Global Inequality and American Foreign Policy in the 1970s

Michael Franczak

• Publisher: Cornell University Press
• Year: 2022
• Print ISBN: 9781501763915, 9781501763915
• eBook ISBN: 9781501763939
• Topic: History
• Subtopic: 20th Century History
• Index: History

In Global Inequality and American Foreign Policy in the 1970s, Michael Franczak demonstrates how Third World solidarity around the New International Economic Order (NIEO) forced US presidents from Richard Nixon to Ronald Reagan to consolidate American hegemony over an international economic order under attack abroad and lacking support at home. The goal of the nations that supported NIEO was to negotiate a redistribution of money and power from the global North to the global South. Their weapon was control over the major commodities—in particular oil—that undergirded the prosperity of the United States and Europe after World War II.

Using newly available archival sources, as well as interviews with key administration officials, Franczak reveals how the NIEO and "North-South dialogue" negotiations brought global inequality to the forefront of US national security. The challenges posed by NIEO became an inflection point for some of the greatest economic, political, and moral crises of 1970s America, including the end of golden age liberalism and the return of the market, the splintering of the Democratic Party and the building of the Reagan coalition, and the rise of human rights in US foreign policy in the wake of the Vietnam War. The policy debates and decisions toward the NIEO were pivotal moments in the histories of three ideological trends—neoliberalism, neoconservatism, and human rights—that formed the core of America's post–Cold War foreign policy.

CHAPTER 1 Food Power and Free Markets

In the early 1970s, record high oil prices collided with an overheated US economy, a broken foreign aid program, rich-country protectionism, and the reorganization of US agricultural production to meet the needs of markets, not people.¹ While most Americans would remember 1972–74 as the end of cheap oil, for the worst off in poor countries, it meant the end of cheap food. The United Nations even created a new category—Most Seriously Affected (MSA)—for the thirty-three nations (mostly in Africa and the Middle East) where some half a billion people faced starvation.²

On May 1, 1974—International Labor Day—a diverse coalition of developing countries presented to the UN General Assembly a proposal for a New International Economic Order (NIEO).³ Acting just months after Arab members of the Organization of Petroleum Exporting Countries (OPEC) had launched their embargo, during which time the price of oil quadrupled, the NIEO’s Third World supporters hoped to negotiate a redistribution of money and power from the rich industrial North to the poor countries of the South. Their weapon was control over the price of major commodities—especially oil—that had made possible the United States’ and Europe’s spectacular prosperity after World War II. The NIEO’s “Programme of Action” for food identified “fluctuating, temporary and excessively high-price levels” for agricultural inputs from the North as a central obstacle to development in the South, and it called for new international bodies to stabilize prices and increase concessional food aid and technology transfer.⁴

US food policy was both a catalyst for OPEC’s decision to enact a spike in oil prices and the first tool with which the United States sought to break OPEC–Third World solidarity and rein in the NIEO. Secretary of state Henry Kissinger viewed food as the most powerful weapon against the Arab oil producers, all of which were large importers of US grain. The United States exercised enormous leverage over world food prices, as demonstrated in 1972, when a $1.1 billion deal with the Soviet Union tripled the price of wheat on international markets.⁵ At the UN General Assembly in September 1974, Kissinger and president Gerald Ford charged OPEC with exacerbating the food crisis through its actions and insisted that high oil prices hurt the poorest countries the most.⁶

OPEC and even the MSA nations were unpersuaded by this logic. Instead, most developing countries believed that food prices were part of a larger system of unfair trade, one that overcharged them for rich countries’ exports and underpaid for their own. The connection among the food crisis, the oil crisis, and the NIEO was not lost on contemporary observers. “What we have witnessed [in the last two years],” observed historian Geoffrey Barraclough in August 1975, “is the opening stage of a struggle for a new world order, a search for positions of strength in a global realignment, in which the weapons (backed, naturally, by the ultimate sanction of force) are food and fuel.”⁷

Those weapons were on full display in November 1974 at the World Food Conference in Rome. Kissinger, who took the lead in organizing the conference, sought to divide what he called the “unholy alliance” of OPEC and the rest of the Third World through limited compromise.⁸ His plan was to use US food power to negotiate toward a global system of grain reserves for poor countries, so that a food shortage need never again turn into a crisis. Such an action, Kissinger believed, would convince poor and hungry countries that they had more to gain by cooperating with Washington to improve the existing global economic order than by trying to overthrow it with Algiers.

Kissinger’s strategy faced many challenges, but the most immediate was internal. His willingness to endorse global market interventions was strongly opposed by the Nixon and Ford administrations’ influential secretary of agriculture, Earl Butz. An evangelist of free markets and self-reliance, Butz sought nothing less than “to remove the [US] government from the conduct of agriculture, and the United States from the conduct of the world food economy.”⁹ He was backed by Ford’s notably promarket and antistate (or “market fundamentalist”¹⁰) economic team, especially treasury secretary William Simon and Alan Greenspan, head of the president’s Council of Economic Advisers and a member of Ford’s Economic Policy Board (EPB). Nor did Kissinger do himself any favors by running roughshod over the bureaucracies at the US Department of Agriculture (USDA) and the Treasury Department as he attempted to seize control of the administration’s international economic policymaking to confront the NIEO. Ideological and personal disagreements between Kissinger and Ford’s economic advisers over how to respond to the Third World’s challenge would continue after the World Food Conference, reinforcing the OPEC–Third World alliance and further isolating the United States from its closest allies in western Europe.

US Economic Policy and the 1972–1974 World Food Crisis

The 1960s was a decade of promise in food production due to advances in agricultural technology in the North and agricultural modernization in the South. This Green Revolution meant that from 1960 to 1972, the global production of grains—the main food supply for most of the world—increased almost every year, saving millions from hunger but also dramatically reducing crop diversity and increasing dependence on fossil fuels.¹¹

Rising incomes and populations in developing countries buffeted the global demand for grains. Not only did more people need to be fed; as poor people become richer, they tend to eat more dairy, poultry, and meat, which require large amounts of grain to raise.¹² Yet while incomes rose across the world, developing countries took a smaller part of the growing pie. Their share of world trade declined from 31 percent in 1950 to 21.4 percent in 1960 to just 17.2 percent in 1970, by which time the three largest economies—the United States, West Germany, and Japan—together accounted for more than a third.¹³

Overall growth in food supply and world trade masked these asymmetries, but they had serious consequences. Because the demand for food is highly inelastic, even small decreases in food supply can result in large price increases. This effect is exacerbated in poor countries, where most grain is produced for immediate consumption—feeding family and livestock—rather than sold.¹⁴ Nor was the Green Revolution performing as well as its supporters had promised. “Agricultural output has grown so slowly [in developing countries],” the Council of Economic Advisers explained in 1967, “that food output per person in many countries is below pre–World War II levels.” At the same time, “over half” of their annual growth in gross domestic product (GDP)—which, at 4.5 percent, was just shy of the UN’s target for the Development Decade—“has been needed just to maintain their low level of living.”¹⁵

US agricultural and trade policy presented another impediment to increasing food production in the Third World. Due to generous farm subsidies implemented during the Great Depression, by the mid-1960s the United States had become the world’s leading exporter of grain. In response, the US government promoted cheap wheat exports and increased food aid through Public Law (PL) 480, also known as Food for Peace. What was not sold to developing countries, on highly advantageous terms, was stockpiled. Although this brought relatively stable, predictable, and low food prices for those countries, it gave neither farmers nor governments an incentive to invest in domestic production.

For a while, the United States’ Cold War food policy paid considerable domestic dividends. Consistent US government purchases of farmers’ surpluses boosted rural incomes during an unprecedented period of wage and employment growth in manufacturing centers and suburbs, and a powerful farm lobby in Washington grew to ensure that stockpiling was a bilateral commitment. But mounting federal deficits in the late 1960s led some politicians to question whether this commitment was worth the cost. President Richard Nixon complained that the United States was paying for the large majority of a scheme to stabilize world food prices, while the European Community (EC) discriminated against US food exports through its Common Agricultural Policy. The Nixon administration concluded that reducing stockpiles and holding back production would help US farmers by increasing world prices. From mid-1970 to mid-1972, the United States reduced its production of wheat by one-third, bringing down its share of global production from 15 percent to 10 percent.¹⁶

In June 1971 the Nixon administration moved to liberalize trade with the Soviet Union, eastern Europe, and China. The centerpiece of Nixon’s overture was the promise of a massive sale of heavily subsidized grain to the Soviet Union. There was no actual grain shortage in the Soviet bloc. Facing an economic slowdown and short on hard currency, the Soviets planned to use the grain both as animal feed to maintain citizens’ increased meat consumption (and thus loyalty) and as a commodity to sell on global markets for badly needed dollars. The deal also met several goals for the Nixon administration. It promoted détente, pleasing Kissinger; it was relatively cheap, pleasing the Treasury Department; it reduced US stockpiles, pleasing the USDA; and it raised prices, pleasing the farm bloc just in time for the 1972 elections. In what one journalist memorialized as the “Great American Grain Robbery,” the Soviet Union alone absorbed about half of US carryover stocks in 1972 and more than one-quarter of total 1972 production.¹⁷ In 1961 world food reserves—held mostly by the United States—could sustain world needs for 105 days; by 1974, those reserves could sustain needs for only thirty-three days.¹⁸ The combination of lower production and the deliberate liquidation of stockpiles made the United States, and thus the world, ill prepared for any sudden shocks.¹⁹

The first shock came on August 15, 1971, when the Nixon administration ended the Bretton Woods gold exchange standard by allowing the dollar to float. Some countries still played ball, choosing to take more dollars rather than forcing the leader of the world’s monetary system to devalue. But the writing was on the wall: countries such as West Germany and France refused to permit more and more inflation to support the lifestyles of US citizens or the quagmire in Vietnam, and traders in foreign exchange markets, believing the dollar to be overvalued, began to sell them rapidly. In May 1971 West Germany left the Bretton Woods system; in July, Switzerland and France asked for more than $140 million in gold. “I don’t give a shit about the lira,” Nixon insisted in June, and he asked his advisers to come up with a policy that would boost the domestic economy in time for the 1972 elections.²⁰ John Connally, his new noneconomist treasury secretary, was entrusted with pulling together the views of Federal Reserve chairman Arthur Burns, undersecretary for international monetary affairs Paul Volcker, and Office of Management and Budget (OMB) director George Schulz. The administration’s “New Economic Policy,” announced August 15, consisted of the suspension of the dollar’s convertibility into gold, a ninety-day wage and price freeze, a 10 percent cut in foreign aid, and a 10 percent import surcharge.²¹

The dollar’s devaluation might have helped poor countries buy more US grain. In fact, Nixon intended to increase agricultural exports to balance US accounts, a strategy pursued more aggressively by Secretary Butz following the 1972 elections. However, the grain agreements with communist countries depleted the majority of the US surplus; at the same time, a series of bad weather events limited production in other important producers such as Australia, Argentina, India, and Peru.²²

The devaluation also set off a series of events in international energy markets that had serious consequences for food prices. Throughout the 1950s, several Middle Eastern oil producers charged that Western governments were colluding with multinational oil companies (MOCs) to keep prices artificially low. Following the Anglo-Iranian Oil Company’s refusal to cooperate on a new agreement with the Iranian government, prime minister Mohammed Mossadegh nationalized the country’s oil industry. The Anglo-American coup that ousted Mossadegh from power in 1953 served as a powerful example of the limitations of the Third World’s economic and political sovereignty in the postwar era.

Determined to increase their share of profits from the MOCs’ exploitation of their reserves, the governments of Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela met in Baghdad in 1960 to announce the formation of the Organization of the Petroleum Exporting Countries. Through most of the 1960s, OPEC was essentially an informal bargaining group, confining its activities to negotiating better profit-sharing agreements with MOCs. But because oil was priced in dol...

Table of contents

• Acknowledgments
• List of Abbreviations
• Timeline of Significant Events
• Introduction
• 1. Food Power and Free Markets
• 2. North-North Dialogues
• 3. Neoconservatives and the NIEO at the United Nations
• 4. Interdependence, Development, and Jimmy Carter
• 5. Debt, Development, and Human Rights
• 6. Basic Needs and Appropriate Technology
• 7. The Reagan Revolution and the End of the North-South Dialogue
• Epilogue
• Notes
• Index