The New International Economic Order

Confrontation Or Cooperation Between North And South?

Karl P Sauvant, Hajo Hasenpflug

• Publisher: Routledge
• Year: 2019
• eBook ISBN: 9781000303889
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: International Business
• Index: Politics & International Relations

In the face of the continuing economic gap between the industrialized and the developing countries, the Third World began to demand a reorganization of the international economic system—its mechanisms, organizations, purposes—that would make the system responsive to the needs of all of its members. The United Nations' Sixth Special Session in 1974

Part 1
Introduction

1
Toward the New International Economic Order

Karl P. Sauvant

The foundations of the existing international economic institutions were laid during and immediately after World War II. They reflect the determination of the developed market economies (DMEs) to create favorable conditions for their speedy reconstruction after the war and the achievement of renewed and continued prosperity. The interests, needs, and special conditions of the developing countries (DCs), most of whom were still colonies in the immediate postwar years, were largely ignored in this process. As a result, and in spite of a few later changes, the system and its mechanisms did not improve the situation of most DCs to the extent desired. Acute poverty, chronic unemployment, and endemic undernourishment continued in most of them, or even worsened, and their economic dependence on the metropolitan countries was perpetuated and even extended into new areas. When these facts became well recognized and urgent issues for the Third World in the 1960s, it could not but conclude that a new economic order was necessary, an order that would explicitly recognize the needs and conditions of the developing countries. More specifically, the developing countries realized that the purposes of the existing international economic order would have to be broadened to include development. Furthermore, if these broadened purposes were to be effectively served, the mechanisms and structure of the old order would have to be appropriately altered.

These were the guiding principles of the two resolutions adopted in 1974 by the Sixth Special Session of the United Nations (UN) General Assembly and entitled “Declaration on the Establishment of a New International Economic Order” and “Programme of Action on the Establishment of a New International Economic Order.” The objectives outlined in these documents were elaborated later in the year in the “Charter of Economic Rights and Duties of States” and further consolidated in a resolution on “Development and International Economic Co-operation,” adopted in 1975 by the UN Seventh Special Session. With the adoption of these documents, the developing countries had succeeded in making development¹—the establishment of the New International Economic Order (NIEO)²—the priority item on the international agenda.

Disappointments and Groping for a New Approach

Many observers of the international political scene in the 1950s and 1960s believed that many of the DCs’ problems were largely a function of their political status. Once they achieved political independence, they would become full and equal members of the international community. Moreover, their participation in international economic interactions—whose benefits would quickly trickle down to them—coupled with a number of international and regional development efforts, would soon result in considerable improvements of their economic situation.

By the end of the 1960s, these hopes had been shattered. The First UN Development Decade—launched with great fanfare in 1961 and strongly supported by the Third World—fell short of its objectives; its extension in 1970 was viewed with dampened expectations. The Alliance for Progress, also launched in 1961 and accompanied with similar hopes, quietly faltered. Another regional effort, the First Yaounde Convention of 1963, and its successors—the Second Yaounde Convention and the Arusha Convention, both signed in 1969—shared the fate of the other efforts. A Non-Aligned Countries’ Conference on Problems of Economic Development, held in Cairo in 1962, remained a straw in the wind. The initiatives of the UN Conference on Trade and Development (UNCTAD)—whose first meeting had produced the Group of 77—also amounted to very little. In fact, whatever the success of the development efforts of the 1960s, whatever the trickle-down effect, the gap between North and South did not become any narrower: while per capita real income (at 1973 prices) in the DMEs doubled from about $2,000 to $4,000 in the period from 1952 to 1972, in the DCs it rose by a mere $125—from $175 to $300. In other words, real income per head in the DCs amounted to approximately 9 percent of that in the DMEs in 1952 and to approximately 8 percent in 1972.³ It appeared that the international and regional development efforts and related initiatives, or, more generally, the mechanisms of the international economic system, had failed to deliver what they had seemed to promise. In the words of UNCTAD:

The fact that the developing countries did not share adequately in the prosperity of the developed countries when the latter were experiencing remarkably rapid expansion indicates the existence of basic weaknesses in the mechanisms which link the economies of the two groups of countries. … The weakness of this structure, the inadequacy of the mechanisms by which growth in the developed centres is transmitted to the third world, are manifested in each of the major areas of economic relations between developed and developing countries—in the trade in commodities and in manufactures, in the transfer of technology and in the provision of financial resources through the international monetary and financial system.⁴

Significantly, this recognition came at a time when it had become increasingly obvious that political independence is a mere chimera unless based on economic independence—unless the structures of economic dependence that characterize the relationships between developing and developed countries are transformed into structures of interdependence. Economic development thus came to be viewed with new urgency.

In their search for solutions to their problems, the DCs embraced the concept of individual and collective self-reliance. This concept was first enunciated by the Non-Aligned Countries—the political organization of the Third World—at their 1970 summit of heads of state or government in Lusaka.⁵ It was further elaborated at their 1972 foreign ministers’ conference in Georgetown,⁶ and since then has been included in most major international economic documents. Self-reliance became all the more important since industrialization was often perceived to have turned into dependent industrialization, primarily through transnational enterprises (TNEs) and their foreign affiliates, thus reinforcing the existing structures and extending them into other areas.

Self-reliance is a program. It requires, in its collective dimension, that the political, economic, and sociocultural structures created to link colonies to metropolitan countries (in a status of dependence) be altered to link developing countries to one another (in a status of interdependence). In the political sphere, this process had commenced in the 1960s with the emancipation of the DCs from the political control of their former rulers and their organization in the nonaligned movement. The Lusaka summit marked the beginning of increased efforts to achieve economic emancipation. However, it soon became apparent that these efforts needed a broader and more comprehensive economic program in the framework of which self-reliance could be pursued and economic development could take place. Quite naturally, such a program had to deal with the external conditions of development and, more specifically, with the structure of the international economic system.

The formulation of this platform took place in the nonaligned movement, drawing on work done by the Group of 77, by UNCTAD, and by the UN (especially in connection with the development decades). As a result, the Non-Aligned Countries adopted, at their summit in Algiers in September 1973, an “Economic Declaration” and an “Action Programme for Economic Co-operation”⁷ which called for a thorough reorganization of the international economic system. These documents, in turn, constituted one of the primary foundations (at times verbatim)⁸ of the resolutions—the “Declaration on the Establishment of a New International Economic Order” and the “Programme of Action on the Establishment of a New International Economic Order”⁹—adopted eight months later at the Sixth Special Session of the UN General Assembly, the first special session to deal with economic issues. These resolutions, together with the “Charter of Economic Rights and Duties of State” (adopted in December 1974 by the regular Twenty-ninth Session of the General Assembly) and the resolution on “Development and International Economic Co-operation” (adopted September 1975 by the Seventh Special Session),¹⁰ constitute the basic documents of the New International Economic Order.

New Objectives and a New Context

What distinguishes the Algiers and the Sixth Special Session resolutions from earlier international economic programs is not their comprehensiveness; in fact, such comprehensiveness had already been approached elsewhere, especially in the UN action program for the Second Development Decade and in various combinations of UNCTAD resolutions. Rather, what distinguishes these resolutions from their predecessors is their objective and the new environment in which they were formulated and advanced. The objective of these resolutions is no longer merely to improve the functioning of the existing international economic system, but rather to change its purposes, mechanisms, and structures.¹¹ As to the new environment, three factors in particular, all of them highly interrelated, are of key importance: (1) the emergence of the nonaligned movement as an international economic pressure group, (2) the politicization of the development issue, and (3) the growing assertiveness of the developing countries.

The Role of the Non-Aligned Countries

Several allusions to the role of the nonaligned movement have already been made in the preceding paragraphs. The movement had its origin in the bipolar world of the 1950s, when a group of DCs began attempts to exercise some independent influence in international relations.¹² Between the first summit in Belgrade in 1961 and the fourth summit in Algiers in 1973, membership increased from twenty-five to seventy-five. The Non-Aligned Countries, in other words, had been highly successful in persuading most of the DCs to join ranks with them. Moreover, since 1970, the members of the movement greatly intensified their interactions with one another, established closer lines of communication, and gave themselves a highly structured organizational framework. Finally, and most importantly for later developments, the nonaligned movement underwent a fundamental change in character. Before the 1970 Lusaka summit, the movement had concentrated on political matters. At Lusaka, economic questions, for the first time, received considerable attention with the enunciation of the concept of individual and collective self-reliance. And since Lusaka, the largest part of the concrete work of the movement has been concerned with self-reliance and development.¹³ Three main reasons explain this change. Two of them—the disappointment in the development efforts of the 1960s and the growing recognition that political independence, to be viable, has to be based on economic independence—have already been mentioned. The third concerns the changing international political situation. Detente, political decolonization, and the stabilization of the East-West military situation made many of the original basic tenets of the nonaligned credo less urgent, and contributed to the substantive reorientation of the nonaligned movement. Thus, between Lusaka and Algiers, the movement had transformed itself from an informal gathering of like-minded leaders convened to discuss the world political situation into a highly organized international economic pressure group for the reorganization of the international economic system.

Politicization

This transformation had an important effect on the way in which international economic matters were presented and pursued. During the 1960s—and even at UNCTAD III (1972)—questions of economic development were essentially regarded as “low politics” left to the economics, financial, and planning ministries. Attempts at politicizing these issues—e.g., the Group of 77’s Charter of Algiers (1967)—therefore failed. With the beginning of the 1970s, however, this attitude changed and development questions became “high politics”: they were elevated from the level of heads of departments to the level of heads of state or government. This change found its first full expression when the Algiers summit of the Non-Aligned Countries—which was attended by more heads of state or government than any other international conference has ever been—embraced these questions for the first time at so high a level as major themes of its deliberations and actions. The resolutions adopted at Algiers represent the formal recognition by the policymakers of the DCs that their problems are not only a function of their political status but also of their economic status. Self-reliance and development, consequently, became highly politicized issues.¹⁴

Third World Assertiveness and Bargaining Power

Much of the bargaining power of the developing world consists of the power to disrupt the international economic system (and especially the sophisticated economies of the developed countries), to introduce uncertainties, and to foreclose possibilities—in other words, to increase the opportunity costs for developed countries. Disruptions and uncertainties might be created in such areas as the supply of natural resources,¹⁵ the functioning of the financial system (mass debt defaults triggered by insolvency), or the operations of TNEs (a growing number of transnational enterprises receive a considerable share of their earnings from developing countries). Possibilities might be withheld in the area of market expansion. For instance, a Third World trading system—the establishment of which may be desirable in order to stimulate self-reliance—could limit the DMEs’ access to the markets of the future, especially for products in which they are already approaching saturation. On the other hand, the potential of these markets is tremendous. A parallel might be drawn here to the treatment of the labor force in the industrial countries during the 19th century where business learned that workers are not only producers but also consumers. Over time, this realization led to a certain redistribution of income and greater prosperity for everyone. On the international level, the DCs are in many ways the workers of the developed countries, but their potential as consumers has scarcely yet been realized. Today, over two-thirds of the world population of about 4 billion lives in developing countries; by the year 2000, this proportion will have increased to four-fifths out of a total of over 6 billion. This population distribution raises not only market considerations but also the question of whether 15 percent of the world population can withdraw into a self-sufficient fortress and ignore the rest of the world—especially if likely military developments, including the spread of nuclear weapons to developing countries, are taken into consideration. The long-range risks and opportunity costs, in other words, may be much higher than the immediate costs of cooperating in the reorganization of the international economic system.

The main and most concrete assets of the DCs, however, are their natural resources.¹⁶ With the growing awareness of the importance of economic matters, developing countries have also become increasingly cognizant of the bargaining power, however limited, which is represented by these resources. This recognition has come to be expressed in particular in the more assertive usage of the principle of permanent sovereignty over natural resources. In the 1960s, support of this principle used to be accompanied by references to international law for cases of dispute settlement. Concretely, this meant that in cases of nationalization the parent enterprise (and the home country) could refer to international law for prompt, effective, and adequate compensation. In the 1970s, the DCs discontinued these references to international law and, instead, insisted that disputes should be settled under national law. While this debate about principles probably did not effect much of a change in the behavior of host countries—as a rule, compensations continued to be paid in the relatively few cases of nationalization that occurred¹⁷—it still indicated a change of a...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Contents
• List of Tables
• Preface
• Contributors
• Part 1 Introduction
• Part 2 The Positions of North and South
• Part 3 International Trade and Commodities
• Part 4 Transfer of Real Resources
• Part 5 Technology
• Part 6 Industrialization and Transnational Enterprises
• Part 7 Self-reliance
• Index