Commentary Magazine


East-West/North-South

In May 1977 President Carter said that “the threat of conflict with the Soviet Union has become less intensive,” and that the greater threat to peace now came from a world “one-third rich and two-thirds hungry.” In that same year, at the suggestion of Robert McNamara, president of the World Bank, a commission was established to study this great new threat. The commission was headed by Willy Brandt, former chancellor of West Germany, and included four other former heads of government (Edward Heath of England, Pierre Mendés-France of France, Olof Palme of Sweden, and Eduardo Frei of Chile), as well as other prominent people like Katherine Graham, publisher of the Washington Post and Newsweek.

After three years of labor, the Brandt Commission has issued its report, North-South: A Program for Survival.1 Its opening sentences read: “The crisis through which international relations and the world economy are now passing presents great dangers, and they appear to be growing more serious. We believe that the gap which separates rich and poor countries—a gap so wide that at the extremes people seem to live in different worlds—has not been sufficiently recognized as a major factor in this crisis.” And the world “will move toward its own destruction” unless it greatly reduces this gap and “becomes a just and humane society.” Massive wealth transfers to the South, to be achieved in part through international taxation and commodity schemes, can help to remove the crisis and avoid the risk of global destruction. They can also help to restore and maintain prosperity in the West.

The only thing new about the Brandt Report is its packaging and the prestige of those who have signed their names to its assertions; and the only surprising thing about these assertions is the claim that they have “not been sufficiently recognized.” In fact they are so widely accepted nowadays that calling them into question is regarded as bizarre in many circles of opinion.

Nevertheless they are all based on fundamental misconceptions, the espousal and acceptance of which place the West in peril. The East-West conflict has not been superseded by a North-South dialogue, confrontation, or conflict. The East-West conflict has been tilted against the West by a South created by the West and largely hostile to its parent. Preoccupation with the North-South confrontation has served and can only serve to divert attention from the reality and persistence of the East-West conflict. This so-called confrontation between North and South is, in the words of one British critic, “a figment of the Western liberal imagination, exploited to our own detriment.”2

Nor do peace and prosperity in the West, or development and prosperity in the South, depend upon the massive transfer of resources from the former to the latter. On the contrary, such transfers weaken the West, add to its problems and dangers, and impair its ability to deal with them. And they do not promote economic improvement in the South.

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2.

The “South”—that is, most of Asia, Africa, and Latin America—is a political, not a geographical, concept. Australia and New Zealand are not included; nor is South Africa, usually ignored in these discussions as being in a no-man’s-land, a sort of global non-country. Conversely, much of the South—including India, Pakistan, Bangladesh, Southeast Asia, and large parts of Africa and Latin America—is north of the Equator; indeed, much of it—Iran, Turkey, and North Africa—lies north of parts of the U.S. China, wholly in the northern hemisphere, is sometimes included in the South.

The “North,” in turn, is obviously not the North. It is in fact the West, i.e., Western Europe, North America, Japan, Australia, and New Zealand—or, as the Brandt Commission says, the “market-economy industrialized countries,” including “two rich industrialized countries south of the Equator.”3 Thus the Soviet Union and its bloc, firmly lodged in northern latitudes, are not considered part of the North. The commission itself notes that the Soviet Union and the industrialized countries of Eastern Europe “do not want to be lumped together with the West, or to be contrasted with the South in a division [between rich and poor] which they see as the consequence of colonial history”—a neat reminder of how the Soviet Union uses North-South issues to its advantage in its conflict with the West. And Edward Heath, a member of the commission, has reported that Brezhnev told Brandt “that he was glad to hear that the countries of the North were proposing to make some amends for the grievous century and a half of colonial repression.” As “the Soviet Union had no part in that, they had no part to play in the Brandt Commission.” These false and damaging allegations are reproduced both in the commission report and by Mr. Heath without comment, let alone rejection or refutation.

No more than the South is a geographical entity is it an economic unit or uniformity. It embraces India with over 600 million people, as well as many countries with only a handful of people, such as the Seychelles (population about 60,000) and the Maldives (about 150,000) and numerous other ministates. In culture too the South ranges from millions of aborigines to people with advanced and sophisticated civilizations. Large parts of the South, especially in Southeast Asia and Latin America, are distinctly prosperous (South Korea, Taiwan, Malaysia, Singapore, Mexico, Venezuela), while much of Central and South Asia and Africa is extremely primitive. Many countries of the South—in the Far East, Latin America, and even in Africa—have in recent decades progressed economically far more rapidly than much of the West, including the U.S. and Britain. Many countries in the South are also becoming rapidly industrialized under the impact of contacts with the West, along Westernized lines, and with the use of Western technology. Elsewhere the majority of people have had virtually no contact with the West and with any of its modernizing influences, so that it is patently inappropriate to blame their poverty on Western colonialism or on the West’s so-called domination of the international economic system, as do many Western commentators, including the Brandt Commission.

The idea of a world one-third rich (the North) and two-thirds hungry (the South) is pure fiction. There is a continuous range in incomes in the world, both between and within countries. It makes no sense to lump together and average out the incomes of societies comprising two-thirds of mankind who live in widely different physical and social environments, who display radically different attitudes and modes of conduct, and whose governments pursue very different policies, most of which inhibit economic development in varying degrees, and often even impoverish their own peoples.

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3.

Heterogeneous as they are, the components making up the South do indeed share one common characteristic. This, however, is not hunger, poverty, stagnation, exploitation, or color: it is official foreign aid. The South is in practice the collection of countries whose governments, with a few exceptions, demand and receive official transfers from the West.

Official foreign aid has been the unifying characteristic of this huge, variegated, and utterly diverse collectivity ever since its components began to be lumped together from the late 1940′s onward as, successively, the “underdeveloped world,” the “less developed world,” the “non-aligned world,” the “developing world,” the “Third World,” and now, the “South.” These expressions never made any sense except as references to a collectivity of past, present, or prospective aid recipients.

Indeed, without foreign aid initiated and organized by the West, there would be no Third World or South. The outstanding result of foreign aid is to have created the South. The principal milestones have been President Truman’s Point Four Program of 1949; the United Nations Report, Measures for the Development of Underdeveloped Countries (1951); the First United Nations Conference on Trade and Development (1964); the Pearson Report (1969); the UN Declaration on the Establishment of a New International Economic Order (1974); and finally, the Brandt Commission Report, the high-water mark to date of the insistence on massive transfers of wealth, direct as well as indirect, from the “market-economy industrialized countries” to the spurious collectivity now known as the South.

The main change which has taken place over the years is in the language of discourse. In the early days aid was advocated almost sotto voce as helpful or necessary to assist the recipients. Twenty years later, Third World governments were insisting on their right to large transfers as restitution for Western misconduct or to insure a more “equitable” worldwide distribution of wealth. They insisted also that the transfers must take place without questioning official policies or social mores or the recipient people’s conduct. Today, thirty years after the idea was born, massive wealth transfers are demanded as necessary to avoid global catastrophe.

Thus as the international position of the West—and especially that of the U.S.—has declined and as its loss of poise and self-assurance has become increasingly evident, the emphasis has shifted steadily from requests to demands, and from demands to threats.

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4.

Yet the South is no threat to the West. Many Asian and African countries, including some of the largest, are mutually antagonistic or are even in open conflict; and there are also intermittent civil wars and acute internal tensions, especially in multiracial countries. The military resources of the Third World are meager. When the Tanzanian army mutinied in the 1960′s, the country’s ruler, Julius Nyerere, appealed to Britain for help, and a handful of British troops quelled the mutiny. Liberia, often referred to as an African power, has an army of 2,000 men, whose cohesion is impaired by tribal divisions.

Even if they had the military resources and the will to cooperate, the vast majority of Third World countries do not have the contacts with each other required for effective concerted action. (For instance, many African states still depend entirely on railways and airlines established and maintained from outside.) It is not accidental that the two world wars were fought out among industrial countries: only advanced countries can effectively inflict serious injury on other advanced countries. Consequently, the ability of the South to inflict harm on the West will increase to the extent that large-scale transfers of resources weaken the West and improve the material base of the South (although, as we shall see, the latter result is highly improbable).

In another version of the threat theory and its relation to foreign aid, resource transfers are often represented as necessary to keep the South out of the clutches of the East. The Brandt Commission and the international agencies do not deploy this argument, but it is one much emphasized by aid advocates in the U.S. like Secretary of State Edmund Muskie. A recent example of this position concerns Afghanistan. Dr. Shridath Ramphal, a member of the Brandt Commission, has suggested that Afghanistan might have been able to resist Soviet pressure more effectively if the West had given it much more aid, thus enabling Afghanistan “to stand on its own feet economically, to grow as a nation with economic, social, and political institutions stabilized against the erosions of poverty and so against pressures from without.” This was reported in the London Times, under the heading “West Measured and Found Wanting in Afghanistan.” How would Dr. Ramphal explain the inability of more advanced countries like Czechoslovakia and Hungary to resist Soviet forces in the postwar period?

But in any case, foreign aid has more often than not helped to bring to the fore governments hostile to the market system and sympathetic to the Soviet bloc. Moreover, about one-third of all Western aid is now channeled through international agencies which are not permitted to take into account the political interests of the donor. Further, the Soviet bloc is represented in the United Nations and can thus influence the allocation of substantial multilateral transfers even though its own financial contribution is small.

But Western political interests are largely ignored also in bilateral aid, as this is given regardless of the political conduct of the recipients. Aid also often arouses the resentment of the recipients, who do not receive as much as they want or feel entitled to have. Many recipients insult and thwart the Western donors, especially the U.S., as best they can. The familiar Third World themes are economic domination by the West, the resulting inequality of world income distribution, and Western responsibility for Third World poverty and even starvation. These opinions are usually uttered by spokesmen supported by the West and on platforms it provides.4

The South cannot present an effective economic threat to the West any more than it can pose a military threat. It cannot damage the West by economic boycotts. In general, collective sanctions have been a series of failures even when applied by major powers, major in the real economic sense. Moreover, economic interdependence between North and South, a cliché repeated ad nauseam in the “North-South dialogue,” cuts both ways. Governments of prominent Third World countries often depend heavily on imported supplies from the West for maintaining their power, for carrying out their economic plans and projects, and for placating their supporters. And as the net flow of goods and services is from West to South, the latter is in a sense more dependent on the West than the other way around. This is especially true of the more advanced Third World countries, which have the most active and extensive commercial contacts with the West.

The West does of course depend heavily on the South for some commodities. But with the exception of OPEC, Third World commodity cartels have invariably failed without Western organization, participation, or finance. This is recognized by the advocates of such schemes who demand that the West or Western-financed international agencies should assist in the establishment, finance, and operation of commodity agreements—agreements which are designed to transfer resources from the West to the South (although often dressed up as instruments for reducing price fluctuations).

The forces of self-destruction in the West, reinforced by influential sectional interests, are already active in promoting a wide range of commodity schemes. Yet these are schemes which raise the cost of living in the West, benefit the relatively better off in the South, and damage the poor in the South. They also heighten political tensions both within and among Third World countries.

Thus in the economic sphere, as in the diplomatic and military spheres, the only danger to the West is that of self-inflicted wounds.

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5.

But if large-scale official aid to the South is neither necessary nor helpful for Western peace and security, will it create jobs and promote economic growth in the West?

“Above all,” says the Brandt Report, “we believe that a large-scale transfer of resources to the South can make a major impact on growth in both the South and the North and help to revive the flagging world economy.” And again:

The large-scale transfers we will propose are seen therefore as measures both to support growth in developing countries directly, and to permit a significant expansion of world trade. It is in this sense that we view them as contributing to growth and employment in the North as well as the South.

The reasoning is simple. Aid promotes growth in the South. This growth expands international trade, and so creates opportunities for exporters in the West. These opportunities in turn entail new jobs in the West, and cumulative expansion. The “South can be said to be an ‘engine of growth’ for the North”; it is “a new economic frontier,” whose opening-up cannot but serve to promote prosperity in the West.

Although this language appears in a report signed by no fewer than five former heads of state and prime ministers, and welcomed by the recent Venice summit meeting of Western leaders, it stems entirely from a series of misconceptions. It is the West, not the South, which is the “economic frontier” in the world economy. It is the West that has pioneered the major advances which have raised standards of living throughout the world, and from which can be expected further developments of the same kind. Similarly, it is the West which has been and still is the engine of growth for the South, and not the reverse. This is evident in the more pronounced and sustained economic advance achieved in those less developed countries which have the widest range of commercial contacts with the West.

In this respect contemporary developments repeat historical precedents. The more advanced and prosperous economies have always presented opportunities for the people of those less advanced economies best able to take advantage of them. And they have, of course, been the source of ideas, knowledge, skills, enterprise, and capital in the development of those poorer economies which have the characteristics favorable to growth.

The Brandt Report itself recognizes these relationships when it observes that “the poorest people in the world will remain for some time to come outside the reach of normal trade and communications”—that is, cut off from the West. The Report does not, however, attempt to reconcile this apt observation with its more general tendency to blame poverty in the South on the supposed domination by the West of the international economic system.

It is economic sophistry to assert that those who give away some of their wealth to others must necessarily be better off simply because those whom they have helped will be better off and so be able to have more trade with them. A storekeeper does not flourish by giving his cash to people some of whom later spend some of it in his store. And it is little comfort for a burgled storekeeper to know that the burglars may spend some of the contents of his cash register in his store.

It is modish for aid advocates, including the Brandt Commission, to try to connect aid-giving with the relief of economic recession in the West. But if it were really possible to cure or alleviate recession by more government spending—itself a questionable proposition—this could be done more effectively by Western countries at home, as for instance by financing the modernization of industrial plant and the improvement of infrastructure facilities on their own doorsteps.

In short, the prosperity of the economies of the West will not depend on large-scale transfers of resources to the South. It will depend overwhelmingly on appropriate policies and attitudes within the West itself. Unrequited transfers reduce total world income, because quite apart from the disincentive effects of the taxation to finance them, they transfer resources from more productive to less productive people. The suggestion that aid helps donors ignores the alternative use of the resources given away—that is, their cost to the donors.

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6.

The most durable of the arguments for resource transfers is that they are indispensable for the development of the poorer countries. In fact, of course, large parts of the South progressed rapidly long before official aid. The argument patronizes the people of the South by suggesting that they crave material progress but, unlike the West, cannot achieve it without external doles.

The emergence of hundreds of millions of people, both in the South and in the West, from poverty to prosperity has not depended on external gifts. Economic achievement has depended, and still depends, on people’s own abilities, mores, and values, and on their institutions and the policies of their rulers. The determinants of economic achievement have rarely been set out so effectively as they were by Tocqueville almost a century and a half ago:

Looking at the turn given to the human spirit in England by political life; seeing the Englishman, certain of the support of his laws, relying on himself and unaware of any obstacle except the limit of his own powers, acting without constraint; seeing him, inspired by the sense that he can do anything, look restlessly at what now is, always in search of the best; seeing him like that, I am in no hurry to inquire whether nature has scooped out ports for him, and given him coal and iron. The reason for his commercial prosperity is not there at all: it is in himself.

To insist that economic development depends critically on external donations is to divert attention from the determinants of economic achievement and from policies which could encourage instead of obstructing it. Indeed, such insistence leads to policies which can turn the poor into paupers—that is, people permanently dependent on doles. At the same time these policies simultaneously remove resources from others who are more productive. Yet contrary to what is suggested by the central thrust of the “North-South dialogue,” it is not true that to make the rich poorer makes the poor richer. Possessing money is the result of economic achievement, not its precondition.

Official transfers cannot significantly promote development. Governments or enterprises in the South which are capable of using funds productively can borrow abroad. Therefore the maximum contribution to development of official transfers cannot exceed the avoided cost of borrowing. As a percentage of the national income of large Third World countries, this maximum contribution is at best minute, far too small to register in national-income statistics.5

Any marginal benefit from the reduction of the cost of investible funds is likely to be much more than offset by the adverse repercussions of official aid. Such aid accelerates and aggravates the disastrous politicization of life in the Third World and intensifies the struggle for political power. It increases the money, patronage, and power of the recipient governments, and thereby their grip over the rest of society, which in turn exacerbates conflict, especially in the multiracial societies of most Third World countries. This sequence diverts energy and attention from productive activity to the political arena, because people’s livelihoods or even their economic and physical survival come to depend on political and administrative decisions. Foreign aid promotes state-controlled economies in various other ways as well, and this again leads to politicization, restricts external contacts and domestic mobility, and retards the spread of new ideas and methods.

There are other adverse consequences of foreign aid. For example, official transfers tend to encourage imprudent financial policies, because failure, as reflected in the inability to make external payments, itself becomes an effective ground of appeal for aid. Transfers also enable governments to pursue policies which patently retard growth and increase poverty. Such policies include restrictions of the economic activities of productive minorities (and sometimes their expulsion); controls on the inflow of foreign capital, enterprise, and skills; restraints on the activities of traders and the destruction of distributive networks; and price policies which discourage the production of food and other farm products.

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Without aid, governments would not so readily be able to persist with their adverse policies or to mask their effects. Tanzania provides an apt illustration. It is a country much favored by Robert McNamara, and which for many years has been heavily supported by the World Bank and other donors. We quote from a paper by W. David Hopper of the World Bank:

Government efforts to bring about a social transformation by building large cooperative villages have been responsible for a major decline in national food output. The uprooting and resettlement of rural people, often far from their traditional lands, has caused farm production to drop to a point where the nation must import large quantities of food. In this case, the ideology of social reform has fully replaced any drive for economic growth. As long as food aid (or long-term loans for food purchases) is supplied to Tanzania by the industrial nations, the social experiment will continue.6

Thus official transfers to the South are much more likely to retard than to promote development there. This adverse presumption is supported by the plight of many recipients after decades of large-scale aid. It is supported further by their difficulties in servicing even very soft loans, the modest burden of which has in any case been reduced by inflation and earlier partial defaults. And these difficulties, to repeat, serve to reinforce the clamor for increased aid.

Such considerations dispose of the currently popular talk about aid to the South as a new Marshall Plan. According to this suggestion, large official wealth transfers to the South would, like Marshall aid to Western Europe, insure the prosperity of the South for the benefit both of its own peoples and that of the West. But the analogy fails completely. In postwar Europe the task was not development but reconstruction. The societies of Western Europe did not have to be modernized or transformed. The people had the faculties, motivations, habits, institutions, and political arrangements required for sustained material prosperity. This is why Marshall aid could be terminated in four years and West Germany could soon become an exporter of capital. Contrast this with the position of many Third World aid recipients, and with the advocacy of prolonged or even indefinite continuation of official wealth transfers to the South.

To be sure, when the political survival of a country such as Taiwan or Israel is widely doubted, it may not be able to raise capital even if it can use the capital productively. But these apparent exceptions to the rule that development cannot be promoted by external aid are plainly irrelevant to the case for global transfers to the South.

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7.

To sum up, then: the primary result of official Western aid has been the creation of the Third World as a collectivity confronting the West, and one which as a collectivity is hostile to it. Intensifying the politicization of life in the Third World has been the second major consequence. These are wide, far-reaching results. They will continue as long as foreign aid continues.

Conversely, straightforward observation and examination of readily available evidence lead to the inescapable conclusion that large-scale transfers of resources from the West to the South cannot achieve their declared objectives, and in fact obstruct the achievement of those objectives. Further, they gravely damage the political, social, and economic interests both of the West and of ordinary people in the South as distinct from the interests of their rulers.

What is to be done? Far from accepting the proposals for massive wealth transfers, both direct and indirect, we should work toward their early demise. Ideally they should be terminated promptly. But this is impracticable in view of the immensely powerful vested interests behind them and also of the momentum of existing commitments. While early termination should be the aim, the immediate task is to reform the policy so as to remove the worst anomalies.

Humanitarian relief of need should be left to voluntary agencies, notably to non-politicized charities. Many of them already operate successfully in the poorer countries. They could do much more if it were recognized that relief of need belongs to their sphere rather than to official transfers. In this realm, the international comity between countries calls for such gifts to meet unforeseeable and exceptional disasters.

As for economic development, the West can best promote this by reduction of its often severe barriers to imports from poor countries. They inhibit development, investment, and employment in many poor countries. These barriers therefore diminish the benefit which such countries derive from external contacts and from access to the major “economic frontier” in the world.

External commerce is an effective stimulus to economic progress. The people and the finance involved are far more responsive and better adjusted to local realities than are official transfers and their dispensers. Accordingly, commercial intercourse with the West has transformed economic life in the Far East, Southeast Asia, parts of Africa and Latin America. Relaxation of trade restrictions could extend and accelerate this process.

Commercial contacts are not only economically more effective; they are also much less likely to provoke social and political upheaval than attempted forcible modernizations, transformations, or large-scale confiscations, so often supported by official transfers and espoused and welcomed by many of their advocates. External commerce also brings to the fore local traders, entrepreneurs, and other self-reliant groups interested in improvement through market processes. They are far more likely to be friendly to the West than the rulers of socialist economies or of other closely controlled economies encouraged by official transfers.

Reduction of trade barriers is apt to be resisted by those in the West threatened by it. Some aid funds might be diverted to compensate them. This also is open to various objections. But if practicable, it might be the lesser of evils compared to ever higher trade barriers coupled with continuing or even increasing aid.

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8.

Official transfers are, however, certain to go on. How can they be reformed? To begin with, they should take a form which would make it possible to identify their costs and benefits. This rules out indirect methods of resource transfers such as commodity agreements. Not only are their results perverse, but their overall impact cannot be assessed. Nor are such schemes subject to any form of congressional or parliamentary control. The transfers should be untied cash grants. Tied aid confuses subsidies to exporters with gifts to the recipients, besides suggesting that such transfers are instruments for dumping otherwise unsalable goods. Soft loans conceal their usually very large grant element and confuse investment with handouts. Again, the donors are apt to see them as gifts while the recipients see them as burdens. Cash grants should also be bilateral to enable a modicum of control by the elected representatives of the taxpayers—i.e., of the real donors. Inhuman policies or policies utterly hostile to the donors can also be checked somewhat more easily under a bilateral system.

It should in addition be made clear that the grants are in effect straight gifts from the Western donors to the recipient governments, and not amends for past or present wrongs or instruments of global egalitarianism. Unless restitution and redistribution are specifically rejected, the West will find itself subjected to indefinite blackmail.

For all these reasons it is important to resist attempts to internationalize aid transfers even further and to make them even more automatic by introducing systems of international taxation. Such taxation is among the recommendations in the Brandt Report, to enlarge the “flow of official development finance.” (The proposals include “an international system of universal revenue mobilization, based on a sliding scale related to national income,” and “automatic revenue transfers through international levies on some of the following: international trade; arms production or exports; international travel; the global commons, especially sea-bed minerals.”)

Aid should go only to governments genuinely interested in the welfare of their subjects and that promote it by effective administration, the performance of the essential tasks of government, and the pursuit of liberal economic policies. This would reduce the effect of aid in politicizing life and would be more likely to promote prosperity and dampen conflict.

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Unless reformed along these lines, international wealth transfers will continue to promote collectivist and often totalitarian systems. As operated heretofore, they will continue to disappoint and frustrate the objectives of many generous and compassionate supporters of help to the less fortunate. Moreover, unless reformed along these lines, the policy of resource transfers will be seen by spokesmen for the South as an open-ended and unlimited commitment by the West. Perhaps most important, official aid will continue to tilt the East-West conflict against the West—this in spite of the meager military and economic resources of the South (which make its threats empty) and of the friendly feelings toward the West in at least some countries of the South.


Footnotes

1 MIT Press, 304 pp., $4.95.

2 Cranley Onslow, House of Commons Official Report, June 16, 1980.

3 If unindustrialized Greenland, with its poor Eskimo population, were to secede from Denmark, it would presumably be transferred to the South.

4 A typical selection of such utterances will be found in various articles in COMMENTARY since 1975: Daniel Patrick Moynihan, “The United States in Opposition” (March 1975); P.T. Bauer, “Western Guilt and Third World Poverty” (January 1976); P.T. Bauer and B.S. Yamey, “Against the New Economic Order” (April 1977).

5 We may mention in passing that the Brandt Commission uses national-income statistics and comparisons without any recognition of the large margins of error involved. The World Bank, for example, in its World Development Report, 1978, estimates that the official figure of per-capita income for India should be raised by a factor of more than three to make it more nearly comparable with the corresponding figure for the U.S.

6 In Theodore W. Schultz, ed., Distortions of Agricultural Incentives (Indiana University Press, 1978), p. 76.

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