Not Just Another Recession
Why the Global Economy May Never Be the Same
The world economic order born after World War II, to a large extent fashioned by the United States, was based on two fundamental principles-in monetary terms, the principle of fixed parities and the dollar standard (although the dollar was convertible into gold at the request of the central banks); in commercial terms, the principle of non-discrimination and free trade. Practically speaking, the United States was assuming the role played by Britain during its period of greatness. This lasted until August 15, 1971, when President Nixon suspended the convertibility of the dollar. Over the years, we witnessed the fantastic growth and development of the defeated nations, Germany and Japan, and the emergence of the European Community-developments encouraged by the United States. The stupendous economic expansion of the capitalist West is, without a doubt, the most remarkable feature of this postwar period. The even greater expansion of trade (particularly intra-European) appears in this respect to be both a cause and an effect.
Several discordant notes nevertheless were struck. As Europe gained momentum, the United States took offense (e.g., the dispute over the common agricultural policy, attacks against the policy of association with third countries). Meanwhile, some European nations began denouncing the manifestations of American hegemony (the enormous expansion of U.S. investments abroad, growing balance-of-payments deficits) and voices were raised accusing the United States of disregarding the rules of free trade when these did not serve its best interests (e.g., the insistence on the "American selling price" exception in the Kennedy Round).
Another characteristic of the era which began in 1945 has been the emergence of the Third World. From the beginning of decolonization, these nations, which had nothing in common aside from poverty, sought to achieve solidarity. Such hopes, expressed at the Bandung Conference of 1955, were at first frustrated. Yet, more recently solidarity began to emerge. The "Group of 77," formed in 1971 to defend common positions at the UNCTAD Conference in Lima, comprises today about 100 countries and plays a major role in international organizations. However, it is particularly the success of OPEC in 1973 that has jolted the developed nations into a full awareness of the influential power of the "proletarian" nations. These nations desire, and have the power, to make their voices heard in the international arena and to participate in defining the rules of the game. They have now realized that they are not without effective means for applying pressure.
Finally, in recent years we have witnessed the expansion of trade with the communist nations of Eastern Europe. The cold war has been replaced by coexistence and now détente. While East-West trade now represents only three percent of worldwide commerce, it has developed relatively rapidly and regularly and plays an increasingly important role in both the foreign and domestic policies of the nations involved.1 By 1975, the world economic order can no longer be restricted to the ten nations making up the Organization of Economic Cooperation and Development (OECD). The Third World and, to a certain extent, East European countries must be included.
Today the structure of international economic relations, based on the monetary system of Bretton Woods, has collapsed. This became inevitable in August 1971 when America violated the sole constraint imposed upon her, the convertibility of the dollar into gold, having refused to accept the discipline which would have permitted her to avoid widening the gap between the dollar assets of foreign central banks and her own gold reserves. (When Jacques Rueff and General de Gaulle foresaw this in 1965, the French were accused of anti-Americanism.) And, since the general currency float of 1973, free trade has to a great extent lost its meaning. The Nixon Round is not making any headway and it cannot be otherwise. The expansion of economic relations outside the sphere of developed capitalist countries provides yet another reason for questioning free trade. The development of inflation and worldwide recession are incitements to protectionism.
Another factor is the trend toward the politicization of international economic relations. Certainly, international economic relations have always had a political component. For example, one of the fundamental objectives of the Marshall Plan was to prevent a communist takeover in Europe. However, it is only in recent years that the systematic use of dominant positions and interdependent economic relations has been developed for political purposes. To mention a few examples: the question of "burden-sharing," i.e., the presence of U.S. troops in Europe linked to the restoration of equilibrium in the U.S. balance of payments (Europe, in effect, was being asked to "rent" the troops without having the advantage of sovereignty over them); more generally speaking, the linkage between defense, trade and monetary negotiations demanded by the United States in the tense atmosphere of European-American relations in 1973; pressures on Germany and Japan to revalue their currencies; the linkage between the emigration of Soviet Jews and the extension of most-favored-nation status to the U.S.S.R.; and-the most striking example of political intervention into the economy-the oil embargo of the autumn and winter of 1973-74. Thus we must accept the politicization of economic relations as a given fact.
Since the special U.N. session of 1974, there has been a great deal of discussion over the conditions for a "new international economic order." Some reject this terminology as a revolutionary slogan. They prefer to speak of the reorganization of international economic relations. Putting terminology aside, there is, however, general agreement that the main principles governing international economic relations must be reexamined, taking into account the changes in power relationships and attitudes during the past 30 years.
On the national as well as the global level, monetary stability is a prerequisite for economic stability. In 1971, the international monetary system fell apart because dollar balances were allowed to accumulate which were no longer compatible with Bretton Woods rules. Still it might have been possible at that time to get back on the track. We would have had to consolidate the dollar balances, modify the relative parities of the various currencies, reestablish convertibility in a reserve unit independent of any particular nation and with its availability subject to strict rules, establish a control mechanism over international capital flows, and set up structures for efficient coordination of economic policies. In order to accomplish this, a high degree of determination and courage was necessary, particularly on the part of the United States whose superiority had declined since 1945. Unfortunately, this never materialized.
In the absence of any leadership, the general currency float was the only alternative. In the short run, everyone was satisfied: the United States was now officially freed from any constraint and could hope to reestablish its trade balance thanks to the decline of the dollar; its industrialized partners no longer had to support the U.S. currency. The record level of commercial exchanges in 1973 showed that such a system did not hinder international trade. Under these conditions, the Group of Twenty, in charge of studying the reform of the international monetary system, progressed at a very slow pace. After the jolt of October 1973, no one believed that monetary reform would be accomplished in the foreseeable future. Today, monetary talks are merely devoted to minor points: revision of quotas, the role of gold in a system where precious metals have been dethroned, and creation of facilities for countries running the greatest deficits.
From the current perspective, we can safely say that the system of floating exchange rates seriously contributes to the continuation of the crisis. The erratic fluctuations of parities endanger certain industries (for example, the aeronautics industry in France) without this having anything to do with the laws of competition. The rate of inflation is rising in those countries where the value of the currency is declining, without it being significantly reduced where the value of the currency is rising. This is the classical "ratchet" effect. Many experts credit part of U.S. inflation to this phenomenon.
Instability of exchange rates prevents any planning on the part of exporting companies. Furthermore, the lack of any effective constraint on the creation of international liquidity reinforces the inflationary push without bolstering economic activity. But by making the disappearance of the economic crisis a prerequisite for reestablishing fixed parities and convertibility, we are putting the cart before the horse. We are risking a deepening of the crisis which would, without any doubt, lead to political upheaval. We must therefore immediately convene the monetary conference which should have been held in 1971.
Turning now to the area of commercial relations, the dogma of free trade, which has been the organizing principle of international trade relations for the past 30 years, must be reexamined-and by those most attached to it. An overly rigid adherence to it would be counterproductive. Let us first recall the doctrinal elements of the question. The theory of free trade was formulated by the classical economists (Adam Smith and particularly Ricardo) and perfected by the neoclassicists (Haberler, Hecksher, and Ohlin). It states that in an economic universe where the means of production are not mobile, an international division of labor based on the hierarchy of "comparative advantage" leads to a higher global production of all goods than would be achieved in the absence of this division of labor. Furthermore, advocates of free trade contend that in this manner not only is the world community as a whole better off but that each individual nation benefits separately as well.
In theory, this analysis rests on two quite narrow assumptions: perfect competition and the independence of production techniques with respect to trade conditions. These two assumptions are unanimously rejected by the theorists of imperialism. Among their modern representatives one may mention François Perroux, John Kenneth Galbraith, Joan Robinson and the American radical economists, who point out that the transactions are generally "unequal," that free trade favors the domination of the strong over the weak by distorting the terms of trade in favor of the former and by blocking the possibility of technological development by the latter. This last point leads to a strong version of the old protectionist theory proposed by Alexander Hamilton in 1790. Some claim that Japan owes her remarkable development to the protectionism she has been able to maintain. In any event, it is clear that capital and labor are far more mobile today than they used to be and that the problem of choosing between free trade and protectionism cannot be limited to the question of the exchange of goods.
Many other arguments can be advanced in favor of a more subtle approach to free trade. The expansion of commercial exchanges reduces short-run gaps among the participating countries and, by putting their economies in phase, produces the amplifying effect which physicists call "resonance." The inflation of the past six years and the current world recession can be partially explained in this manner. Such high interdependence between nations which are only slightly integrated politically is a highly dangerous phenomenon; in part for this reason, Keynes was sympathetic to protectionism in his General Theory. Today the argument is still more valid, and it is open to question whether commercial transactions have not already been carried too far in relation to the possibilities for regulating the world economy in an orderly way.
Another point that certainly deserves attention focuses on the struggle against the "external costs" of economic activity (e.g., protection of the environment, the reduction of noise, traffic jams . . .) and on the fiscal consequences of the production of public goods and services and the reduction of social inequalities. Since the distortions of market mechanisms that arise from these concerns have repercussions on the competitiveness of export companies, insofar as the different countries do not deal with these problems in a sufficiently integrated manner, insurmountable problems spring up and noneconomic values are liable to be sacrificed to competitiveness. In a period of great public sensitivity to the costs of growth, this argument cannot be overlooked.
More classic are the arguments in favor of protectionism in the agricultural sector. The still considerable weight of uncertainty has, to a large extent, sheltered this activity from the market economy. Uncertainty about conditions of production (meteorological factors), unpredictable trends in demand, and on the other hand, the time needed to carry out production decisions-and often their irreversibility-all these prevent rapid adaptation by farmers to a changing environment. The problem is aggravated by limited capacity, or high costs, of storing farm produce. For all these reasons, even the most liberal states have adopted extremely interventionist tactics in agricultural affairs. (If the United States has adopted a much more neutral policy on agricultural production since 1973, this is because of the special world conditions that have prevailed since the previous year; even this evolution is not irreversible.) We shall discuss the question of agriculture in more detail in due course, but there are two principles which are basic: agriculture remains the fundamental economic activity of man, the one most intimately linked to his survival; in the long run, both demand and needs can only grow and the problem is to determine whether supply will grow as rapidly. It is therefore fundamental that each country or each region (in the case of sufficiently integrated zones) should develop its agricultural potential, first to approach self-sufficiency whenever possible, and second to generate a surplus which can be exported to zones where self-sufficiency is beyond reach. In particular, the common agricultural policy of the European Community must be maintained as an end in itself, if not in all its modalities.
In sum, agriculture is a sector where the theory of comparative advantage is particularly open to challenge. Its hypotheses are incompatible with agricultural realities.
The foregoing remarks on agriculture have already mirrored, in an implicit manner, the argument of security, which has always been stressed by the advocates of protectionism. In order to counter its effect, the defenders of free trade have spoken out in favor of separating the economic and political spheres. As we observed earlier, the modern world is moving in the opposite direction. The security of energy supplies, raw materials and agricultural commodities, and also of certain advanced technology (computers for example) is more than ever a fundamental concern of all governments.
We have emphasized above the development of East-West and North-South economic relations. What is involved in both cases is bringing economies with differing structures into contact with each other. Economic transactions then have a global nature which stems from what we may call "generalized bartering." Thus the flow of products must fit into a general framework of cooperation whose dimensions are far greater. Once again it seems that the political and economic spheres overlap. It follows from these points that the new world economic order cannot be based on a vision as "free trade" in character as that which governed the postwar economic order. On the long road toward integration, it is arbitrary and dangerous to progress solely in the field of exchange of goods.
Within zones specifically seeking integration, free trade must be maintained. In principle, this applies to the European Community. But such a policy can only work if integration is simultaneously carried out in other sectors as well. For example, Europe must not abandon her quest for economic and monetary union, in the full sense of these terms, in spite of the difficulties encountered. The relations between different zones "in the process of integration" must be governed by flexible rules to be defined, which must pertain not only to the exchange of goods but also, in the long run, to investments abroad, transfers of technology, capital flows, etc. The important point at this juncture is to realize that by scrapping the simplistic objective of free trade we are not implying that international economic relations will be governed by the law of the jungle as during the interwar period. On the contrary, the interdependence between nations is an accomplished fact which requires the creation of adequate regulatory mechanisms. What one must do is to choose one's tools with care-and not to deceive oneself about the purpose of regulation.
For the past two years, the energy crisis has dominated international affairs. It is a particularly complex problem due to the mixture of political, economic and ideological considerations.
It is now generally recognized that in the long run the global supply of energy does not represent a physical problem. In strictly economic terms it is only a problem of substitution, that is to say, of the optimum development over time of the different sources of energy so that each source can be replaced at the right time by another. While the result should be, barring technical breakthroughs, a progressive rise in the cost of energy, this increase should not have major consequences for further global economic development.
The crisis of the fall of 1973 had nothing to do with the scarcity of energy, not even of oil. It was the direct result of the West's having permitted itself to become increasingly dependent on oil as an energy source, and because this oil came in large part from a small group of countries able to form a cartel. To this end, they took advantage of a political and economic situation in which the power relationships were particularly favorable to them. Today, in spite of inflation, the price of oil clearly far exceeds what could be charged if the price were determined on the basis of long-run "opportunity costs," i.e., the values attached to the factors of production that determine their use in one activity rather than another. Can this go on? The answer, of course, depends on the evolution of market forces and the balance of power.
At the present time, the major consuming countries are in a very confusing predicament. The United States hesitates between an aggressive liberal policy which would bring down the demand for oil (thanks to energy conservation and the recession) and precipitate the collapse of the cartel, and a defensive policy whose goal would be to guarantee a high price for oil, in order to develop substitute energy sources and at the same time to keep in the good graces of the Arab oil producers whose attitude is crucial to any solution in the Middle East. Specifically, it appears that the United States has not made full use of its potential capacity for applying pressure on Saudi Arabia and especially on Iran, whose attitude is a determining factor in the fixing of prices.
The European nations and Japan are in a position of relative vulnerability and weakness-which explains their caution. Moreover, as a healthy long-run objective, the Europeans want to establish lasting ties with the Arab world and, more generally, with the Third World. Thus far, the International Energy Agency (IEA) has achieved very little. Further, energy conservation has been compromised by the increasing indifference of public opinion.
The producing nations are also in a relatively confused situation. The considerable drop in the demand for oil, a result of the economic crisis, has put their solidarity to the test. Yet, owing in great part to the allocation of production practiced on their behalf by the oil companies, they have avoided collapse. To what extent their interests in a high price of oil coincide is a fundamental question. One could imagine, for example, that Saudi Arabia would not prefer an excessive rise in the price of oil because its capacity for overall industrial development is far inferior to that of Iran which could, using the money that would accrue to it, permanently supplant the Saudis in the Persian Gulf. Algeria, a small producer, undoubtedly has more complex objectives. It is obviously in its interest to accumulate as many resources as possible to finance its development. But it would also like to assume the leadership of the Third World, and thus tends to lump together the problems of energy, raw materials, and development. Each of these points is of primordial importance and will have to be discussed among the nations concerned. When this happens, we will see that these problems are linked, but distinct. When the polemics come to an end, will the cause of the oil-producing nations be as easy to defend, and can the solidarity of the Third World be maintained? Would it not, therefore, be conceivable that certain nations see the confusion as being to their advantage?
Under the present circumstances, the chances that the balance of power will evolve in favor of either side are so evenly distributed that the producers and consumers might consider that it would be in their interests to seek a compromise. Essentially, this should result in a negotiated price level (which could eventually fluctuate within certain limits) that would be higher than the long-run opportunity cost without being arbitrary, and which could serve as a basis for coherent decisions regarding production, consumption and stockpiling. Using objective criteria, this price could be periodically readjusted. If the attempt to arrive at a negotiated procedure for fixing prices proved impossible, a test of strength would surely take place some day, with all the uncertainty that would bring.
The management of raw materials poses both long- and short-term problems. In the short run, we must organize markets to satisfy the interests of both producers and consumers, and in the long run, assure an economical use of scarce resources (that is, those that are hard to get not in the physical sense but in terms of economic cost). On the first point, the essential ideas are as follows:
1. Each raw material poses specific problems. They must therefore be handled on a case-by-case basis.
2. The smooth operation of markets implies the dissemination of sufficient information on the conditions of supply and demand. (At the special session of the United Nations in 1974, the French Minister of Foreign Affairs insisted on the idea of the "transparency" of markets, meaning just this. For this purpose, he proposed the creation of an "observatory" under the aegis of the United Nations.)
3. Since raw material supply and demand is subject to various rigidities and random variations-similar to those that affect agriculture-regulation mechanisms, based on stockpiling and market intervention, are necessary to limit erratic price fluctuations which are as harmful to producers as to consumers. (The agreement on tin is a standard reference in this respect.) These regulatory mechanisms must not be aimed at effecting transfers of wealth between the parties concerned. The objective is to smooth out short-run price fluctuations, and not to maintain long-run price supports.
Still, the problem of the long-term management of the world's natural resources remains to be solved. To deal with this matter, a resolutely normative, even utopian, approach must be taken.
In order to clarify matters, consider how oil might be handled. In order to discover the most efficient rules for the management of this resource, let us imagine a world government. This government could, for example, nationalize oil and entrust its management to a single institution, in much the same way as the Electricité de France is entrusted with the production of electricity in France.2 Let us then call this institution the World Oil Management Corporation (WOMC). What would be the functions of WOMC? It would have to estimate demand, explore various sites in the world to discover new reserves and exploit these reserves at an optimum rate which would minimize operating costs for the international community. Assuming, to simplify matters, that a perfect estimate is arrived at, normative economic theory states that the optimum price of the oil extracted from the well-head is clearly defined and composed of three elements: (1) the proportional cost of extraction per barrel; (2) an amount equal to the economic amortization of the equipment required for the extraction of an additional barrel; (3) the marginal cost of discovery of one additional barrel of reserves.
If these costs were constant, the operating costs of the WOMC would be perfectly balanced and the company would neither make a profit nor suffer a loss. This would obviate the need both for subsidies and for the distribution of surpluses. However, we must assume that marginal costs will not remain constant; let us suppose that the two first elements do. We can hypothesize that the third is rising, since it is increasingly expensive to discover new reserves. Under these conditions, two observations can be made: on one hand, WOMC would make a profit (differential revenue) to be redistributed; on the other hand, a time would come when the price of oil would be sufficiently high to trigger the exploitation of alternate sources of energy.
Based on our hypothesis of a perfect estimate, a timetable for the exploitation of the various sources of energy can easily be determined. Putting aside the highly restrictive assumption on which our conclusions are based, it nevertheless appears that the resources of the planet must be managed in the "general world interest," by an international organization; and the tariffs on these resources must not result from the hazards of short-run events, but rather from planning their availability and demand. Should a profit be made, it can be distributed under conditions which are not necessarily predetermined. For instance, it could be distributed to the inhabitants of the land from which these resources are extracted.
It goes without saying that since territorial sovereignty is the most cherished prerogative of all nations, these principles, whose implementation implies a high level of integration, are currently perfectly utopian. They might, however, prompt certain partial measures.
The preceding remarks do not take into account the demands of certain Third World countries for a system of redistribution of world revenue in their favor based on the appropriate pricing of natural resources. In particular, arguments advanced in favor of the general indexing of all raw materials (and more moderate claims such as that formulated at UNCTAD concerning an international stockpiling system for all raw materials, financed jointly by the industrialized and the oil-producing nations) seems to be inspired by the idea that less-developed countries should identify themselves with the nations that produce, or at least those that export, raw materials. In fact, this point of view is profoundly false. In the first place, developed countries rather than the developing countries dominate most raw material markets, whether as producers or as exporters. Furthermore, the developing countries themselves are very unevenly endowed with natural resources: all other things remaining equal, a general rise in prices of raw materials would prove harmful to most of them. They would benefit less from the increased value of their exports-if any-than they would suffer from rising costs of energy, minerals, metals, fertilizers and manufactured products which they import.
These statements can be clarified by a few figures. Taking world mineral production as an example, developing countries account for only 28 percent, market economy countries 45 percent, and planned economy countries 27 percent. If we consider raw materials as a whole and not just mineral raw materials, those which are truly of primary concern for the Third World-namely those for which developing countries account for 90 percent of world exports-are coffee, cocoa, tea, jute, hard fibers and natural rubber. The products for which the Third World accounts for more than 50 percent of world exports are relatively few in number: tin, copper, bauxite, manganese, sugar, and cotton. The bulk of all other basic products are exported and marketed mainly by developed countries.
Only eight developing countries are distinguished by mineral exports accounting for over 30 percent of their total exports. And in terms of a commodity analysis only five minerals (copper, tin, bauxite, phosphates and diamonds) individually make up for over 30 percent of the exports of at least one developing country.
We can calculate that for a group of countries accounting for 80 percent of the population of the Third World an increase in mineral prices will not only fail to yield any profits, but will constitute a burden, particularly for the largest ones among them, while at the same time it would contribute to increased wealth for countries such as Canada, Australia and South Africa.
Hence, it is clear that the problem of resources necessary for development is not restricted to raw materials. Their generalized indexing would also have the fundamental drawback of introducing unbearable rigidities in the trade system. Inflation, overproduction and, finally, collapse of existing mechanisms would be the end result. We must therefore look elsewhere for improvements in the international distribution of income.
Any study of raw materials must pay particular attention to the agricultural sector, which provides the most justifiable causes for concern. These anxieties are twofold. On the one hand, a crisis broke out in 1972, when a sharp decline in grain production (33 million tons) occurred for the first time since World War II. On the other hand, there exists an unsatisfied need for foodstuffs which is likely to increase substantially in the years to come. According to U.N. statistics, the unsatisfied need will apply to a population of at least 750 million by 1985, as against 400 million today, not including China. Thus, any analysis of the world food crisis requires a different approach, depending on whether one is concerned with the short run-the next two or three years-or the long run.
In the near future, one can expect that the crisis which began in 1972, due to a combination of accidental circumstances, is going to be solved owing to the very stringent measures taken by the United States in August of 1973 to increase production, i.e., the Agriculture and Consumer Act. Only poor weather in the large grain-producing regions slowed recovery in 1974. However, equilibrium will probably be regained at a high price level for four main reasons: the first surpluses (possible in 1975, probable in 1976) will immediately be allocated to stockpiles and will not directly influence the market; producers will refuse to allow a drop in their income; the energy crisis will have increased production costs; marginal production costs tend to increase. Therefore, it would be a mistake to discount a recurrence of overproduction crises during the next two or three years.
In the long run, however, it is almost certain that overall need, and even effective demand, will rise sharply. Based on U.N. documents, we can, for instance, calculate that total primary effective demand for grain in 1985 to provide for human and animal needs will exceed the 1974 figure by about 470 million tons, corresponding to a 39 percent increase in 15 years. Inclusion of unsatisfied needs would lead to considerably higher figures. Despite continuing controversy over the matter, we can safely say that satisfying total needs will not be prevented by physical obstacles, but rather by economic and social obstacles. If the world population is to eat its fill, the developing countries will have to be able to pay increasingly large sums for their food imports. For example, the net grain deficit for developing countries in 1985 has been estimated at a minimum of 70 million tons (as against an average of 13 million tons from 1969 to 1972). At a mean price of 200 dollars per ton in 1973-1974, this amounts to an aggregate expense of 14 billion current dollars. Even assuming that a solution will be found to finance the imports, we know that food distribution encounters tremendous problems which are not generally found in the developed countries. Consequently, regional and sectoral imbalances, arising from social and economic rather than physical causes, are to be expected in the coming decade.
Setting up mechanisms to improve the world food situation will have to have an important place in the new world economic order. The hopes inspired by the Rome conference have thus far been frustrated. The priority objective of the conference (to set aside supplementary institutionalized resources) has not been achieved; its second objective, which was to ensure that the developed countries would fill the food gap in the short run, will perhaps be achieved; its other objectives-international stockpiling, a food security council, compulsory deliveries, and control of prices of exporting countries-have been completely ignored.
This analysis brings us back to an observation made earlier concerning the common agricultural policy of the European Community. The original intention was to maintain and even increase the food resources of the Community by assigning priority to self-sufficiency. Indications are that this objective must be upheld. In the medium term, overproduction situations might reoccur, leading to hasty Malthusian measures, whose consequences would be especially dramatic since we know that, in the long run, quantitative growth in production on a worldwide basis is absolutely imperative.
The relations between industrialized nations and the Third World have become a focal point in international economic relations. Let us first consider the main points which appear in the resolutions adopted by the United Nations General Assembly in 19743. For the authors of these resolutions, it was essentially a matter of allocating the financial and technological resources necessary for development:
- by cancelling the standing debt of the Third World;
- by compensating the developing nations for the abusive exploitation of their natural resources during the colonial era;
- by recognizing their total sovereignty over these resources;
- by expanding the participation of the Third World in the daily operations of the international monetary system;
- by encouraging the inevitable rise in the prices of raw materials (especially by indexing the prices of primary products to those of products exported by industrialized nations);
- by favoring true economic decolonization, including the right to diversified, complete industrialization, accompanied by effective transfer of the most advanced Western technologies.
What we are seeking is the definition of a permanent order. Thus, we need not comment on the two initial points, which, when examined closely, involve temporary measures. On the question of total sovereignty over natural resources, we shall restrict ourselves to the observation that in an interdependent world sovereignty is always limited; hence we have already advocated the concept of management of the earth's natural resources for the general good and not for the benefit of a limited few.4
Concerning the participation of the Third World in the international monetary system, the changes currently taking place within the International Monetary Fund are pointing in the right direction. Broadly speaking, for Third World countries, which have generally become independent since World War II, the present economic order-or what is left of it-is no longer legitimate. These nations must therefore participate in the formulation and management of the new international economic system. When we dealt with raw materials, we saw that it was a mistake to identify the problems of management with the defense of the interests of the less-developed countries. But the problem of redistributing world revenue remains unsolved. The ideal solution would be the adoption of a redistributive international tax. In today's world, however, the idea of a negative international income tax is undoubtedly premature. Nevertheless, we must devise the means of establishing a system of minimum guaranteed income for the poorest countries.
In this respect, two systems merit consideration:
- The system initiated at the Lomé Convention of 1975 between the European Community and the Associated countries of Africa, the Caribbean and the Pacific. It grants the latter a guarantee scaled according to their level of development, which is specific as regards certain products, that we shall call "poor products," which are decisive in the Associated countries' export earnings. They are mostly tropical products. (With the exception of iron ore, mineral raw materials are excluded.) The guarantee provided assures that in the event that export revenues derived from certain products sent to the Common Market fall below a certain reference level (average revenues of the four previous years), the Community will compensate the countries concerned for part of the resulting losses.
- A system of variable import levies. Recommended by France in 1964 at the first session of UNCTAD, this system involves the collection by developed countries of variable import levies, after the establishment of a reference price for each product, either unilaterally or by international agreement. The amount of the levied tax (i.e., the difference between the actual price and the reference price if the latter exceeds the former) reverts to the exporting countries in proportion to their exports.
This latter system could be applied as follows: by restricting the list of products in question to "poor products" exported exclusively or almost exclusively by developing countries; by agreeing that the target price will be determined at regular intervals by negotiation between exporters and importers in order to avoid an excessive gap between the actual and target prices; by granting the benefit of reversion only to exporting countries whose percentage of subsidized exports is higher than 10 percent of total exports, or very poor countries (e.g., GNP inferior to 220 dollars per capita).
Irrespective of the system adopted, the basic principles would remain the same: application to "poor products"; the right to compensation based on the relative size of product exports to total exports and with consideration of the per capita income level.
Technology transfers also constitute an increasingly pressing need for the Third World, especially for the most dynamic countries among them, such as Algeria. This fairly vague notion actually covers what is normally known as industrial cooperation, as well as new, more qualitative claims. More precisely, the requirements of purchasing countries consist of:
- the demand for plants ready for immediate operation (the technology supplier not only agreeing to provide the installations, but also to transfer them to the buyer only after a substantial operating period involving the use of personnel from the owner country which the supplier has been charged with training);
- the demand for markets to sell the goods produced with these plants;
- increasing training needs: the link between industrial operations and the setting up of a permanent vocational training system, and if necessary, one covering technical education and research;
- research for technology and production systems adapted to the purchasing country;
- the right of access to subsequent advances in the technology acquired;
- possible surveillance and supervision of the behavior of suppliers by the governments of industrialized countries, extending even to takeover in the event of company failure;
- the development of joint ventures;
- with respect to countries with monetary surpluses, the acceptance of investments by these countries in the industrialized countries (The Kuwaiti Minister of Petroleum declared in December of 1974 that the ultimate guarantee of technology transfers by Mercedes to Kuwait is a Kuwaiti share of its capital);
- changes in existing regulations (patents and licenses) and the establishment of an international technology transfer code (under the auspices of UNCTAD);
- the creation of an international technology transfer fund;
- stringent regulation of "reverse transfer" (exodus of intellectuals to industrialized countries).
Certain operations likely to contribute to the implementation of these demands could be dealt with on an international level. Thus an international institution for technology transfers could be created. This body would evaluate the technological needs of the Third World; organize exchanges of technological information between industrialized and developing countries; engage in the purchase of patents and licenses which would then fall within the area of international ownership, and hence be open to unrestricted use by Third World countries; finance research on themes of common interest (e.g., in the area of agricultural techniques); finance the scientific and technological training of Third World students through a system of fellowships and scholarships.
However, a true technology transfer policy can probably only be defined within the framework of bilateral cooperation between states. The industrialized countries will have to provide the necessary guarantees, encourage and coordinate their industries in order to move in the desired direction, etc.
Finally, it must be pointed out that developing nations must understand that a technology transfer policy can only succeed if their demands for sovereignty over their natural resources do not become abusive. Otherwise, the industrialized nations will be tempted to use the same arguments in regards to the technologies they have developed.
The elite classes of the developing nations are also advocating a new international division of labor. Variations in labor costs have already led to the establishment of several industries in Southeast Asia and other Third World countries. Some of these, such as Brazil, welcome the establishment of polluting industries in their countries. The oil-producing nations, especially Iran, would like to see establishment in their territories of oil-conversion industries (refining, petrochemicals). However, if an international division of labor favorable to the Third World is to work, the industrialized countries must open up their markets to the industrial products of the developing countries (an extension of the system of generalized preferences). In order to accomplish this objective, the industrialized nations must formulate an adequate plan to deal with the social problems associated with the disappearance of certain industries (the textile industry immediately comes to mind). Moreover, it should be pointed out that the new division of labor desired by certain Third World countries can only be implemented if it corresponds to the criteria of competitiveness. (Will Iranian petrochemicals be competitive? If not, in the name of what will the industrialized nations step aside in this sector?) And if the revolutionary positions or political instability of certain developing countries are not moderated, the developed countries might well take steps to limit their dependence on the Third World.
To conclude, the intent here has not been to present a detailed plan for a new world economic order, but to explore possibilities in a few essential areas. The underlying concepts might thus be seen in the following light. Such an order rests on a globalist view of international economic relations. This means that the number of actors in the economic "game" must grow (by the addition of the Third World countries, and to a certain degree, of East European nations) and that mechanisms must be developed to ensure the evolution of the power relationships into relations based on mutual rights and equality. That is to say, each country must be bound to the same rules. The idea of an international redistributive tax, which should be considered a long-run objective, must be considered from this perspective. In this respect, the world economic system should evolve in much the same way as the European nations did after the industrial revolution.
A new world economic order would retain the fundamental principles of economic liberalism while introducing certain nuances. The international monetary system must be based on the principles of fixed parities and of the convertibility of the currencies into an independent reserve unit which would be strictly limited in its creation. Free trade must be maintained within zones seeking integration. Between the various zones, a more flexible relationship must be defined taking into account the disparity of objectives. If we are able to coordinate our cyclical and structural policies and establish a system of collective security to limit the use of economic threats, we will move much closer to free exchange. And the growing interdependence between nations calls for the creation of functional organizations for energy, mineral raw materials, and agricultural products.
The crisis shaking the Western World is not the "final crisis of capitalism." Today's problems stem from the monetary disorders which resulted from the lax attitudes of the past decade, from the lack of coordination in the context of growing interdependence and from the deflationary impact of the rise in energy prices. If we are to emerge from the crisis and cushion revolutionary attitudes, a policy of improvisation will not suffice. Ambitious but concrete initiatives must be taken on the international level as quickly as possible.
1 Peaceful coexistence originally stemmed more from the Soviet desire to avoid direct confrontation than from the desire to expand trade relations. The change occurred in 1971 at the 24th Congress of the CPSU which, in the perspective of the eighth Five Year Plan, explicitly linked the "peace program" of the Soviet leaders to contributions by the U.S.S.R.'s Western partners to its economic growth.
2 It should be recalled that the notion of basic products as the "common patrimony of humanity" was adopted by the United Nations with respect to the seabed.
3 "Declaration on the Establishment of a New World Economic Order," "Program of Action on the Establishment of a New International Economic Order" (May 9, 1974); "Charter of Economic Rights and Duties of States" (Dec. 12, 1974).
4 Here is a relevant quotation from Karl Marx, reported by Mssrs. Albert and Ferniot in Les Vaches Maigres, Gallimard, 1975, page 79: "When our society reaches a higher level of economic organization, the right of ownership by a few individuals of land forming part of the planet will seem as absurd as the idea of man's ownership of man appears nonsensical to our society today. No nation, nor all the nations covering the globe, are owners of the land, but merely possessors, tenants, with the responsibility like diligent heads of families, of transmitting it, improved, to future generations." (Das Kapital, Book 3, Part 6, Chapter 46.)