The Global Zeitenwende
How to Avoid a New Cold War in a Multipolar Era
ANYONE who reads the newspapers will agree that the mid-century is a time of turmoil. Whether it can become an era of increasing stability in international affairs depends, in part, on the measures taken to strengthen the Atlantic Community. It also depends on what advances can be achieved in other areas which are still free from Soviet Communist domination but are not yet the full beneficiaries of twentieth century progress. The free world will not remain free if the hunger of millions of human beings for progress is neglected. Instead, it will go on being vulnerable to encroachments from without and to disputes within. A stable world cannot be built out of populations engaged in a tooth-and-nail struggle for a poor subsistence.
The International Bank for Reconstruction and Development has been at work throughout the free world making loans to increase production and raise living standards. At the end of January 1952 it had helped finance productive projects on six continents, in 25 of the Bank's member nations. It arrived on the European scene in advance of the Marshall Plan, with half a billion dollars of investment to help in the postwar reconstruction of Western Europe. Since then, the Bank has turned its attention increasingly to less highly developed countries, which are now its main field of operations.
Capital has been provided by the Bank for a wide variety of undertakings. These include, among other things, industrial enterprises (chiefly in Europe), electric power production and distribution (chiefly in Latin America), farm improvement and mechanization, flood control and irrigation, railways, highways, shipping and port development. Loans total $1,265,000,000. For the most part, they have been made in United States dollars. But British pounds, Canadian dollars, French francs and other currencies of the member states have also been loaned, and some Swiss francs as well. When account is taken of sums spent or committed by borrowers and other investors, the total cost of projects completed or going forward with the help of the Bank comes to more than 3 billion dollars. These sums are the accumulated result of five years of lending.
In every way the Bank seeks to accelerate the speed of development in its member countries. The rate of lending is being increased as fast as possible--subject always to the limitation that more will not be loaned than the borrowing country can utilize effectively and has a reasonable prospect of repaying. But the financing of development faces many formidable difficulties. Most of the underdeveloped countries lack technicians and entrepreneurs; experience in public and private business is limited; disease and illiteracy hold down productive ability; and the dearth of basic facilities such as electric power and transportation further restricts the opportunity for the fruitful application of capital. These limitations deter international investment, and inhibit the productive use of such funds as the underdeveloped countries themselves possess in potentially useful amounts. In short, the problem of lifting living standards is not just to provide capital, but to help create conditions and skills for using it effectively.
The World Bank tries to approach its task with all of these considerations in mind. Through lending, it assists in raising productivity and providing basic facilities on which further productive investment can be built. It frequently gives technical assistance not only in planning and carrying out a project, but in preparing for successful operation after completion. This does more than help ensure the effective use of loans; since borrowers always finance a substantial part of the costs of their projects out of their own resources, such assistance aids underdeveloped countries to use their own capital expertly.
The Bank is owned by the member nations, and it does its business in these countries. This special relationship gives an unusual opportunity for close and friendly counsel. Through such counsel we can, I hope, help our members take action in many fields which will mobilize neglected energies and resources. Our lending operations, in other words, are intended to stimulate economic progress which goes beyond particular projects and to help create conditions which will encourage greater private initiative and a greater flow of private capital. This is essential. Desirable and necessary as governmental action may be in many instances, individual enterprise and private resources are indispensable ingredients of economic progress.
However, while the Bank is always concerned with the broad economic problems of member countries, its work as an investor normally begins with specific loans and loan projects. Here is where the borrower and the Bank come to grips with the problem of applying capital creatively and efficiently, and where it makes its most immediate contribution to increasing production, raising living standards and opening opportunities for further investment. It seeks to finance those projects which will bring the most important benefits to the borrowing country in the shortest time. Sometimes member countries can be shown that proposed projects do not deserve high priority, and can be helped to choose and carry out more pressing enterprises. In any case, the Bank does not provide loans simply for the convenience of the borrower. It has declined to make loans which, while sound from a credit standpoint, would merely enable the client to avoid the necessity of making better use of his own resources. The undertakings financed must be economically justified.
A major test of any project the Bank is asked to finance is whether, directly or indirectly, it will increase production. Farm production is fundamental in the underdeveloped countries. Agriculture is the chief economic activity in most of them, and the pressure of growing populations on available food supply is one of their major problems. Moreover, productive agriculture is usually a basic requisite for ultimate industrialization. Farm productivity must rise if manpower is to be released for industry; farm earnings must increase if a healthy market is to be provided for local manufactures. And the export of agricultural commodities is one of the important ways of paying for imports of machinery and equipment needed for the establishment of industry.
Of two simultaneous loans made by the Bank when it first turned from European reconstruction to development financing, one was a loan to provide machinery to Chilean farmers. Since that time, the Bank has engaged in a wide variety of lending to increase agricultural production and earnings--among other things, to help finance farm mechanization in Colombia, Nicaragua and Paraguay, land clearance in India, irrigation in Chile and Thailand, flood control in Thailand and Iraq, grain-storage facilities in Turkey and Nicaragua, and individual farm improvements in Iceland. Agriculture also benefited directly from the Bank's early reconstruction loans to Denmark, France and the Netherlands. In all, the Bank's lending in direct support of agriculture and the allied pursuits of forestry and fishery amounts to $127,000,000. And this is only part of the picture; many other loans by the Bank, particularly for transportation and power, have been designed to promote agricultural production indirectly. Much more agricultural investment is undoubtedly needed, and the Bank stands ready to supply it. But patience and care are required. The adequate preparation of sound agricultural projects is a time-consuming effort which may involve simultaneous and related studies of such matters as markets, soil, seed, cultivation methods, topography and water resources.
Transportation is an indispensable aid to all economic development. Without access to markets the farmer will not fully use his land, and will grow only what he needs for his own consumption. Industry will be unable to reach its potential customers and raw materials will lie idle in a world that hungers for them. Poor facilities for international transport reduce export earnings and raise the cost of needed imports. The basic need in the underdeveloped countries is for fundamental facilities: roads and railroads to link farms and towns and open up new land, adequate ports and dockside equipment. In some countries, difficult surface terrain may make investment in facilities for carrying cargo by air both economical and beneficial.
The Bank's lending for transportation, including a minor amount in the related field of telecommunications, totals $273,000,000. Some of this went to Europe (especially France and the Netherlands), but loans for transportation in the less developed countries are an important part of the Bank's portfolio. The first such loan, one of $32,800,000, was made in 1949 to purchase rolling stock and spare parts for the Indian Railways. As I write, the most recent loan of any kind is for the improvement of the port of Callao, Peru. In between, funds have been provided for port development in Thailand and Turkey, for highway development in Colombia, Nicaragua and Ethiopia, and loans totalling more than $90,000,000 have supported programs embracing a variety of transport facilities in the Belgian Congo, Jugoslavia and the Union of South Africa.
Another foremost requirement of economic development is the electric power so essential to modern industry. Electricity likewise benefits agriculture by making possible pumping and irrigation, and all the other efficiencies of rural electrification; and it provides light for schools and homes. It is urgently needed in most of the underdeveloped countries, and, while generalizations are dangerous, I would venture the guess that in many countries investment in power brings a proportionately higher economic return than any other kind. The Bank's largest investment in the less developed countries--more than $300,000,000 in all--has been made for this purpose. Power projects, for the most part still under construction, are situated in Australia, Finland, Iceland, India and six countries of Latin America: Brazil, Chile, Colombia, El Salvador, Mexico and Uruguay. The development of electric power in Latin America is particularly significant. For instance, in Mexico, where power is supporting the rapid growth of both industry and agriculture, projects financed by the Bank will by 1955 add 700,000 kilowatts of generating capacity to the 1,000,000 that existed when the Bank made its first loan for electricity there four years ago.
The largest single category of financing by the Bank is for industrial development, including manufacturing and mining. It has amounted to more than $540,000,000--most of it, however, lent for the urgent needs of economic reconstruction in Western Europe. The Bank has not been comparably active in promoting industrialization in the less developed countries. There are several good reasons for this. Industrial enterprise is, par excellence, the province of the private entrepreneur and investor. The Bank's Charter requires that loans to private borrowers be guaranteed by the government of the country in which the project is located. It is politically very difficult for any government to guarantee a loan to a private enterprise because it lays itself open to the charge of favoritism--a charge which is likely to be made no matter how useful the private project may be. There may also be difficulties for the firm sponsoring the project, since it may fear that the government's guarantee of its loan will be taken to imply a right to interfere with the conduct of its business. A firm may be particularly reluctant to agree to a governmental guarantee if the enterprise happens to be one not visibly affected by the public interest, such as a shoe factory or a glass plant.
Finally, in many underdeveloped countries the lack of basic facilities, of the kinds the Bank is trying to create, means that industrialization must begin modestly with small and light industries; but it is extremely difficult--as well as costly--for the Bank to assess the comparative economic value, including the marketing possibilities, of many small industrial enterprises and to make judgments at a distance on the merits of managements and organizations.
The Bank's interest in industrialization is keen, nevertheless, and ways are being found to promote it. While the Bank has not yet made a direct loan to any individual manufacturing or allied enterprise, it has provided funds, both in the early period of lending in Europe and in the later loans to underdeveloped countries, for groups of industrial projects, most of them related within a program of reconstruction or development. Much of a $100,000,000 loan to Australia, for instance, is for industrialization, as is the $28,000,000 in European currencies loaned to Jugoslavia. The Bank has helped organize new banking institutions, or consortiums of existing institutions, in Ethiopia, Mexico and Turkey and has lent them a total of $30,000,000 for re-lending to individual business enterprises. In these latter cases, while the Bank receives the required governmental guarantee of repayment of the loan, no similar guarantee is required for the loans made to the ultimate borrower with its funds.
I am sure that in time the Bank will be able to make direct loans for individual industrial undertakings. We obviously would wish to give serious consideration to any particular enterprise which promises important foreign-exchange earnings or savings to a country, especially if it would at the same time increase the supply of any valuable product for which a sustained and long-term demand reasonably can be anticipated. Such a case might arise, for instance, in connection with coal production in Europe. In addition, the Bank is now studying a proposal--originally made in the report to President Truman by the International Development Advisory Board, headed by Nelson Rockefeller--for the establishment of a new institution to help private enterprises by doing two things the World Bank may not do. The proposed International Finance Corporation, financed by governmental subscriptions, would make equity investments and would make loans without governmental guarantee. A corporation of this kind might be able to do much to stimulate both local and international investment in private enterprise in the underdeveloped countries that would be of the greatest advantage. The Bank's own study of the matter will be reported to the United Nations Economic and Social Council, at the request of that body, in May or June.
All this indicates, I think, that the Bank does not fling money into an economic void. We do not plant steel mills in the desert; we do not help put street railways in a country whose first need is for port development. Working with the borrower, we try to select loan projects which are appropriate to the nation and the economic setting in which they are to be placed. We are particularly glad when we are able to finance not merely one isolated project, but several projects which will have a cumulative effect on a country's economic life. In Ethiopia, for instance, we have made separate loans for highways, for telephone and radio communication, and for a development bank. The roads should give farmers and stock-raisers an incentive to added production through easier access to markets; the development bank should be able to make loans for processing plants which will increase the earnings from Ethiopia's agricultural exports; and new communications, making possible the dissemination of market information and the control of freight shipments, should greatly aid the country's domestic and international commerce in agricultural products. In Thailand, the Bank has made separate loans for irrigation, for railway improvement, and for the development of the port of Bangkok. Here again, there should be a chain reaction, based on the production of more rice and greatly improved facilities for transporting rice and other goods to consumers both inside and outside the country.
In a few cases the Bank has already been able to help provide funds which are related to an entire national or sectional program of development, and we hope there will be more in the future. The $10,000,000 Italian loan, which will pay for some of the import needs arising from the first year of the ten-year program for the development of the long-depressed area of south Italy, is one of this kind. And a $100,000,000 loan to Australia, for example, supports a wide variety of private and public undertakings throughout every major sector of the Commonwealth's economy. The $28,000,000 of European currencies lent to Jugoslavia will also affect every major field of production in that country.
The immediate results of the Bank's loans are, of course, the most striking and tangible. Loans are designed to enable the borrower to earn by his own production considerably more than the amount of the Bank's investment. Eventually, the $8,500,000 loan for land clearance in India, for example, will help make possible the production of about 1,000,000 additional tons of wheat each year which, at current prices, would cost India about $95,-000,000 to import, not including shipping costs--in other words, half the amount of the $190,000,000 loan which India obtained from the United States for the import of wheat.
Less visible but potentially even more important are the mutual confidence and respect which these lending operations can establish between the Bank and the borrower. Such intimate relationships, particularly in underdeveloped countries, give the Bank an opportunity to help its members master techniques for using capital, whether that capital comes from the Bank or not. The borrower and the Bank examine a proposed project together with great care at the outset. Discussion often indicates that the borrower's experience is inadequate in important technical or administrative areas, and the Bank can then provide additional knowledge, either through members of its own technical staff or expert consultants employed for the purpose. Many projects now under construction would either have been impossible, or executed badly with long delay, had not this kind of assistance been available in the preliminary phase of loan discussions. Advice has been provided in such diverse matters as engineering, bond issues, corporate organization, and procurement methods. Knowledge and experience thus gained should be useful on future projects.
When a loan has been made, the borrower sends regular reports of progress to the Bank, and the Bank's representatives visit the site of the project for on-the-spot observation and discussion. In this connection, the Bank tries to help its members develop adequate methods for budgeting and accounting, and for controls of materials and manpower. In some instances, methods learned from the Bank have already been applied to projects which it has not financed; indeed, one of the Bank's member countries now seems likely to apply these auditing and control methods to all the development projects which it is carrying forward. When the client is likely to need assistance in operating a completed project, the Bank is ready to help work out devices looking to that end. Thus highway loans to both Ethiopia and Colombia provide for training programs to enable local labor and management to take over road maintenance and administration in due course.
Just as the Bank is willing, on occasion, to finance broad programs of development rather than individual projects, so it may offer its members technical assistance which transcends individual loans. In 1949 the Bank sent a 14-member mission to Colombia at the invitation of the Government to make a comprehensive survey of that country's resources and to help prepare a plan for using them to the best advantage. The group included experts in such fields as transportation, power, agriculture, industry and public health, as well as economists specializing in problems of national income and accounts, and monetary and fiscal policy. Its report was published in 1950, and was followed late last year by recommendations for specific action by a non-partisan committee of outstanding Colombians. Already, as a result, Colombia has made budgetary and banking reforms, lifted exchange controls, adopted a more liberal attitude toward foreign capital, and successfully checked inflation; and we are continuing to work closely with Colombia on a variety of development problems which the mission and the committee found important. Such results may well prove to be worth more than the direct returns from the $30,000,000 of loans the Bank has made in Colombia.
Similar missions have been sent to Turkey, Cuba, Guatemala, Iraq, Surinam and Ceylon, and at this writing the Bank is preparing to send one to Jamaica. In Nicaragua, a somewhat different technique is being followed. On the basis of recommendations being made on the spot by a Bank representative, who calls on outside experts for particular technical advice, the Government is drawing up a development program and adopting the fiscal and administrative measures essential to executing it. The results achieved by survey missions depend on the attitude of the receiving country; and, except in the case of Colombia, it is too early to say what they will be. But this kind of collaboration between the Bank and its member governments is potentially a major instrument in promoting economic development.
I have given a good deal of space to describing what the Bank can and does do; perhaps it would be well to close with a word about what it has not done, and is not likely to do. In the first place, the volume of lending cannot be fixed at some predetermined, hypothetical level. The Bank and its borrowers must base their joint operations on projects and programs which are soundly conceived and have real economic value. To draw up such projects and programs takes time. Real progress is being made, but the Bank's capacity to provide capital has by no means yet been outrun by the number of feasible plans in existence that ought to be financed through public loans. The rate of lending will increase, but the rate of increase will depend on specific investment needs, not on theoretical assumptions as to global requirements for capital.
It is obvious, too, that if the Bank is to succeed in stimulating the flow of private capital, the integrity of our lending operations must be preserved. This is of the highest importance to the Bank and its members, and it means that we cannot and will not lend more than borrowing countries can afford to repay. Nor can the Bank tailor its lending to political purposes of any kind. We can and do hope that the Bank's operations will, in the long run, make a major contribution to the easing of international tensions. But loans made for political reasons are likely to be so modified and distorted as to fall short of achieving their maximum economic effect. Above all, the Bank believes that no amount of outside capital can relieve any of its member countries of their own heavy responsibilities for economic development. The social institutions of a country, the distribution of wealth and opportunity among the people, the energy and competence of government administration, and the character of the policies governing the use of the country's resources--all these factors bear quite as directly on the speed with which the country can be developed as does the amount of foreign capital available.
There is no substitute for internal effort. Foreign capital cannot be broadly effective in the absence of local capital. Outside advice will be useless unless there are roots which it can nurture. At best, outside aid can provide only a margin over and above what a people are doing for themselves. The margin may indeed be the difference between failure and success, but only when the local effort is substantial--in a word, when a nation has a will to develop. There must be a drive within the country itself to improve living standards, and a government which is responsive to that drive. Fortunately, more and more countries throughout the world are beginning to show this determination to improve the lot of their peoples. There is much work to be done--a challenging work of great importance to the free world and to mankind. The Bank is proud to be helping to carry it on.