China’s New Vassal
How the War in Ukraine Turned Moscow Into Beijing’s Junior Partner
A version of this paper was originally prepared for the conference "Alternatives to Growth" held in Houston, Texas, October 19-21, 1975. The present version will appear in a forthcoming book, Alternatives to Growth, co-edited by Robert E. Sweeney and Dennis L. Meadows.
The conflict between the poor developing nations living in the Southern Hemisphere and the rich industrial countries of the North has entered a new phase in recent months. At long last the countries of the world are coming seriously to grips with the growing material inequalities between a handful of affluent nations in North America, Western Europe and Japan (which account for less than 18 percent of the world population but more than 60 percent of world income), and the scores of poor countries in Asia, Africa and Latin America which constitute the bulk of humanity but enjoy very little of the earth's bounty.
The North-South struggle, brewing for years, had its first climactic manifestation in the 1971-72 negotiations between the Organization of Petroleum Exporting Countries and the multinational oil companies for a higher crude oil price. OPEC's success in its first real bargaining with the companies put the geo-economics of petroleum at the very center of world politics. The oil price adjustments of 1973-74, and the consequences of the Arab oil embargo, made the world realize-however reluctantly and painfully-that the inevitable had finally occurred. The blissful era of plentiful and ridiculously cheap hydrocarbon fuels from the Middle East came to a fateful end.
A direct and highly significant corollary of the oil price rise was a warning to the world that the limits to the interminable growth of energy and raw materials consumption were not merely physical but also political and financial. OPEC's solidarity in resisting Western political pressure during the 1972-73 boom, and its remarkable resilience in holding the oil price line in the face of falling demand during the 1974-75 economic recession, have given other raw-materials producing countries hope for more equitable arrangements with the industrial world.
The dawn of a new relationship between OPEC and the West has been accompanied by a relentless war of words over the future supply of energy and raw materials, and the very survival of mankind. The concerned students of earth sciences and the apostles of a "leaner" Western life-style have argued that the ongoing relation of man to resources is bound to deteriorate before long into a quagmire of raw-materials shortages and environmental decay. A distinguished panel of the U.S. National Academy of Sciences recently joined individual voices of concern over the future of oil and mineral supplies. In a 1975 report entitled Mineral Resources and the Environment, the panel indicated that the world faced a future characterized by shortages of many industrial raw materials and by dwindling supplies of the resources vital to the modern techno-industrial culture. The report added that it was no longer prudent to assume, a priori, that technology would solve every problem of material shortage by replenishing the stockpile of industrial energy, metals and minerals at the present and prospective rates of use. A major thrust of the study was that the first real shortages were "perhaps only a matter of a few years away."
At the other end of the spectrum, the congenital optimists and the latter-day manna seekers have pooh-poohed such forecasts as "eco-nonsense." In their view, the world is moving toward a nirvana of limitless abundance in energy, food, minerals and metals. Professor Beckerman and his supporters, for instance, have been trying to "put an end" to what they consider the "dying cult of ecodoom." Their argument is that, even at the present state of the arts, mankind could "probably extract one hundred million years' supply of metals from the top mile of the earth's crust" (and by A.D. 100,000,000 somebody will surely think up something!). Pollution and population growth will produce their own "natural antidote of breakthroughs" in due course. The world food problem is, in turn, soluble by raising global farm productivity under presently known technology, to wit: by raising agricultural efficiency throughout the world to the level existing in the Netherlands now, it would be possible to feed 60 billion people-as compared to the present world population of about 3.9 billion!1
Fascinating as this boom-and-bust controversy has turned out to be, it has largely concerned the reality of long-term physical limits to world economic growth. It has, for the most part, stayed clear of the equally significant political and economic limits. The aim of this paper is to show that the limits to growth in the world at large-and particularly for the rich one-third of mankind living in the Northern Hemisphere-are not a matter only of the physical availability of reserves. Supply constraints, i.e., the terms and conditions under which industrial raw materials are offered for sale by their producers, are equally, and in some cases much more, important. And these constraints are largely and frequently politico-economic, unrelated to production capacity or nature's transient generosity.
As in the case of oil, so for other industrial raw materials, the matter of physical availability is only part of the problem. And it is a part which should be examined in conjunction with other relevant issues, in a politico-economic context (i.e., in the broad framework of producer-consumer relationships). Looked at in this context, it would appear rather inconsequential whether world minerals-metals resources will last 100 years or 100 million years. The real issue is whether or not this generation and the next-whose survival and prosperity are essential to those of more distant generations-can come to terms with the political realities of an economically divided North-South world; that is, whether or not present world leaders can succeed in laying proper foundations for a world in which the effects of limits to future growth would be minimized. This, in turn, hinges upon the possibilities of establishing certain harmonious international arrangements for the national utilization and equitable distribution of the world's resources-no matter how plentiful or scarce these resources may be and no matter how long they may last.
The postwar economic relationship between poor Southern countries-almost all primary producers-and their rich Northern partners-almost all industrialized-has been one of the most formidable obstacles to balanced global economic growth and world political stability. The disparities in the standards of living, know-how, productive capacity and bargaining power between the two groups have not only been responsible for their political rift; they have constituted some of the most forceful impediments to an orderly utilization of world resources for the benefit of present as well as future generations.2 The vicious circle of poverty and low productivity among the poor two-thirds of the world population has been based on the low return on their raw-materials exports-the major source of their livelihood and development. Painfully low prices for primary products have not only reduced aggregate demand, investment capability and needed growth in the producing countries; they have encouraged wasteful consumption, "loafing," and irrational growth in the rich consuming countries. The great seesaw of commodity prices has further sapped the producers' planning capacity and taxed their development ability.
The Third World's demand for the establishment of a "new international economic order" to put an end to this untenable relationship has been given particular impetus by the intensity and frequency of economic crises in the early 1970s. Virulent global inflation, protracted widespread unemployment, foreign exchange instability and wild fluctuations in raw-materials prices in recent years have been a clear reflection of the breakdown of the Western-dominated postwar monetary and trade systems. The need for a thorough overhaul of these systems has never seemed so compelling.
The two resolutions endorsed by the U.N. Special Session on Raw Materials and Development in April-May 1974-the Declaration on the Establishment of a New International Economic Order, and the Program of Action designed to implement the declaration-were the first collective attempt toward establishment of a new North-South partnership. These resolutions were later approved by the General Assembly in December 1974 and put together in a Charter of Economic Rights and Duties of States. Unfortunately, the main points of the three resolutions-sovereignty over national resources, improved terms of trade for the raw-materials producers, and increased transfer of real resources to the developing countries-evoked strong objections and reservations from the West, partly on "ideological" grounds, but partly also as a result of misunderstanding the Third World's intentions.
The raw-materials producers' desire for price stabilization and orderly markets, for example, was (erroneously) singled out as the main purpose of the new order, and interpreted as a sort of "commodity militancy" designed to duplicate OPEC. OPEC's own success in raising oil prices was also given an ironic and unfortunate twist. That is, the beneficial long-term effects of the oil price rise on energy conservation, industrial efficiency, environmental sanity and international equity were overlooked and obscured by false alarms over oil-related liquidity shortages, payments deficits, and worldwide inflation and economic stagnation. The consuming public in the West remained largely uninformed or unconvinced of the strength of the raw-materials producers' grievances, the volatility of their major foreign exchange earnings, the mounting costs of their manufactured and food imports, and their sovereign aspirations for domestic development and progress.
Despite the strength of the Third World argument about the unfairness of past economic relations, conservative wisdom in the West continued to be tilted toward isolationism, and "benign neglect" of the poor nations' predicament. In a new version of the old Malthusian dictum, some Western libertarians continued to regard national poverty, like the individual's, as essentially self-inflicted. Nations are poor, it was held, because politically and ideologically they are misguided in the way they think, in what they expect from others, and in their attitudes toward life.3 The contemporary Spencerian message to the poor was equally clear: don't blame anyone but yourselves for your misery; don't expect the rich to serve you up prosperity on the silver platter of aid; learn the virtues of political democracy and the "liberal" capitalist system-and you will be saved.
Within a short time after the adoption of the Charter for the new international economic order, however, Western, and particularly American, government attitudes and actions underwent a change-moving away from skepticism and indifference toward reasoning and cooperation. The Third World's position also significantly solidified, thanks partly to OPEC's financial assistance and psychological support. In recent months, concerned public and business leaders in the West have shown growing readiness to seek the road to world political stability and economic prosperity in a more rational way through negotiation and compromise. The raw-materials consuming public-particularly in the affluent industrial world-has begun to recognize the hidden but colossal costs of a diminishingly pleasing life-style. The multinational concessionaires have lost their entrenched influence over host governments, and much of their formidable lobbying power in their own domestic political economies. And, most significantly, the raw-materials producing nations (and the oil exporters as their early pioneers) have come of age-politically able to defend their sovereign rights, economically equipped to pursue their national aspirations, psychologically ready to assert their identity, and internationally committed to seek cooperation and avoid confrontation.
The Seventh U.N. Special Session on Development and International Economic Cooperation, in September 1975, served as a turning point in the North-South conflict. The realism shown by both the Third World and the West in their negotiations during this session resulted in perhaps one of the most productive resolutions by the United Nations in recent years. The ideological confrontation of the Sixth Session gave way to a series of serious negotiations in good faith toward a consensus. The proposals submitted by the "Group of 77" were met by a number of positive and constructive counter-proposals from the United States, the European Economic Community and Japan. Out of this process came a compromise resolution which, when implemented, will go a long way toward meeting some of the Third World's long-standing demands.
The resolution essentially calls for: (1) expanding and diversifying trade, improving productivity and increasing export earnings of the developing countries; (2) securing stable, remunerative and equitable prices for exported raw materials, and protecting their purchasing power; (3) reducing or removing tariff and non-tariff barriers affecting the less-developed countries' exports; (4) increasing the volume and improving the terms of development assistance; (5) achieving the official development assistance target of 0.7 percent of donor countries' GNP by the end of this decade; (6) increasing the LDCs' access on favorable terms to world capital markets; (7) relieving debt burdens of the most seriously affected countries; (8) giving the Third World a greater voice in the management of international financial institutions and larger access to their resources; (9) increasing international control and surveillance over the creation and equitable distribution of world liquidity; and (10) facilitating the process of industrialization in the developing world.
The first significant outcome of this historic resolve-"the spirit of the Seventh Special Session"-was the Jamaica Accord this January on the reform of the international monetary system. The monetary accord reached in Kingston, following a two-day "bargaining" session of the International Monetary Fund's Interim Committee, was the culmination of a long and painstaking process of give and take between the haves and the have-nots. Unlike its wartime predecessor, the "new Bretton Woods" was not a creation of the rich by the rich and for the rich (or the impoverished rich). The new agreement was more like an "open covenant, openly arrived at" through a serious dialogue between the rich and the poor-a dialogue in which, perhaps for the first time in postwar history, the Third World could use its real bargaining power. The final "package" had something for everyone, in a realistic, pragmatic quid pro quo. What the poor nations received was no longer a reflection of the rich countries' generosity or charity, but a price for agreeing to the items which essentially benefited the rich-items in which the poor had no real or immediate interest.
The developing nations' benefits from the "reform package" consisted, inter alia, of: (a) an increase in their IMF quotas from about 7.5 billion units of Special Drawing Rights to SDR 12 billion (raising their total share from about 26 percent to some 32 percent) subject to ratification by member governments; (b) an immediate 45 percent enlargement of their use of Fund resources; (c) a new "trust fund" through which they could receive the profits from open-market sale of one-sixth of the Fund's gold; (d) an early review of the recently enlarged Compensatory Financing Facility;4 and (e) a further review of the Fund quotas in three-years' time instead of the regular five. What they failed to obtain out of their initial demand was a "link" between the Special Drawing Rights and development finance, a gold and currency substitution account, a stable exchange rate regime, and a second basic allocation of SDRs.
The counterpart gains for the industrial countries were: (a) the "legalization" of the floating exchange rate system along with the abolition of the official price of gold and the elimination of the obligation to use gold in transactions with the Fund; (b) the possibility of an ultimate return to a "fixed but adjustable" par-value system coupled with each member's obligation to collaborate with the Fund and other members to promote a stable system of exchange rates, and to avoid manipulating exchange rates in order to gain unfair competitive advantage over other countries; (c) freedom (after the amendment of present Articles of Agreement) for the central banks to buy and sell gold in the market at market-related prices; and (d) the restitution of some 25 million ounces of IMF gold to member-countries in proportion to their quotas (thus tilting the distribution of increased global liquidity in favor of the rich).
The Jamaica Accord reflected a new and effective activism by the poor-an activism which successfully challenged the traditional hegemony of the "Group of Ten" big industrial nations in international monetary affairs. Even if the political horses which were traded in Kingston were no thoroughbreds, and the "reform package" not all that significant, the horse-trading process itself was genuine and animated. And while many issues were left unresolved, the Accord had something for each party-which is a lot more than may be said about a lot of past international agreements.5
Another major offshoot of the Seventh Special Session has been the Conference on International Economic Cooperation held in Paris in December 1975, and now continuing in full force. A vastly expanded version of the original Western proposal for a producer-consumer forum on energy, this first North-South dialogue addresses itself to the totality of economic issues separating the rich from the poor. The agenda of the conference is divided among four commissions-on energy, raw materials, development, and finance-which will be discussing and negotiating over the upcoming months.
The special interests of the participating parties in the terms of reference of the four commissions are, to be sure, not yet identical. But there is a vast common ground for both sides to begin a dialogue. The poor nations clearly wish to assert their legitimate aspirations for a global redistribution of wealth and power on a fairer and more equitable basis. The rich are not only resistant for economic reasons to such sweeping demands; they are also reluctant to change the delicate balance of global politico-economic power which they have built and maintained in the postwar period-without the LDCs' direct involvement or genuine participation.
There is, however, also significant internal diversity of interest within each group. The have-not nations are held together by a set of common grievances against the rich and by a common desire for economic independence and political self-assertion. But they are also beset by national differences in resource endowment, population pressure, income level, technological progress, foreign aid receipts, access to world capital markets, and attractiveness for foreign investments, tourism, etc. These intra-group disparities are bound to make the maintenance of common positions by them on all issues somewhat difficult. The rich countries, in turn, display intense differences in philosophical outlook, national economic objectives, and global political ambitions. They find a unified stand on all agenda items an almost impossible task. There are also significant philosophical and practical policy differences on many agenda items among the various national agencies of some Western countries; that is, the positions favored by the foreign ministry, the treasury, and the central bank of a single country do not always coincide. As a result, the possibilities of different bargaining coalitions on different issues are greater than ever.
On energy, for example, the stated interest of the oil producers is to negotiate future oil prices in the context of the conditions of supply and demand for all sources of energy, including the vital issue of protecting the purchasing power of energy export earnings (i.e., a link between the level of oil prices and the level of inflation). Major oil consumers, by contrast, are interested mainly in the security of supply and markets for oil and in cooperation to promote increased supplies. Among the Western governments, the United States and Britain push for a minimum "floor price" for oil (so as to safeguard the development of their own energy resources); but energy-short countries among the members of the Organization for Economic Cooperation and Development prefer an open-market policy.
On raw materials, the developing countries seek to preserve the exercise of sovereignty over national resources and offer for discussion such topics as the protection of the purchasing power of export earnings, negotiation of commodity agreements, formulation of general principles of a pricing policy for commodity exports, compensatory financing schemes and buffer stock arrangements-in short, greater stability in commodity prices and rising incomes. Industrial countries divide into (a) those which oppose international commodity agreements to bolster prices as a matter of "principle," and are willing to go only as far as stabilizing foreign exchange earnings through compensatory financing schemes; (b) those which are prepared to join commodity pacts designed to reduce price seesaws and to guarantee a floor price; and (c) those which are willing to enter such pacts on the condition that a ceiling based on natural market forces is also agreed upon at the outset. Most rich countries have so far taken a fairly united stand against "indexation," i.e., pegging the future level of commodity prices to the level of inflation in the industrialized countries.
On the transfer of real resources and development assistance, the LDCs stress, in varying measures, such issues as access to markets in the developed countries for capital, technology and the sale of their manufactured products, help for accelerated agricultural development and industrialization, the security of supply of food and fertilizers at reasonable prices from the rich countries, larger flows of official concessionary aid and private investment capital, regulation against unfair competition from synthetics, a code of conduct for multinational corporations, debt rescheduling, increase in the capital base of the World Bank and the International Finance Corporation, adequate replenishment of the International Development Association, and a link between SDR creation and development aid.
The developed countries emphasize the importance of foreign (particularly food) aid, technology transfer, international private investment, increased agricultural and food production, enhanced trade opportunities, and rapid industrial growth. But they are, with notable exceptions, reluctant to accept the 0.7 percent aid target suggested for the Second Development Decade; they shy away from debt moratoria; and the richest among them are unenthusiastic about the link. With respect to both the aid target and the link, however, policy differences among the industrial countries are substantial.
On financial affairs, the LDCs are largely interested in the problems of long-term financial flows and investments in both the industrialized and the developing countries; the protection of real value of financial assets; access to international financial markets; a review of the structure, policies and procedures of multinational financial institutions; and, generally, a greater voice in reshaping the world monetary and trade systems.
The developed nations, led by the United States, are largely concerned with the financial consequences of oil prices and the placement of petrodollars, financial implications of commodity agreements and export earnings stabilization, financing of development projects and food imports in the developing countries, and the general problem of payments deficits in the LDCs. But here, again, the degree of financial orthodoxy within the "Group of Ten" industrial nations varies greatly.
In the face of such heterogeneity of interests, motivation and strategy, the establishment of a new world economic order requires defiantly hard bargaining on specific policies and actions. And in this arena, the conventional wisdom offers little help. The need is for new departures in international thinking, and a restructuring of the world power balance. The post-1946 conventional wisdom was to cope with the old Churchillian East-West cold war (i.e., the balancing and containment of communist power) through an essentially economic approach: help Europe to reconstruct her war-torn economy; give technical and financial aid to the emerging nations to raise their material standards of living; provide balance-of-payments assistance to the economies temporarily in foreign exchange difficulty-and obtain, in return, the "pacifying effects of material prosperity." The ultimate result was expected to be enduring political stability, the spread of democratic institutions, and strengthened resistance to anti-capitalist ideology. This strategy worked reasonably well in Europe; it fell short of its goal in the developing world.
In contrast with the East-West cold war, the new North-South conflict seems to require essentially a political rather than an economic orientation. The growth prospects in the developed world, and the development possibilities for the LDCs in the remaining years of this century, seem increasingly dependent on a broad new political consensus rather than the old-fashioned, limited economic cooperation. As a recent World Bank study has concluded,6 no single set of measures in the field of trade, aid or internal development policy can restore the growth of poor countries to something like the U.N. target of six percent annual growth for the Second Development Decade. The alternative "policy mixes" (including increased exports, import substitutions, changes in consumption patterns, and inflows of public and private capital) can hardly be implemented as a purely economic matter. Only a comprehensive international policy can provide the implementation machinery. And any long-run readjustment in world economic growth (requiring changes in the structure and pattern of world production, consumption and trade) is an integral part, again, of a broad political consensus.
The chances of success in reaching such a consensus, in turn, depend on the prior clarification of the issues at stake. A particularly thorny case in point is the erroneous identification in some of the Western press of the North-South division as a "deep ideological split" between affluent democracies which "put their faith in economic growth" and the Third World which proposes a "redistribution of the world's wealth" to poorer countries-a conflict between "liberal capitalist societies" and those which are "opposed to liberal capitalism in principle."
A closer examination of the issues involved, however, would show this portrayal to be superficial in its content and fallacious in its analysis. The "new cold war" is neither essentially ideological nor truly systems-oriented. It is, for the most part, a simple bread-and-butter issue in the fundamental sense of the word. The Third World is not opposed to economic growth either for itself or for the industrial world. As a matter of plain common sense, the only way the poorer countries can ever catch up with the richer nations is to grow a lot faster, continue to consume a lot less, and invest a lot more. They can thus hardly be expected to oppose their own economic growth. And since their material progress is closely intertwined with Western prosperity, they would be fools to wish to kill the goose that lays the golden eggs. What they ask is to share in the industrial world's economic growth and technological superiority. What they object to is unbridled and self-serving growth-at the expense of balanced universal progress. To them, growth, without the twin criteria of equity and efficiency, is economic madness bordering on moral myopia. The issue, in their mind, is a distinction between national growth fantasies and global development requirements and realities.
The Third World's demand for international justice and equity in global resource allocation and income distribution is also largely misunderstood and misjudged. The propriety of a new international order, based on "shared growth," hinges on no one being deprived of the fruits of his ability, or forced to reduce his high standard of living. The issue is balanced universal welfare. The official development assistance target of 0.7 percent of the West's GNP in the 1970s may appear large, impractical and unobtainable to some Western countries. But looked at in the context of the West's enormous and increasing wealth, it is not difficult to reach. With a modest growth rate of five percent a year, this target will constitute only about one-seventh of the West's annual increase in income. What the Third World wants is the transfer of a small part of this marginal wealth and income to poorer members of the world community. Given the patently unfair character of past economic relations, a small transfer of this additional wealth-with no reduction in the West's actual consumption level-can hardly be considered difficult or painful.7
The charge against the Third World as a whole of harboring particular philosophical hostility toward "liberal capitalism" is also overly exaggerated and largely irrelevant. Many developing countries owe their rapid growth and relative affluence to their emphasis on economic freedoms, material incentives and decentralized decision-making. The tribal, religious and social values in some others often place great stock in the equality of opportunity, healthy competition, and the bargaining process. The apparent distrust by others of the market mechanism is also based on the common belief that this mechanism has been a poor vehicle for the equitable allocation of world resources and the distribution of world income.
The inadequacies of the market in the present North-South relationship are glaringly evident. A good many Third World countries are small, and dependent for their living on one or two basic raw materials with low supply-and-demand elasticities, or under constant threat of synthetic substitutes. They can hardly match the economic strength of industrial giants with tightly organized labor and well-entrenched corporate bureaucracies. Thus, while primary producers' prices have disruptingly fluctuated with the successive postwar business cycles, manufacturers' prices have climbed steadily upwards. In the last four years, some primary commodities have risen four times or more in price only to drop back to one-third or less within a few months. Only a Neanderthal free enterpriser, or an economic nihilist, can honestly deny that such widely volatile gyrations, coupled with subsequent deterioration in terms of trade, make a shambles of national planning and domestic growth.8
The resistance by free marketeers to the "new economic order," on the other hand, is based on the erroneous identification of "efficiency" and "optimum allocation" with the market. What is largely ignored or forgotten by libertarian philosophers are serious imperfections in the present competitive process. In the real world, unlike Pareto's optimum, competition is not always what competition does. The classical perfect competition-diffused and atomistic-is based on the assumption of reasonable equivalence of economic power and resources on the part of competing groups. In the current North-South economic relationship no such equivalence exists. Nor are the competitors' handicaps adequately recognized or allowed for. Market economics may serve the cause of personal freedom and economic growth in a world where initial advantages and opportunities are fairly equally distributed. A first-day swimmer, with both hands tied behind his back, cannot be expected to beat Olympic champions. Yet the economic world we live in is just such a pool in which seasoned record winners and inexperienced beginners are to compete side by side. In this situation, the "every-man-for-himself" criterion is not a guarantee of economic efficiency or distributional justice. It is a cause of debilitating discord and frustration.
To establish the necessary foundations for a fair and healthy global competition, a viable international economic order must, in the final analysis, be able to allocate world resources, and organize global production and distribution, in such a way as to ensure both sustainable worldwide growth and greater justifiable equity-without undermining either necessary efficiency or sufficient incentives. The trade-off is clearly four-dimensional, and naturally seldom ideal.9 That is, under a reasonable compromise, neither world growth nor efficiency would be at its maximum in the impersonal sense of classical market competition. Nor would there be total income equality. But the world as a whole might be a better place in which to live-and let live. The new rich-poor relationship in such a new world would be based on neither handouts nor exploitation, but on mutual respect, cooperation and care for the living as well as the unborn.
This is essentially what the Third World is asking. And this is not a dream-like foray into the unknown. The Third World seeks to apply to the international economy some of the same principles of resource allocation and income distribution presently observed in some progressive Western democracies themselves.
In nearly all Western countries, farm prices are presently stabilized and farmers subsidized in one way or another, often through price parities, i.e., "indexation." Antitrust laws are enforced against unfair competition. Favorable treatment is accorded to domestic businesses and workers. Giant corporations "affected with the public interest" are regulated. Special assistance is offered to the poor and the disenfranchised. Why, the Third World wonders, is something good for the homegrown goose not equally good for the foreign gander? Why are national trade unions, bent on protecting the individual worker's legitimate rights against the big impersonal corporations, sanctified and backed by law, but associations of raw-materials producers, as a countervailing force against the preponderant strength of their well-organized foreign oligopsonists, called unlawful cartels and unethical practice?
To remove the causes of the "new cold war," the domestic criteria of equity and humanity should be extended beyond the national borders. This is what the North-South dialogue is all about. As a starter, solution-oriented dialogue between consumers and producers in Paris could address itself to four broad subjects: (1) a blueprint for future energy prices and supplies with due regard for the rapid exhaustibility of hydrocarbon fuels; (2) international agreements on a number of primary commodities to regulate their world trade and earnings; (3) a realistic scheme for a larger flow of real resources to the poor countries; and (4) protection of foreign investments against economic and political hazards.
Some of these schemes still receive little enthusiasm in the developed countries-partly because of disappointing experiences in the past with commodity pacts and supply guarantees. What is largely overlooked, however, are the fundamental and durable changes that have taken place in the last three or four years in the structure of world power relations. While the record of past efforts to end the roller-coaster prices of raw materials and their producers' earnings has not been exactly enviable, the future of commodity agreements looks reasonably bright. And this for three basic reasons:
First, although it may be difficult for all raw-materials producing countries to duplicate OPEC's success, their chances for reaching accords with rich consuming countries now seem better than ever. OPEC's unique trump cards10 do not, of course, exist for other commodities. But raw-materials producers still can make their voices heard. Reproducible commodities (e.g., wheat, coffee, sugar, cocoa, tea and rubber) are naturally more vulnerable than most metals (e.g., copper, bauxite, tin, chromium), and shakier than some minerals, like phosphate. But the producers' solidarity, and their combined strength, may make up for some of the weaknesses.
Secondly, the United States and other Western countries which were initially reluctant to discuss the Third World demands at the same time or in the same conference (or at all) now seem to have had some second thoughts.11 President Giscard d'Estaing of France has called for "normalization" of raw-materials export prices. Prime Minister Harold Wilson of Britain at the Commonwealth summit in Kingston in May 1975 supported minimum earnings guarantees for countries which depend on a few key exports. Secretary Kissinger has expressed U.S. willingness to discuss "on a case-by-case basis" international arrangements covering the prices of raw materials. President Gerald Ford in a Colorado speech in August 1975 defended higher prices for energy as a spur to conservation and necessary for more efficient use.
And, finally, there has been a gradual realization by the rich countries that price stabilization for basic raw materials is not only beneficial to the developing countries, but may be in their own interest as well. Having recently come through a record postwar commodities inflation-and its critical aftermath-they now wish to avoid its repetition. And, themselves producing some 70 percent of the world's food and raw materials, and accounting for a third of world trade in these commodities, they obviously do not wish to see prices tumble. Some developed countries see a radical fall in raw-materials prices as potentially harmful to their own plans for developing substitutes.
Despite the convergence of such fortuitous forces in favor of the Third World, the implementation of a new international economic order still requires much greater political goodwill, accommodatory spirit, and determination to reach delicate and difficult compromises. While there is ample room for guarded optimism, the task ahead is indeed immense. Reluctance by Western countries to accept the 0.7 percent official aid target, much easier access by the Third World to Western markets, the stabilization of export prices and earnings for raw materials, or a much greater flow of private foreign investment and an international code of behavior, will linger on, and resistance to commodity agreements and costly buffer stock schemes will no doubt continue to be substantial. The consuming public's irritation with the primary producers' demand for higher prices, the foreign concessionaires' ire and dismay at losing their lucrative franchises, the importing governments' impatience and frustration with the Third World's growing influence and expectations must all be overcome first, in order for a serious dialogue to bear results. None of this is too easy. Yet there seems to be no alternative to global bargaining. Neither anger nor despair nor resignation nor bluff nor confrontation will bring the needed coherent solutions. Only a dialogue can. The issues that are to be resolved-energy, food, raw materials, transfer of real resources, the world financial order-each one with its own prospects and perils, call for international cooperation and interdependent solutions. The future of world peace and prosperity-that is, the real prospects for rational growth and equitable growth-sharing-will depend not so much on the bounty or niggardliness of nature as on the wisdom and courage of men.
1 Wilfred Beckerman, In Defence of Economic Growth, London: Cape, 1974; and "A Little More Time," The Economist (London), June 29, 1974.
2 Half of the world's 3.9 billion inhabitants have less than $200 annual per capita incomes; 900 million subsist on incomes of less than $75 a year.
3 See, for example, Irving Kristol, "The New Cold War," The Wall Street Journal, July 17, 1975, and the Journal's editorial, "A Word to the Third World," in the same issue.
4 This newly liberalized IMF facility allows member-countries with temporary export shortfalls ready access to the Fund resources. Thus raw-materials exporting countries whose export earnings in any one year fall from normal levels for reasons beyond their control (e.g., sharp decline in commodity prices, poor harvests, disasters, etc.) can draw on the Fund resources normally up to 50 percent of their quotas in any 12-month period and up to 75 percent beyond that.
5 Among these are a proper system for better international management of global liquidity; an effective mechanism for asset settlement (i.e., the obligation by countries to convert into a primary reserve asset, such as SDRs, official balances of their currencies held by other countries and presented to them for conversion); and the promotion of an increased flow of real resources to developing countries.
6 Prospects for the Developing Countries, Washington: July 1974.
7 A mere five percent growth of GNP in the United States in 1976 (about $70 billion) is equal to the combined annual GNPs of more than 70 developing countries in Asia, Africa and Latin America.
8 With the exception of 1973-74, the relative terms of trade of the non-oil developing countries have not improved over the past 25 years.
9 A compelling case for equality cum rationality and efficiency cum humanity is made by Arthur Okun for the national economy. See Equality and Efficiency: The Big Trade-Off, Washington: The Brookings Institution, 1975.
10 E.g., the industrial world's insatiable need for oil imports, geographic concentration of petroleum reserves in the Middle East, absence of effective short-term substitutes for petroleum in many uses, non-perishability of oil, ease of supply control on short notice, and the capital-intensive nature of the industry making it immune to large worker layoffs in slack times.
11 According to some Western press reports, the United States, whose "prime goal of oil diplomacy" was to break up OPEC during 1974-75, now finds such a move "detrimental to the direction" in which it is moving, and is willing to learn "to live with it." See Time, Jan. 19, 1976, p. 54.