The United States has proposed a new approach to the problems of developing nations that reserves aid for the very poorest countries and stresses the role of free markets in stimulating Southern growth through expanded trade and private investment. Because the new policy rests upon opportunities for mutual gain, it may enjoy greater support in the North than past proposals to aid poor nations. However, expansion of North-South trade is central to the prospects for market-guided development. The new approach can succeed only if the United States and other Northern nations can adjust their own industrial structures to accommodate a new global division of labor.
Get full access to this article
View all access options for this article.
References
1.
1. Following recent usage, “North” here denotes the industrialized market economies, located mainly in the Northern Hemisphere. Synonyms include rich nations or “haves.” Likewise, the less-developed—or developing or poor—nations, located mainly in the Southern Hemisphere, are collectively designated the South, or Third World, or “have-nots.”
2.
2. Developing nations, international agencies, and other aid donors often downplay the absolute level of U.S. contributions by citing statistics for the ratio of aid to gross national product (GNP). This ratio is about 0.2 for the United States and over 0.7—the United Nations target for all Northern donors—for the Netherlands and the Scandinavian countries. See World Development Report 1981 (Washington, DC: The World Bank, 1981), pp. 164-65. It is noteworthy in this connection that U.S. trade with the South, as a share of GNP, is larger than for most other industrial countries.
3.
3. As defined by the World Bank, these are the 36 nations with per-capita incomes below $370.
4.
4. This much-quoted phrase was used by President Reagan in his September 1981 speech opening the annual meeting of the World Bank and IMF.
5.
5. However, direction of causation cannot always be inferred. Some nations with ample foreign investment and trade ties have nonetheless grown slowly or not at all.
6.
6. Because market transactions rest on mutual benefits, it is more accurate to say that new wealth is thereby created, rather than existing wealth transferred.
7.
7. The Algiers summit conference of “nonaligned” nations—mainly the same nations as the South, but excluding a few with strong U.S. military ties—marked the start of a two-year cycle of open North-South confrontation and escalation in the United Nations and elsewhere. Although the internal U.S. position on the NIEO issues softened gradually, the shift to a conciliatory official posture was denoted in Secretary of State Henry Kissinger's speech for the Seventh Special Session of the United Nations General Assembly in September 1975. For a detailed evaluation of North-South negotiations during the 1970s, see Rachel McCulloch, “North-South Economic and Political Relations: How Much Change?”Carnegie-Rochester Conference Series on Public Policy, 10:253-282 (1979).
8.
8. On the history and mechanics of the GSP, see Tracy Murray, Trade Preferences for Developing Countries (London: Macmillan, 1977).
9.
9. The Wall Street Journal, 13 Oct. 1981, p. 30.
10.
10. In 1980, more than one-third of total U.S. bilateral economic assistance went to Israel, Egypt, and Turkey, all middle-income countries by World Bank standards. In 1981, aggression from Libya suddenly boosted the U.S. aid prospects of Sudan, whose $370 percapita income puts the country just within the World Bank's low-income category.
11.
11. The incentives may not be perverse, however, from the viewpoint of Northern exporters eager to provide the required capital equipment, construction services, and technical assistance.
12.
12. A true supporter of free enterprise might ask why private markets have failed to provide the required insurance.
13.
13. See, for example, G. K. Helleiner, “World Market Imperfections and the Developing Countries,” in Policy Alternatives for a New International Economic Order ed. William R. Cline (New York: Praeger, 1979), pp. 357-389. A frequently expressed reservation concerning the adequacy of private capital flows as a means of promoting development concerns needed investments in infrastructure. Although private investors often provide some infrastructure to make their own projects feasible, a pure market approach would lead to systematic underinvestment in social overhead capital.
14.
14. On Southern proposals for commodities trade, see McCulloch, “North-South Economic and Political Relations,” pp. 266-269.
15.
15. The feasibility of MFN trade liberalization targeted to Southern exporters is discussed in detail in Rachel McCulloch, “Gains to Latin America from Trade Liberalization in Developed and Developing Nations,” in Werner Baer and Malcolm Gillis, eds., Export Diversification and the New Protectionism (Champaign: National Bureau of Economic Research and University of Illinois, 1981), pp. 231-257.
16.
16. On the implications of the Tokyo Round for developing countries, see Rachel McCulloch, “The Tokyo Round and the Future of the GATT,”Portfolio (forthcoming).
17.
17. For both the United States and the European Community, the South has become the largest and fastest-growing export market.
18.
18. Bilateral U.S. trade negotiations with developing nations are proposed in Robert Baldwin, “Some Aspects of Multilateral Trade Negotiations” (Paper prepared for the National Science Foundation Workshop on the Politics and Economics of Protection, Spring Hill Conference Center, Minneapolis, 29-30 Oct. 1981).
