THE CHANGING POLITICAL CONTEXT

THE Sino-Soviet rift and the first improvements in Soviet- American relations affect not only relations between East and West but also between North and South. The problems of the Southern Hemisphere are predominantly economic. Policies of trade and aid pursued thus far toward the developing countries, evolving as they did within the terms of the cold war, have not yielded encouraging results. The developing countries can no longer be an object in world policy; they must become a subject of policy on an equal footing with others. In order to attain that status, however, they must be able to exploit fully their own resources, both material and human, International action can serve as a catalyst. But for it to do so successfully, there must be a thorough reconsideration not only of present aid policy but also of international trade and financial policy. China's challenge introduces new elements in this field. The new international economic policy should not rest on political alliances, pacts and blocs but must try to assist the transformation of the developing countries internally so as to promote their consolidation and stabilization.

II

In the fifties, the developing countries had an average annual rate of increase of the gross domestic product of 4.65 percent, while the industrialized countries in the same period had an annual increase of 3.70 percent. At first glance, this tendency provides a basis for moderate optimism, as well as the hope that the gap between the underdeveloped and developed countries may in time diminish. Unfortunately, however, this statistical trend conceals quite a different reality. For meanwhile the average annual rate of increase of population in the developing countries had reached 2.21 percent in the fifties, while it was only 1.16 percent in the industrialized countries. This means that the per capita annual rate of growth was about 2.5 percent in both parts of the world.

Thus we see that the value of the product per inhabitant in the developing countries is increasing annually by $3.40, while in the industrialized countries it is increasing by $38.60. The gap between the industrialized and developing countries is therefore still widening.

The gist of the problem, however, does not lie simply in the gap between the developed and developing countries. What makes the inequality in degree and tempo of economic growth a problem is not that the average per capita production in the developing countries is 11 times smaller than in the industrial countries, and not even that the annual increment is 11 times smaller, but rather that the production potential in the former is growing immeasurably more slowly than is required by peoples who have just emerged from colonial rule, have acquired the means of modem transport and communication and have come to understand all the possibilities opened to man by modern science and technology.

Economic development is the result of numerous factors, both human and material. Lacking a better yardstick, we consider gross capital formation as the principal dynamic factor of development. Capital can be "productive" or "less productive," depending on imponderable factors. The gross domestic fixed capital formation in the developing countries amounted to $28 billion in 1959. The value of their exports, however, averaged $27.8 billion annually for the period 1956-59. In view of the fact that the commercialization of the economies of the developing countries is still at a low level, it becomes evident that there exists a very close correlation between the volume of investments and the receipts from exports.

The average annual rate of increase of exports for the industrialized countries amounted to 6.9 percent in the 1950s while it was only 3.6 percent for the developing countries. But for the developing countries the value of export receipts was not limited only by the volume of world demand, but also by prices in the world market. Actually, in the past 12 years the terms of trade for those countries constantly declined. If we reckon the purchasing power of export receipts in terms of 1950 export and import prices, then the developing countries during the past decade lost about $15 billion simply through the unfavorable price trends. And if we take the price relations of 1951 as the basis, these losses would be almost double.

Faced with such a situation, the developing countries first sought to solve the problem by increasing capital imports. The import of private capital increased from an annual average of $800 million in the period 1951-55 to $1.3 billion for 1960-61. Much more significant was the increase of the official flow of capital, which rose from $900 million to $2 billion in the same period.

The increase of international indebtedness, however, very soon revealed that it had limits. In 1960-61 the interest and dividend payments of the developing countries was not less than 13.3 percent of their merchandise export receipts. The combined flow of private and official capital to the developing countries amounted to about $3.8 billion in 1961 while the flow of interest and dividend payments in the opposite direction amounted to about $3.4 billion. The slow increase in the demand for exports from the developing countries impaired their ability to repay their debts. Very rightly, then, the former president of the World Bank, Mr. Eugene Black, cautioned the governors that a group of countries representing 70 percent of the total population in the developing world had doubled their total external public debt in the period 1955-1961, while the export earnings which would make it possible for them to repay this debt had increased by little more than 15 percent.

In the same decade, the developing countries received donations from the industrialized countries amounting to $19 billion. However, losses in trade most likely were greater than the gains in aid. The international grants in aid during the fifties prevented a collapse of the world economy but failed to remedy the basic problem of world development.

III

The past decade, however, not only revealed the problems of economic growth in the developing countries; it also made the international community aware of the need to solve them. But awareness of their gravity was not coupled with an adequate readiness for action. The political reality was colored by the invention of thermonuclear weapons and delivery systems, but more and more the field of conflict between the main centers of world power was being shifted to the economic sphere, and especially to the developing countries. Economic aid in the form of outright grants therefore became the basic instrument of the economic policy of the industrialized vis-à-vis the developing countries and as such became an integral part of the general world strategy of that period.

The volume of international aid to the developing countries rose sharply during the fifties. In the second half of the period, the value of merchandise exports of the developing countries increased by only 17 percent while the over-all value of international assistance to them increased by 63 percent.[i] Parallel to an increase in the volume of aid, its character and direction were also changed. From July 1, 1945, to June 30, 1960, the United States alone allotted foreign aid in the amount of $75 billion. Of this sum, however, $39.5 billion was directed to Western Europe, while the developing countries, representing two-thirds of the world's population, received $20.3 billion. The concept prevailed during the first postwar period that financial aid to the industrially developed countries would stimulate their economies and that this would indirectly help the developing countries by increasing the demand for raw materials. However, the philosophy of "aid to the industrial countries and trade with the undeveloped countries" was short-lived.

Early in the fifties-at the time, that is, of the Korean conflict-the main emphasis in aid to underdeveloped countries was military. It was only after Stalin's death that economic aid began to develop increasingly. The policy of aid to the developing countries went through three stages in the fifties: "trade not aid"-"trade or aid"-"trade and aid." Yet throughout this period the policy of assistance evolved within the general framework of "competitive coexistence."

Beginning in 1954, the Soviet Union also started granting aid, mainly in the form of long-term, low-interest loans to individual developing countries. From mid-1955 to the end of 1960, the socialist countries granted assistance to the developing countries amounting to $3.6 billion while the United States gave them, in corresponding categories of aid, about $7.3 billion.

Attempts to make trade take the place of aid-motivated primarily by the desire of the industrial countries to decrease the burden of internal taxation-soon proved unrealistic. In fact, experience showed that there was practically no correlation between trade and aid. The countries of the Middle East, for instance, increased their export earnings in this period- due largely to oil exports-by 43 percent, while simultaneously the volume of international aid to this area increased by 84 percent. On the other hand, Africa's export receipts during that period grew by only 23 percent while the inflow of international aid increased by only 8 percent. Let us take, for example, the case of Costa Rica, where the terms of trade in 1959 remained on the same level as in 1954 although the country was receiving per capita aid of $37.90. In contrast, the terms of trade for Burma in the same period fell by 29 percent while the per capita aid amounted to only $2.30. Aid was not a substitute or compensation for defects in the field of trade and it could not simply be replaced by trade.

Toward the close of the fifties, various attempts at reform somehow stabilized policy on the basis of "trade and aid." That concept aimed to maintain trade relations on traditional patterns, but admitted implicitly that this could succeed only if supplemented with a deliberate policy of governmental aid. Thus international economic relations with the developing countries evolved according to a dualistic pattern: in the field of trade, the attempt was made to maintain existing economic and commercial principles and motivations, while in the field of aid the principles and motivations applied were preponderantly political. This made the international economic relations of the developing countries highly dependent upon the general course of international political relations.

The concepts of "competitive coexistence" and of the "economic competition of two systems" proceeded in fact from the same basic assumptions. Both sides became increasingly aware that they could not resolve their differences by thermonuclear war. This does not mean, however, that in this period there had as yet matured the awareness, which President Tito forcefully expressed before the U.N. General Assembly last October, that "the time is past when economic and material benefits might have been achieved by war, by the conquest of foreign territories or the like." Quite the contrary, it was largely an attempt to attain the same goals by new means; and aid was an important one of them. Although in many instances aid led to a more rapid economic evolution in the developing countries, its basic aim, nevertheless, was not economic development as such but as a component of the political aim being pursued. This policy evolved in general from the belief that the destiny of our civilization rested on some solution of the rivalry between East and West. Each side endeavored to expand its influence in the Southern Hemisphere, feeling that this might help it achieve its ultimate goals.

But this kind of aid policy made the situation of the developing countries more and more critical. Often it did not yield economic results-which is not surprising, as the motives and criteria for it were not primarily economic-while its long-term political effects proved dubious.

The fact that the experience of the fifties was unfavorable does not necessarily mean that international aid as such is an unsuccessful instrument for promoting economic growth. However, that experience does show unmistakably that international aid is a dubious instrument of international policy. IV

Toward the close of the fifties it became increasingly clear that the leaders of the People's Republic of China did not accept the policy of the "economic competition between two systems," which was, in fact, only an aspect of the more general Soviet policy of peaceful coexistence. For a number of years, however, the differences between the Soviet and Peking leaderships were resolved by compromise declarations in which one could not fail to see the contradiction between two attitudes. At the moment when this dispute came out into the open, there occurred the first major success of the policy of coexistence-the Moscow agreement banning nuclear tests in the atmosphere, in outer space and under water. This effected a major shift of forces on the international plane. The final effect of this cannot yet be fully envisaged, but some of its implications for economic policy toward the developing countries can be surmised.

The Chinese leaders challenge the Soviet policy all along the line. Their criticisms of various aspects of it are so closely interrelated that it is hard to say which are primary. Did the dispute begin only because of differences in views regarding war and peace? Or because of differing attitudes toward the role of the developing countries in the world economic picture? Or because of differing attitudes toward the path of developing socialism in the world? Or on any other single disagreement on an individual issue? In estimating the causes, one cannot overlook the strong elements of big-power policy in the political concepts of the Chinese leadership. In 1961 the People's Republic of China, together with North Korea and North Viet Nam, numbered 720,000,000 people, while the U.S.S.R. and the other socialist countries of Eastern Europe totaled only 315,000,000. While the gross national product of the People's Republic, North Korea and North Viet Nam amounted to only $61 billion, that of the Soviet bloc amounted, according to conservative estimates, to $231 billion. In their aspiration to take over the leadership of the socialist camp, the Chinese leaders founded their policy on the "theory" of the need for the simultaneous transition of all the socialist countries to Communism. In practice, this meant that the more developed socialist countries should concentrate their current economic efforts on assistance to economically backward China. In view of China's advantage in population, this evidently implied a final take-over of the leadership of the whole camp once economic equality was reached.

Such a demand obviously met with opposition in the Soviet Union. The new Soviet leadership was basing its policy on the recognition that a country's economic and social progress was possible only under conditions of greater consumption and well-being, the gradual freeing of initiative and a general relaxation in the internal psychological atmosphere. The position of the Soviet Union in the world arena probably did not allow it to shut itself up inside the frontier of the "camp." It thus found itself confronted by a twofold and huge task: to increase the standard of living in the country and to meet the international commitments imposed by the cold war. Efforts were made to extend economic aid to the other socialist countries alongside these two basic tasks, but not as an alternative to them. The Chinese policy of the "great leap forward" can therefore be understood as a rebuff and challenge to this Soviet policy. Chinese comments on the "national bourgeoisie" in the developing countries imply as well a criticism of Soviet aid to the "bourgeois" governments of these countries.

Events did not develop along a simple causal line: one cause and one effect. Did the U.S.S.R. come into conflict with the People's Republic of China because of the Soviet desire to coexist with the United States? Or did it perhaps attempt to coexist with the United States because of its increasingly tense relations with the People's Republic? Or did domestic Soviet requirements indicate a course of coexistence, while internal Chinese developments dictated another course of action which could not be reconciled with the former? Or did the interests of the Soviet Union as a great power prevent it from taking steps which, in the final analysis, would downgrade it from that position? All these alternatives can be left to guesswork. What is undeniable is that, concurrently with the improvement of relations between the U.S.S.R. and the United States, relations between the U.S.S.R. and China worsened, and that in their further development one can expect a certain inter-relationship.

This situation introduces new elements into the policy of "competitive coexistence" or "economic competition between two systems," the framework within which the aid policy for the developing countries has until now been evolving.

To the Soviet Union, coexistence means a relaxation of tension and a possibility to reduce the economic burden of armaments. Such a reduction frees resources for more rapid development and a higher standard of living. With its world responsibilities in the 1950s, the Soviet Union was probably not in a position to meet Chinese requests for aid. Now Soviet policy confronts the question: What are the aims and results of the aid policy to the developing countries in the new circumstances? In a time of rapprochement at the "center," the strengthening of the political influence on the "periphery" may not seem to have the same meaning it had before; therefore it may not seem to be worth while to sacrifice important resources for aid in those areas.

A new look at the policy of aiding developing countries is in progress also in the United States. What has happened in Pakistan, South Viet Nam, South Korea and other countries shows that economic aid does not guarantee political alliances in the new circumstances. Aid could be conceived of as an instrument of policy as long as there were only two main centers of power in the world and as long as both competed for influence over the governments of the developing countries. Now, however, Peking is increasingly asserting itself as an independent protagonist, not so much in the field of economic aid to the governments in those countries as with demagogic slogans addressed to the "revolutionary masses" there. Bilateral aid with political motives and based on political criteria might possibly secure the loyalty of the governmental circles which receive it, but it cannot affect the behavior of the peoples who have had little benefit from it so far, given its failure to promote general economic and social progress. In these circumstances, it seems a logical solution to supply aid more through multilateral agencies. And in fact the developing countries have all along favored a multilateral approach so as to free themselves from dependence on big-power rivalries.

Thus we see that the new world situation affects aid policy in a most direct way. The basic accent no longer is: With which side will the governments of the developing countries become allied? The question is much more: What will be the real internal economic and social progress in these countries?

V

The world situation in the sixties is a new one and it requires a reconsideration of certain basic assumptions as to policy approaches. First of all, in a time of "competitive coexistence" and "economic competition between two systems," it will be necessary to reexamine the notion of "system."

The capitalistic "system" was the term used to designate the private- enterprise economies in North America, Western Europe, Oceania and Japan. The socialist "system" incorporated the centrally planned economies in the U.S.S.R., Eastern Europe and Asia. Stalin carried this concept to its ultimate consistency with the theory of "socialist" and "capitalist" world markets, which served as a basis for the concept of the international division of labor on "socialist" and "capitalist" lines.

Although both the East and the West could aspire to giving practical application to the monolithic aspect of their territorial "systems," this concept met with serious difficulties when applied to the developing countries. The idea of the troika represented an attempt to reach a compromise in the concrete situation existing in the United Nations; but it only proved that a sharp territorial division of the world according to socio-economic systems was not feasible. The majority of the developing countries adopted a mixed economy as an institutional framework. However, as "competitive coexistence" and "economic competition between two systems" continued to grow, an increasing tendency set in toward non-alignment and toward African, Arab, Indian, Cuban and other paths to socialism. The Belgrade and Cairo Conferences were clear reflections of this development.

If it was true that inconsistencies in the old concept of a "system" had been demonstrated in the past, it is even more true today when the general principles of coexistence are being applied. The basic premise of coexistence and the prerequisite for its further progress are the establishment of mutual confidence. But as long as the "systems" continue to have a territorial connotation, practical policies will encounter a wide range of difficulties.

If the countries of the Western alliance consider themselves identified with the capitalist system, while those of the Eastern alliance are identified with the socialist system, then either coexistence or confidence may come into question. Marxists cannot renounce the class struggle between the socialist and capitalist systems. Both the adherents of capitalism and of socialism logically aspire to extend their influence and their ideas. If this extension is identified with the territorial expansion of "systems" or the spread of spheres of interest, then coexistence must sooner or later damage the confidence which is the precondition of progress and the fulfillment of the policy of coexistence. In short, coexistence is possible only under the condition that neither territorial grouping should be committed to "bury" its opponent and inherit its territory.

Coexistence is possible on the basis of strict respect for territorial integrity, noninterference in internal affairs, the renunciation of force as an instrument in settling disputes, respect for sovereignty and the realization of a minimal system of collective security. That is why coexistence can and should be the principle underlying the relations among states, regardless of whether such states are associated in some territorial alliances or not; among various countries, regardless of whether they are large or small; among national economies, regardless of whether they are organized into capitalist, socialist, feudal or traditional institutional patterns. Progress and fulfillment of the policy of coexistence is therefore possible if both sides give up their claim that their territorial alliances of states are the sole embodiment of one system or another. Thus, systems should again be conceived as they properly are: the institutional organization of economy, a social organization of life, production and distribution, and not an international political or military alliance. "Systems" relate to internal and not international relations. Coexistence therefore need not involve the renunciation of the class struggle or further social evolution or the sanctioning of the status quo. Coexistence as thus conceived is essential not only for the East and the West but for the developing countries as well.

Such a clarification of general conceptions, which seems to be a logical consequence of the further evolution of the policy of coexistence, will have far-reaching implications for international economic policy regarding the developing countries within the framework of a re-formulated policy of "competitive coexistence" or the "economic competition of two systems."

It thus becomes possible for there to be an independent institutional evolution of the socio-economic systems in the developing countries which is acceptable to both the developed parts of the world and which does not change the basic balance of power. Relations with the developing countries in the new situation need no longer evolve in the shadow of attempts to enlarge spheres of interest. The new situation thus creates new conditions in which relations with the developing countries can be based primarily on economic and no longer on political or military motivations.

VI

The need for a new international policy vis-à-vis the developing countries is obvious. It must take into account the new world reality; it must be founded on the experiences and lessons of the fifties; it must also be adapted to the internal experiences and needs of economic and social growth.

Aid for development purposes during the fifties was primarily motivated by political considerations, with humanitarian and economic motives of secondary importance. Trade policy toward the developing countries, however, remained subject to the rules of the game, inherited from the past. And since there was no inner connection between trade and aid policy, it is no wonder that the aid policy did not succeed in mitigating or neutralizing the negative effects of the trade policy.

The new world developments diminish the likelihood that aid will be extended for the purpose of attracting political sympathizers and allies. This does not mean, however, that it weakens the motivation for constructive and effective economic policies toward the developing countries in general. Reduced tension decreases the political motivation but at the same time increases the economic motivation.

The problem confronting the world community does not arise from the alternatives of "development" or "stagnation" in the developing countries. The demand for economic growth is a sine qua non in our day and as such it is only a sequel to the play of those same forces which during the past decade led to the liberation from colonial rule. President Kennedy was right when he told the United Nations that "political independence is but a mockery without economic advancement." The problem facing the world community is whether the developing countries will be compelled to develop primarily with their own resources or whether they will enjoy the advantages of international coöperation. The implications of one or the other path are today clear (as the developments in China may serve to illustrate).

Out of approximately 80 independent developing countries, about 50 are so small that the annual gross national product of each amounts to less than one billion dollars. If these countries are compelled to develop by relying solely on their own resources, they will be forced to undertake a much more intensive substitution for imports than is economically reasonable, they will have to introduce a much more rigid internal discipline than they wish, they will have to "tighten their belts" much more than their populations would freely be ready to do. The internal and external consequences of such a policy can easily be foreseen. If, on the other hand, they are to enjoy the advantages of full international coöperation- trade and aid-then the transition will be much smoother and the international implications much more favorable.

It is not a question of neutralizing Chinese demagoguery. Chinese propaganda cannot secure mass support in the developing countries either with its theories on the inevitability of war, or by such actions as its territorial expansion toward India, or with such policies as breaking up the family. The case is different when it comes to economic and social achievements in China. China cannot become a sympathetic symbol with its foreign policy, but only with its internal policy and with its opposition to those whom the masses in the developing countries blame for their plight- supposing, that is, that the international community does not provide a better alternative through change and economic and social advancement.

Despite a certain measure of progress in the last decade, economic progress in the developing countries is still largely restricted to a thin upper layer. Dr. Raul Prebisch recently noted that 5 percent of the upper strata of society enjoy 30 percent of the entire consumption in Latin America. The dualistic character of economy and society, inherited from colonialism, stubbornly continues to prevail. The dependence of a tiny commercialized sector of the economy upon foreign trade-in circumstances where there is an unfavorable trend in commodity exports-is the Achilles' heel in the economies of these countries.

Under the changed conditions, the political alignment of the developing countries is of lesser significance than their economic and social advancement. This advancement, however, is being impeded by inherited international trade relations. The terms of trade are still determined largely by the concentrations of economic power which put the peoples of those countries in the status of "hewers of wood and drawers of water." Just as economic and political stability is inconceivable in a national economy in which the workers and farmers are exposed to the pressures of a concentrated economic force under the pretext of the "law of supply and demand," so world stability is inconceivable under conditions in which the world's workers and farmers-the primary commodity producers, that is, the developing countries-are exposed to the pressure of the concentrated economic force of those who have already attained a degree of economic maturity.

The new world trade policy should make it possible for the developing countries to put their natural and human resources to productive use, and thus to earn their own way. But though it should provide new opportunities for the developing countries, it will not automatically increase production. Trade policy should therefore be coördinated and supplemented by an aid policy.

Such a trade and aid policy does not necessarily mean a new "sacrifice" on the part of the industrial countries. The launching of development activities on the territory of one-half of the globe will give to the whole world economy an impulse similar to that produced in the American economy with the opening up of the American West. The effects will be felt in greater employment, the transfer of economic activities to sectors of high productivity, and in many other ways. A new trade and aid policy toward the developing countries will thereby become not a liability but an asset for world progress.

[i] Included are not only grants but also loans and agricultural surpluses, such as those under P.L. 480, etc.

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