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Southern Needs
By Michael Manley From the perspective of a leader of a
sovereign and developing country, the evolution of the political
contour of the world over the last three decades is nothing less
than breathtaking. Movements for democracy, intellectual
freedom, and economic self- determination have forced
fundamental changes in the relationship between the state and
its citizens. New economic policies are clearly demanded.
Simultaneously, the political and economic order has become
truly globalized. All these factors have led to the rapid and
seemingly irreversible warming of the Cold War.
While discussions of East-West economic
competition are being recast in terms of cooperation, glaring
disparities in the comparative levels of wealth and development
remain between North and South. Yet all countries are becoming
aware of the need for collective, coordinated, and rational
approaches toward the problems of the Third World.
It is regrettable that the developed
countries did not view Third World countries after World War II
with the same concern they showed Europe and Japan. For many
years following the series of decolonizations that began after
World War II, the Third World did not receive infusions of
development assistance sufficient to create a modern industrial
base; however, many continued to provide the developed countries
with raw materials for industry and agricultural
commodities.
No comprehensive program for expanded trade
and business opportunities in the Third World was considered.
Instead, the developed countries continued to treat the
developing countries as immature and almost immutable backwaters
of industry, trade, and finance. During the 1950s and 1960s,
however, positive ideas surfaced such as raising official
development assistance from the developed countries to .7 per
cent of their gross national product (GNP).
The relationship between developed and
developing countries is exceedingly complex, with historical
antecedents that cast both North and South in less than positive
lights. But unlike today, when quiet diplomacy and negotiation
have become the norm, during the 1960s and 1970s North-South
interaction was often characterized by confrontational
approaches that tended to preclude rational and equitable
solutions. Admittedly, some Third World countries themselves
significantly contributed to the throttling of their economic
development. In all too many instances endemic corruption,
wasteful and extravagant public projects, rejection of
principles of participatory governance, and inept government
intervention in the domestic marketplace combined with
turbulence in the world economy to stifle economic growth and
maturation.
In the two or three decades prior to
1990--when Third World countries began to appreciate the
usefulness of collective action--overt criticism by one
developing country of another was viewed as something to be
avoided, if at all possible. To a significant degree, the Third
World community attached too much importance to the need to
display a united front in light of the overwhelming military and
economic power of the developed countries. In some cases this
was a disservice to the legitimate aspirations and expectations
of citizens of countries whose governments repressed or hindered
the exercise of universally recognized human rights and economic
freedom.
However, times have changed and Third World
countries no longer turn a blind eye toward actions of any
government that are inconsistent with generally accepted norms.
Increasingly they understand and accept that, while cultures and
religions may vary, certain standards generally apply to
governments everywhere.
The creation of the nonaligned movement in
1961 reflected the belief of many countries that a forum was
needed in which the Third World could articulate its views,
propose solutions to common problems, and maintain a united
front when criticizing the actions of East and West. Like any
multilateral group, the nonaligned movement faced many
problems--"benefactors" in the East and West who
expected blind devotion; exigencies imposed by the spirit of
realpolitik, which dominates the international system;
disagreements within the movement over particular issues; and so
on.
During the 1970s, many Third World countries
sought to create institutions that could formulate development
schemes to advance their economic development exponentially.
Accordingly, these years witnessed prominent discussion of the
New International Economic Order. The work of people such as
Raul Prebisch at the United Nations Economic Commission on Latin
America and the writings of such authors as West Indian
economist Arthur Lewis came under closer scrutiny. Attempts were
made to identify the sources of developing countries' economic
woes and to provide solutions to remove the impediments to
economic well-being.
This new wave of thinking led Third World
countries to adopt development models that were believed to
address more accurately nationalist aspirations, historical
inequities of class, and the apparent unwillingness of the
developed countries to undertake significant efforts to
redistribute the world's wealth. In the 1960s, Jamaica was one
of many countries to adopt wide-ranging import substitution
policies, and it took some time to learn the inherent
disadvantages of that strategy. Then, as developing countries
began to address the flaws of pure import substitution, there
came the enormous shocks of the 1970s.
Developing Jamaica
In 1972, the government of the People's
National Party of Jamaica had a vision of a development plan
that would correct the maldistribution of its country's
resources, increase local ownership of the means of production,
and improve Jamaica's position in the international marketplace.
Like most Caribbean countries, Jamaica's economy is small and
import-dependent.
During the 1970s, the economy was hurt by
several developments. The oil crisis of 1973 led to a worldwide
recession and a decline in imports of raw materials and
commodities by industrialized countries. As Jamaica's energy
bill soared, international demand for its most important
exports, sugar and bauxite/alumina, dropped. Inevitably, its
balance of payments deteriorated sharply.
At the same time, the prosperity of the
island's industrial base was almost completely dependent on
attracting foreign capital. Like many Third World countries,
Jamaica experienced problems when foreign owners of
Jamaican-based businesses and industrial concerns transferred
profits to their home countries rather than investing them in
local development. Exacerbating the already formidable problems
facing the government were such glaring social inequities as
high unemployment, an inadequate educational system, and
deficient health care, which deprived a substantial number of
Jamaican citizens of the basic requirements for productive
lives.
Thus, rapid rises in the price of imported
oil, domestic demands on government resources, increased costs
of imported goods, and financial turbulence within the world
monetary and trade sectors all coalesced to form the ceaseless
debt problems and financial shortfalls that Jamaica is currently
experiencing.
During my first period as prime minister,
1972-80, Jamaica's government reacted to these difficulties with
very strong government interventionist policies. Jamaica was not
alone in its early and unsuccessful experimentation with new
types of development strategies--strategies that were viewed as
the deus ex machinas of the Third World. Developing
countries adopted import substitution, protectionist
legislation, and regulations that compelled foreign exchange
generating export sectors to subsidize more inefficient and less
competitive sectors.
The number of parastatals, corporations, and
industries that were owned and operated by the state mushroomed.
Hindsight provides perfect visual acuity but, at the time, these
well- meaning schemes were viewed as the path to greater
productivity, increased per capita income, and the creation of
modern manufacturing sectors. Ironically, many of the countries
that experimented with import substitution briefly witnessed
measurable progress toward their development goals. By the
1980s, however, bitter experience had taught us that the slender
capacity of the state to counteract the tidal forces of the
world economy was totally inadequate.
Currently, Jamaica is strangled by debt;
virtually half its export earnings go to service the debt. Its
economy cannot move forward. At the end of 1989, Jamaica had a
population of only 2.3 million but an external debt of US$4.5
billion, constituting approximately 140 per cent of gross
domestic product (GDP).
As the pressures mounted, the Jamaican
government, like most others in the Third World, was forced to
borrow. Loans came from three sources: private commercial banks,
other governments, and official international lending agencies,
such as the International Monetary Fund (IMF), the World Bank,
and regional development banks like the Inter- American
Development Bank. The last group is known as "multilateral
institutions." Whereas most African debt is bilateral--that
is, it is owed to governments--most Latin American debt is owed
to commercial banks. Jamaica's own debt is mostly bilateral and
multilateral, and it was accumulated mainly from 1978 through
1987.
From 1980 to 1983, Jamaica's debt was
expanding at an average rate of more than 20 per cent a year,
and during this period, debt grew from US$1.8 billion to US$3.3
billion. In 1987, the debt jumped again by almost US$500
million, primarily in reaction to the revaluation of non-dollar
denominated debt.
In the meantime, there has been a cruel irony
in relations with multilateral institutions. For example,
between April 1, 1989, and March 31, 1990, Jamaica paid in
excess of US$80 million net to the IMF, an amount that
represents an incredible burden to the island's limited economy.
Jamaica has not been alone. Much of the Third
World has confronted rising payments on its debt. In 1981, the
developing countries' debt was US$674 billion; by 1989,
according to World Bank reports, it had risen to approximately
US$1.14 trillion. Between 1984 and 1988, the total net transfer
from developing countries to the developed world was US$168
billion, US$45 billion in 1988 alone.
The debt crisis threatens not only individual
countries, but the functioning of the world economy as well. It
constrains world trade, inhibits capital inflows, hampers growth
and per capita income, and generates tremors of increasing
severity in the international banking system. Certainly it
cannot be in the interest of transnational banking institutions
in industrialized countries to allow Third World countries to
degenerate into virtually permanent states of debt. It is highly
likely that some banks will be unable to absorb the financial
shocks that would flow from a unilateral and permanent
suspension of repayments by large numbers of developing
countries, particularly if the governments of these banks did
not formulate tax and banking regulations to protect their
solvency or financial ratings.
Moreover, any perturbations in the banking
sector could have ripple effects in other capital-intensive
sectors of industrialized countries. Finally, any regional or
bilateral conflicts among developing countries resulting from
the pressures of the debt crisis could set back the superpowers'
current progress toward sustained detente.
The question must be asked whether the world
appreciates that it is in every nation's interest to create
conditions favorable for general economic development, rather
than economic development for only one sector of the world. The
time for the international community to look into this question
is long overdue, and the price in human suffering is too
high.
Further, the democratic governments and
free-market economies in many developing countries are being
threatened by the dangers caused by the debt crisis. As the
unprecedented and startling legitimization of democracy and the
free-market system in Eastern Europe unfolds, the developing
countries are struggling to continue their commitment to such
practices.
Indeed, one need only examine the motives
cited by participants in internal disturbances and attempted
coups around the world to confirm that crushing external debt
leads to domestic instability. The effects of the debt crisis
can be seen in the increasing attractiveness of underground
economies to citizens of developing countries, economies that
sap governments of capital, complicate the task of stabilizing
their structures, and deprive national industries of legal
consumer transactions.
The debt crisis has also fueled the explosive
growth of the drug trade; in Colombia wealthy and powerful drug
cartels have undermined democratic government. When meeting
subsistence needs legally seems impossible, the attractiveness
of illegal alternatives, such as drug trafficking, increases.
Inadequate health services and malnutrition retard the
development of millions of children around the world, preventing
them from becoming productive members of society.
Driven by poverty, rural residents abandon
their lands and migrate to cities, placing incredible pressure
on urban governments trying to provide basic services and
frustrating national efforts to achieve self-sufficiency in food
supplies.
In addition, developing countries face a
brain drain as their most talented and educated citizens
emigrate to developed countries where economic and career
opportunities are better. Emigration is not limited to the
elite, however; those on the lower rungs of the economic and
educational ladders also enter (legally or illegally) developed
countries in an attempt to escape the cycle of poverty.
Media reports in France, the United States,
and other industrialized countries highlight the societal
pressures that result from increased immigration. In developing
countries with long-standing tensions and economic rivalries
between ethnic groups, the added pressures imposed by debt
servicing can transform competition for resources and commercial
opportunities into violent confrontations.
Meanwhile, competition among developing
countries for resources and industrial input increases the
likelihood of transnational conflicts. It is ironic that, as
East-West rapprochement is diminishing the risk of superpower
conflict, the danger of Third World instability appears to be
increasing.
Altruism and Self-Interest
Assistance from the North to developing
nations can thus be justified upon the same basis as was the
Marshall Plan: enlightened self-interest. Following World War
II, the United States concluded that it could best serve its
national interests and the world's security by assisting in the
reconstruction of the war-ravaged economies of the West European
countries, regardless of the side on which they had fought
during the war.
While the altruistic considerations
underlying the Marshall Plan cannot be denied, a fundamental
motivation was the U.S. government's realization that European
reconstruction would provide new markets and trading
opportunities for the U.S. business sector and therefore
significant benefits for the American economy.
The success of the Marshall Plan and U.S.
assistance to Japan is manifest in the West European and
Japanese economies today. The countries of Western Europe,
particularly West Germany, are models of industrial know-how and
technological innovation. U.S. reconstruction assistance to
Japan allowed that country to emerge in the postwar years as an
economic powerhouse respected around the world for its expertise
in high-technology production and for the quality of its
consumer goods.
The United States, for its part, has enjoyed
export markets in the reconstructed economies. While some
trading tensions have arisen between the United States and
countries that benefited from its postwar reconstruction
program, an examination of those reconstruction efforts
demonstrates that "common sense" based on enlightened
self-interest is to everybody's advantage when it promotes
economic growth that incorporates the widest sections of
humanity.
Ultimately, the global debt crisis may be
resolved in several ways, including the revival of world trade
and the resumption of adequate capital inflows to developing
countries. Whatever the solution, a way must be found to halt
the debt-deflation spiral that saps the world economy of much of
its vitality. Sufficient debt relief to developing countries
would restore the import capacity of debtor countries and free
resources to resuscitate world trade.
Such an expansion in world trade would
alleviate the trade deficits of debtor countries. Moreover, debt
relief would prompt a resumption of capital flows to developing
countries that would stimulate economic growth. Appreciation of
the benefits that would accrue to the world economy from an
expansion of world trade and from a resumption of the capital
flows to developing countries appears to be growing.
In recent times, various innovative solutions
to the debt crisis have been proposed, including debt-equity
swaps, cancellation of debt for least developed countries, and
the Brady Plan. In the case of debt-equity swaps, particularly
those proposed for purposes of privatization, private concerns
have hesitated to acquire state enterprises that are often
highly inefficient, with outdated equipment and little market
dominance. Variations on the debt-equity swaps, such as
"debt for nature" exchanges are problematic because of
countries' understandable desire to control their natural
resources and, in the case of small island nations, the lack of
available land.
It is not surprising that transnational banks
resist outright cancellation of privately held debt; they would
prefer arrangements that would guarantee payments on arrears and
the resumption of regular repayments. The Brady Plan represents
a conceptual breakthrough because for the first time debt
reduction has been contemplated by the United States as part of
an overall strategy to cope with Third World debt; however, it
does not do enough. The extent of its relief for foreign
exchange payments is relatively small, and it involves
considerable new lending, which tends to perpetuate the cycle of
debt.
With regard to multilateral lending
institutions such as the World Bank and the IMF, the
misconception persists that developing countries oppose
conditionality. Generally this is not true. The overwhelming
majority of developing countries have long since accepted the
important contribution of institutions like the IMF to good
economic management, fiscal prudence, and other matters.
While these countries may sometimes question
the manner in which conditionality is approached, they do not
reject the concept. Many Third World countries are, however,
concerned by the trend toward a heavy emphasis on structural
adjustment and corrective measures in the absence of adequate
resources for development.
Recently, there has been substantial debate
in the United States over assistance to developing countries,
with growing numbers of citizens viewing foreign aid as a waste
of funds that can be used for domestic needs. During discussions
held in May 1990, Jamaican government officials were impressed
with President George Bush's and Secretary of State James
Baker's appreciation of the problem and the apparent benefits of
increased economic exchanges with Jamaica and of U.S.-Jamaican
cooperation in fighting drugs and promoting regional
stability.
Such fruitful bilateral talks contribute not
only to efforts to solve the debt crisis but also to the
understanding that foreign aid and policies that stimulate trade
and investment lend encouragement and support to countries that
are attempting to become full-fledged participants in the world
economy. They underscore the need for both the developing
countries and the developed countries to cooperate on the issue
of debt; for it is not the governments who suffer, but the
average citizens they represent.
As noted earlier, by the 1980s Jamaicans had
learned that excessively interventionist policies were not a
panacea for their problems. The Jamaican People's National Party
of the 1970s was returned to office in 1989 and developed a
national consensus on different strategies for alleviating our
economic difficulties. It has stressed continuity and, more
important, has established a strong working relationship with
the private sector emphasizing cooperative approaches to problem
solving.
This policy of outreach has also been
extended to the other sectors of Jamaican society. To the credit
of all Jamaicans, these interactions have been frank and
constructive and generally free of demagoguery or political
posturing.
Jamaica's commitment to sector-wide
cooperation was demonstrated during the visit to Washington in
May, when representatives of the private sector and labor groups
accompanied government officers as part of an official
delegation. In numerous substantive meetings, opportunities of
expanding economic activity between Jamaica and the United
States were explored.
There is now a heightened awareness in
Jamaica that trade and investment are indispensable elements in
the development of any country. There is a parallel appreciation
of the benefits that can be derived through programs such as the
U.S. Caribbean Basin Initiative. It is hoped that the revised
program will increase the attractiveness of exports from Jamaica
and its fellow Caribbean countries to the U.S. private sector.
While these domestic initiatives are
impressive and essential, they alone cannot solve the formidable
economic problems confronting countries like Jamaica. While
Third World governments continue to pursue their own domestic
reforms, it must be expected that the creditor and debtor
nations will coordinate their efforts more closely to ease the
debt crisis.
Just as significantly, Jamaica has
spearheaded an effort to develop regional approaches to
stimulating private sector business activity. An example of this
type of regional approach is the current discussion of creating
a Caribbean Stock Exchange. Jamaica is also actively involved in
the Caribbean Community's task of implementing the provisions of
the Treaty of Chaguaramas leading to closer economic
integration. Additionally, ties have been strengthened with the
Organization of Eastern Caribbean States.
Consideration of problems within a regional
context is certainly not revolutionary. The states of Western
Europe are but the most vivid example of countries seeking to
abandon disunity and factionalization in favor of unity and
economic integration. There is also the example of a free-trade
agreement between the United States and Canada.
The Jamaican government and people realize
that it is in our interest to pursue and maintain trust, faith,
and common purpose between Jamaica and the other Caribbean
countries. Collective discussion of regional issues and
concerted regional action make an invaluable contribution to the
development of the Caribbean's modern manufacturing, industrial,
and high-technology sectors.
The debt crisis is not going to solve itself,
nor do piecemeal measures such as case- by-case rescheduling
constitute a feasible solution. A solution must proceed from the
recognition that governments in developed countries,
transnational commercial banks, multilateral lending
institutions, and governments of developing countries share some
of the responsibility and all of the consequences of the debt
crisis.
Industrialized countries must understand that
Third World countries are not seeking tolerance of inefficiency
or corruption. Nor are they asking one part of the world to pay
the costs of irresponsibility by other parts of the world. What
developing countries do ask is that the world community
capitalize upon hard-earned lessons in economic management to
assist developing countries that have the will, intelligence,
and determination to end their economies' stagnation or
deflation.
As noted earlier, a more coherent, collective
effort to solve the debt crisis is emerging. Discussions and
planning at meetings of multilateral organizations, such as the
June 1990 G-15 meeting, and summits of the industrialized
countries contribute significantly to our understanding of the
debt crisis and its possible solutions. What is needed, however,
are joint meetings between the Paris Club and debtor countries
in order to agree on concrete measures of debt relief for
hard-pressed Third World countries.
Such discussions will require all
participants to avoid tangential matters, such as apportionment
of blame for the current debt crisis, that distract from the
task of extracting the developing countries from their morass of
debt. One must believe that the international community will
rise to this challenge to ensure peace and prosperity for future
generations in both North and South.
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The late Michael Manley was twice Prime
Minister of Jamaica. Source: Foreign Policy, Fall 90,
Issue 80 * *
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updated 5 November 2007 |
