New Internationalist

Changing the structure

Issue 083

THE ARCHITECT

Throughout the 1970s, the Third World has agreed that the world economic order is rigged against them. And with rare unanimity, over a hundred developing nations have repeatedly called for a New International Economic Order to be constructed. "It’s the price of world peace", agrees U.N. Secretary General Kurt Waldheim. A leading theoretician of this movement has been the Pakistan economist Mahbub ul Haq. A New Internationalist profile:

Mahbub ul Haq is a small rather aloof figure who works in a spacious sixth-floor office at the World Bank headquarters in Washington DC. He could easily be dismissed as yet another émigré economist, seeking refuge from the dirty-handed problems of his own country’s development in the financial sanctuary of the Bank, were it not for the fact that his influence extends way beyond Washington.

The man himself is not modest about his influence or shy about being called a ‘Keynes for the Third World’. For what John Maynard Keynes did for the economics of the Western world in the 1930s, Mahbub ul Haq has tried to do for the developing world in the 1970s. ‘Keynes provided us with a fresh way of looking at economic and political realities,’ he says, ‘and that is what the developing countries need today’.

Haq’s own career and the evolution of his thinking fall neatly into two parts. Educated at Cambridge and Yale, he returned to Pakistan in 1957 and joined the National Planning Commission where he remained for thirteen years, rising to become its Chief Economist.

In the month of May 1968, while 5 000 miles away students were tearing up cobblestones in the streets of Paris, Haq was beginning a quieter revolution. In a now famous speech in Karachi, he warned of the growing concentration of Pakistan’s wealth in the hands of only twenty-two families, pointing out that they already owned over two-thirds of the country’s industrial assets and three-quarters of the banking and insurance companies. Meanwhile, at the other end of the scale, the real wages of the industrial workers had dropped by a third in less than a decade, the percentage of illiterates was steadily increasing, fifteen times as much had been spent on importing private cars as public buses, and 80-90 per cent of private construction work was going into ‘what can only be called luxury housing’.

It is obvious,’ he declared, ‘that much of the population has remained untouched by the forces of economic change because economic development has become warped in. favour of the privileged minority.’

Coming from the country’s most respected economist, such an indictment sent shock waves shuddering through the Pakistan establishment and provoked accusations of disloyalty and worse. President Ayub, however, was more appreciative and asked Haq to draft an emergency plan to shift the nation’s development onto a more equitable course.

But he was too late. Haq had said that the situation couldn’t last. And it didn’t. Later that same year, whilst the international community was still applauding Pakistan as a model of development because its economic growth had regularly topped 6 per cent a year, Ayub was shaken from power in a wave of economic discontent.

A prophecy was fulfilled and a lesson was learnt. From that moment, Mahbub ul Haq shed his Keynesian skin and emerged as one of the first of a new breed of Third World economists.

He was now convinced that the very forces which create economic growth were the same forces which prevented its benefits from ‘trickling down’ to meet the needs of the majority. ‘If the institutions of growth are characterised by wide disparities in land holdings and the concentration of industrial wealth,’ he argued, ‘then the process of growth will strengthen them further.’

Soon after this Haq moved to his present job as Director of Policy Planning under Robert McNamara at the World Bank. From this vantage point he has seen the experience of Pakistan being repeated and his own conclusions confirmed in developing country after developing country. In India he has seen the incomes of the poorest 40 per cent of the population declining whilst average income has risen. In Brazil he has seen spectacular economic growth rates of 8 per cent or even 10 per cent a year whilst the income of the poorest 40 per cent grew at less than 1 per cent a year.

Many developing countries have achieved high rates of economic growth over a sustained period,’ he says now. ‘But has it made a dent in the problem of mass poverty? Has it brought about a reduction in malnutrition, disease, illiteracy, or squalid housing? Has it meant more employment or greater equality of opportunity? These questions are purely rhetorical.’

Having denied the God of Economic Growth, Haq had little compunction in also rejecting its Church on Earth - the free play of market forces. ‘We have been the slaves of the concept of market demand for too long,’ he has argued, ‘but the concept of market demand mocks poverty or plainly ignores it as the poor have very little purchasing power.

Market demand (which is so largely influenced by existing income distribution) should be rejected explicitly in favour of fixing a national consumption and production target on the basis of minimum human needs. We were taught to take care of our GNP and this will take care of poverty. Let us reverse this and take care of our poverty and let GNP take care of itself.’

This is Haq’s equivalent of ‘standing conventional economics on its head’, which he sees as Keynes’ main contribution to the economics of the Western world.

If market forces cannot achieve the goals of development, then what can? ‘The State has to be at the head of the market,’ he replies. ‘There are services which have to be created in the larger interests of society and these services cannot come about as a result of consumer demand when those who need them have no purchasing power.’

In other words, development requires not just policy decisions but structural changes. ‘What we have to realise is that to launch a direct attack on mass poverty is a political, not a technocratic decision.

New development strategies require such a basic restructuring of the political, economic and social balance of power that, unless a decision is reached at the highest political levels and the entire political movement within the country is mobilised behind it, these planning exercises will remain academic. Fundamental institutional reforms are the essence of new development strategies.’

Haq’s work at the World Bank has also given an international perspective to his view of development. And during the 1970s he has seen the same process working between rich and poor countries as between the rich and poor within countries.

In 1975 he noted that average income in the developed world was $2,400 a year as opposed to $180 in the developing countries. By 1980 he had seen that gap widen by another $1000 a year. ‘It is hopeless to think in terms of catching up,’ he argues. ‘The increase in per capita GNP in the United States in one year equals the increase that India might be able to manage in one hundred years’.

In other words, increasing inequality was a function of existing inequality and the small group of rich nations are the global equivalent of Pakistan’s ‘twenty-two families’.

And at the international level, too,’ he argues, ‘the forces which create and control economic growth also control its distribution and prevent its benefits from reaching the poorer nations.’ As evidence of this, Haq cites the record of the First Development Decade in the 1960s. The world’s Gross International Product increased by over $1 trillion in those ten years, yet more than 80% of that increase went to the already rich nations.

Haq’s essential critique of the ‘old economic order’ is that the wealth and power which the colonial era concentrated into the hands of the minority of nations has remained unmoved by the winds of change which brought political independence to most of the developing world in the 1950s and 60s.

These same rich nations, he maintains, still control at least three-quarters of the world’s wealth and income, so enabling them to lay down the rules of world trade, regulate the world’s monetary system, decide what investment will be made in which country and for what purpose, determine the course of science and technology, dominate the economies of the developing countries, and organise the international division of labour in their own interest.

In other words, the developing countries feel that they are almost as dominated today as they were under direct colonial rule.

To change this the Third World has demanded a ‘New International Economic Order’ (NIEO). Approved’by concensus’ at the General Assembly of the United Nations in May of 1974, the NIEO calls for: participation of the developing countries in setting fairer and more stable prices for the raw materials on which they are dependent for 80% of their export earnings; an increase in their share of world industrial output from its present 7 per cent to 25% by the end of the century through trade negotiations and the lowering of tariff barriers against manufactured goods from the developing countries; changes in the international monetary system; increased and more automatic aid; new measures to ease the burden of their debts on which repayments of capital and interest now consume up to 20% of their annual export earnings; new codes of conduct for multinational corporations and for the transfer of technology; and an increase in economic and technical co-operation between developing countries themselves.

Such changes imply a fundamental shift in the economic and political relationships between rich and poor worlds. ‘The essence of New International Economic Order’. Haq has written, ‘lies in the Thud World obtaining greater equality of opportunity and in securing the right to sit as equals around the bargaining tables of the world. No massive redistribution of past income or wealth is being demanded: in fact if all the demands are added up, they do not exceed about 1 percent of the GNP of the rich nations. What is really required, however, is a redistribution of future growth opportunities.

Such changes would nonetheless hurt the industrialised nations. They would mean, for example, that a country like Mauritania would receive considerably more than the 15% of profits made by multinational corporations who extract and export its iron ore - and that consequently those same multinational corporations would receive much less. They would also mean the abandoning of the massive farm subsidies, estimated at $20 billion in 1976, now paid to the rich world’s farmers in order to protect them from the Third World’s cheaper produce. They would mean an initial increase in unemployment in the industrialised countries and the spending of large sums in new investment and new training as tariff barriers were lowered against the Third World’s manufactured goods. And they would mean that the developing countries would receive a much greater proportion of the ‘value added’ in the processing and marketing of their twelve most important raw material exports (excluding oil). At present, the final consumers of those raw materials pay over $200 billion a year for them - of which the developing countries themselves receive only $30 billion.

In fact if the poor nations had been able to exercise the same degree of control over the processing and distribution of their exports as the rich nations presently do, and if they were able to get back a similar proportion of the final consumer price,’ argued Haq in 1976, ‘then their export earnings from their primary commodities would be closer to $150 billion.

The process of ‘restructuring’ - of redistributing political and economic power within and between nations in order to solve the problems of the unmet needs of half humanity - is, in Haq’s view, inevitable. ‘The demand for a New International Economic Order should be regarded as a movement’ he argues ‘as part of an historical process, to be achieved over time, rather than in any single negotiation. Like the political liberation movements of the 1940s and the 1950s, the movement for a new economic deal is likely to dominate the next few decades and cannot be dismissed casually by the rich nations.’

The developing countries are trying to articulate a new manifesto,’ he maintains, ‘but there is a wide gap between articulation and implementation. The future of the developing world will turn on how far this gap can be bridged without violent political explosions.’

In private, Mahbub ul Haq will confess to being ‘pessimistic about the prospects for peaceful change’ either nationally or internationally. Yet he remains, in the end, firmly liberal - believing that the world as a whole needs the international equivalent of the welfare states which have been created in many countries at national level. And he retains a strong belief in the United Nations as the agency through which this ‘welfare world’ should be achieved.

What I am trying to convey,’ he concludes, ‘is the emerging mood of the developing nations. I am not an apostle of confrontation, nor am I prepared to forsake my own liberalism. But I think it is important that we realise that liberalism cannot survive in an illiberal world. The developing countries are passing through a very dark and ugly mood. They are questioning all the assumptions on which they have based their early development strategies. I cannot predict what may come out of this examination’.

THE BUILDER

In 1974 the U.N. General Assembly approved in principle a motion calling for a New International Economic Order. Having obtained this global planning permission, the job of converting it into bricks and mortar was sub-contracted to the U.N. Conference on Trade and Development (UNCTAD). The New Internationalist talked to UNCTAD’s Secretary General, the Sri Lankan diplomat Gamani Corea, about how the building is progressing. Some excerpts: -

UNCTAD’s ACHIEVEMENTS

A lot of the developed countries started with outright hostility towards UNCTAD. The most tolerant saw it as only a safety valve for the Third World to let off steam. Now, some are beginning to see it as an organisation where things can be done. They have seen UNCTAD negotiate concrete changes - generalised schemes of preference, the cancellation of debts for the least developed countries, codes of conduct in shipping and the transfer of technology, agreements like the rubber agreement, and now the beginnings of the Common Fund - and so they are beginning to see UNCTAD as an organisation which achieves things.

UNCTAD’s FAILURE

The reason why people say UNCTAD is a ‘failure’ or a ‘disappointment’ is that UNCTAD is and always has been ambitious. It tackles the gut issues. We could be chicken-hearted and just try for a declaration of principles. That would be easy. But that’s not what UNCTAD is for. We can’t go in for cover-ups. We have to try to translate the rhetoric into practical agreements. Attempting to do this arouses expectations and many people are bound to be disappointed.

Then there is the problem of negotiating concrete steps with 500 to 600 people representing 159 countries and working in several languages. We meet and there are always three or four issues unresolved. People have to go back to their capital cities and consult with their governments. And then we have to arrange another meeting. With so many people and so many countries and such a crowded international calendar this can mean a delay of six to seven months. And then you solve some issues and leave others still unresolved. So you adjourn again. And the process begins all over. It’s slow and it’s frustrating. But that is more or less inevitable when the aim is so ambitious and the issues are so complex.

FROM THE 60s TO THE 70s

It is true that the developing world has been arguing its case for international action for development since the early 60s. And it is true that very few really significant concessions have been made. But what has changed since the 60s is the whole framework of the debate. Then, the developing world was asking for a better share of the benefits of the rich world’s material progress. Now, the developed countries themselves are not developing any more. And what the Third World has been arguing for in the 70s is not more charity but structural change which would enable the Third World to develop and also help to solve the problems of the industrialised world itself.

THE GLOBAL ECONOMY

The developed countries have throughout shown a lack of realisation of the fact that basic changes in the way the world works are inevitable and that ultimately such changes are in the interests of the rich countries themselves. The developed world is not at the point where it sees that today’s Third World is now the biggest engine for the whole global economy.

THE COMING UPHEAVAL

The fundamental reason why the rich world has made few concessions is the same reason why the rich within nations have made so few concessions to the poor of their own countries - it is a fundamental fear of the loss of relative power. And they feel that any concessions would be the thin end of the wedge.

But they do not have too much time. In the long run there is a danger that they will be overwhelmed by tumult and unrest in the Third World. The rich countries of the west and the privileged groups within the Third World itself do not see the ground-swell building up from below. And if they do not realise it in time, then, oh yes, there will be upheaval. The poor people of the Third World will exercise their power. The pressures are already building up. The lesson of Iran should be learned by others - in Latin America, for example.

THE GOODIES AND THE BADDIES

In general, the Dutch, the Swedes and the Norwegians have been willing to listen. On the other side, the United States and Germany have been restraining influences. Japan and France are perhaps becoming more sensitive.

DEVELOPING COUNTRIES TO BLAME

I don’t just blame the developed countries. The developing countries have a lot of responsibility in the matter too - for example, the responsibility to come to the negotiating table better organised and better prepared.

SIDE-TRACKING THE ISSUES

The developing countries and we in UNCTAD may have allowed the issues to be side-tracked into the North-South talks in Paris and into things like the Brandt Commission. The Third World negotiated the setting up of UNCTAD to do this job.

THIRD WORLD SOLIDARITY

One of the big achievements at UNCTAD in the 1970s is that the developing countries in the group of 77 have held together. They have maintained solidarity even when the going has got tough. Third World co-operation is growing, and this is a big achievement.

INEQUALITY IN THE THIRD WORLD

I cannot deny that those richer countries (and those richer individuals and groups within countries) will benefit most from moves towards a New International Economic Order. But the benefits are not confined to that group. Having said that, I should also say that I am not an admirer of inegalitarian economic growth.

ON TO THE 80s

In the 1980s I hope there will be a move towards re-structuring all the rules and principles and institutions which have hitherto governed international economic relationships.

We have to re-cast the book of rules. The 80s may see this. If not, then 1 think the scenario for the next decade will be very unpleasant. If there is not an orderly change, then the 80s may see a break-up of the system - as the people of the Third World become angrier and more conscious of their strength. It will be difficult to contain.

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