There is no reason why the "multinationals" should not include this transfer in their long-term planning.

Could there be a comparable "bargain" for the most critical of all resources-oil? Here only one thing is certain. It must be better to try to approach OPEC with constructive and cooperative proposals than to leave the whole issue to the uncertainties of confrontation. The essence of the Brandt proposals is that supplies and prices should be given a greater chance of stability and as a result both sides will benefit by the change. So much is obvious. But it entails subsidiary action which the Brandt proposals recognize more frankly than the critics, who, however insensibly, slip into the adversary position. In political terms, it means a new effort to work out a Palestinian compromise. In Northern states, it requires an entirely new seriousness in the priority given to energy conservation.

This, too, is a political issue. Detailed studies have shown-for the United Kingdom, for instance-that living standards can steadily increase and, despite a fifth more households by 2025, fuel consumption could be well down from what it had been in 1975. Clearly, in the United States the possible scale of savings from conservation is even greater. The consequent reduction in a surge of fresh demand for oil does, in the short run, lessen the oil producers' bargaining power. But in the longer run, their overwhelming need is to see their most precious resource-in Arab states, their only resource-last long enough for alternative patterns of development to be stabilized.

That oil as a wasting resource will rise in price is certain, OPEC or no OPEC. But there could be a mutual interest in steadier and longer term Northern demand and a longer duration for the international oil market. At the same time, investment in new sources of oil and in the whole range of alternatives-coal, synthetic fuels, nuclear energy (with proper caution), direct and indirect ways of utilizing solar power-could be part of the new resource transfer and be applied with special energy to the world's "sun belt," which happens to include some of the world's poorest peoples. There are already solar pumping stations at work in irrigated agriculture.

Once again, we see the interconnectedness of the Brandt proposals. No one can guarantee their success, but we can and must guarantee the failure of the alternative which, at present, is quite simply not to have one. Even if the Brandt proposals are no more than an insurance policy, it is worth paying the premiums. There is nothing else in sight that works.

V

Even if it is no more than insurance, the program goes some way to meet the most fundamental criticism-that Northerners should be concerned with their own economic crisis. With nearly 20 million unemployed and perhaps $300 billion worth of unused capacity, surely the stimulus and the spending should be undertaken in the North. But this overlooks two final considerations. The first is that the Third World is already a vast market for Northern goods. The figure for merchandise trade for North America and Western Europe is already over one-third of all exports. For Japan, it is nearer one-half. To increase the wealth, stability and opportunity of countries where only relatively few of their population enter fully into the monetary economy will increase their scale as markets and hence their stimulus to Northern expansion and employment. The whole boom of the 1950s and 1960s would have been inconceivable without the launching pad of the Marshall Plan, which in giving away for over five years a goodly two percent of a much poorer America's GNP, ensured its own prosperity along with that of its neighbors in the North.

The memory of the Marshall Plan is a reminder of one last point. True, the Plan was in part fueled by the cold war, just as today limits to Soviet adventurism could reasonably be invoked for the Brandt proposals. But another element was quite simply compassion-ordinary Americans feeling the good fortune of surviving so appalling a holocaust and ready to share with fellow survivors the means of rebuilding their lives. Is this feeling of compassionate responsibility entirely dead in the North? When recently Americans were polled on foreign aid, their paradoxical answer was that "aid is too high," but the vast majority were ready to give in terms of their own personal incomes a higher percentage than any aid proposed at any official level. When it comes to choosing between starving children, stunted lives, unemployment in filthy shantytowns and general despair on the one hand, or on the other the kind of cooperative Brandt program that at least begins to meet the scale of both disaster and opportunity, most Northern citizens have not forgotten the moral imperative.

It remains true that although they are only a quarter of the world's peoples, they have over 70 percent of the wealth, over 80 percent of the trade, some 90 percent of the industry and nearly 100 percent of advanced centers of learning and technology.

These stark contrasts can be brought down to a personal level. Northern citizens can compare their average of $6,000 to $7,000 a year per capita incomes with the $150 of the world's poverty belt. They can reckon the Brandt costs-which, including present aid flows, are the equivalent of about a dollar a week per Northerner. And they know where not only justice but survival lies. The task is to bring the mutual interests and the moral impulse together. Auden's words remain true: "We must love one another or die."

1 Cambridge: The MIT Press, 1980.

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