Published in Development, 1991:3/4, pp. 87-94
by the Society for International Development
David C. Korten
The People-Centered Development Forum
This article builds from the arguments set
forward in David C. Korten, “Development as Transformation: Voluntary
Action in the 1990s,” Development,
1990:3/4. That article argued that pursuit of a growth-centered development
vision has led to a growing global crisis
of deepening poverty, environmental
destruction, and communal violence.
Continued pursuit of solutions to the
crisis based on this vision may result in
a complete collapse of the global ecology
and the remaining bonds of human
community–the foundations of life and
civilization. A global people’s movement
is emerging calling for a basic reorientation in how development is defined and
approached. Its people-centered vision
gives priority to the transformation of
societal values and institutions consistent
with the principles of justice, sustainability, and inclusiveness.
In this article Korten examines why
conventional international assistance
poses an active barrier to this transformation. He argues that it may be time to
dismantle the existing international assistance system and build a more appropriate approach to international cooperation able to resolve problems shared in
common by all of human society.
It is common practice to assess the aid
performance of high income countries by
the percentage of their GNP they transfer
to low income countries as concessional
financial assistance. The currently accepted target among international agencies is 0.7 percent.(1) The actual average
for OECD countries in 1988 was .36
percent. A strong presumption prevails
that more is better.(2)
More May Not Be Better
According to the OECD, total annual
assistance to the South from OECD,
Arab, and Socialist countries (including
$3-4 billion in voluntary contributions)
reached nearly $60 billion in 1988.(3) Yet
as we enter the fourth official United
Nations Development Decade we face
the reality that more people now live in
desperate poverty than ever before, environmental destruction has reached crisis
proportions with no sign of abatement,
communal violence is pervasive, the
number of political, economic, and environmental refugees is increasing, and
many Southern economies are hamstrung
by debilitating debts. Clearly something
is desperately wrong–and official assistance is not fixing it.
Growth: Solution or Problem
Most official international assistance is
driven by a growth-centered development vision–with an underlying premise
that the central task is to increase economic output. This premise has never
had a stronger hold on official thinking
than it does currently. Growth is accepted as the key to providing jobs for the
poor and taxes for government and to
creating the surplus that will allow us to
clean up the environment and control
crime and violence.
Unfortunately, this seemingly self-evident logic runs contrary to historical
experience. The Worldwatch Institute
notes that global economic product has
increased by four times since 1950. This
means that on average, in each of the
past four decades total economic output
has increased by an amount equal to the
growth in output achieved from the beginning of human civilization until 1950.
(Brown, 1990, p.3) If growth is the
answer, surely growth of that magnitude
should have resulted in substantial progress toward eliminating poverty, stabilizing the environment, and eliminating the
causes of violence. It has not. The reasons are readily enumerated.
Increases in economic output, as
traditionally measured, are highly
correlated with increased demands
on environmental resources.
Where institutional structures concentrate economic and political
power, new increments to wealth
flow to the already powerful and
increase their power to command
available resources–pushing the poor
to ever greater desperation at the
margins of subsistence.
Treating labor as a commodity forces
people to place impersonal market
employment above all other considerations and results in persistent
disintegration of family, community,
and culture–the basic fabric of human society.
The 1980s: Turning Point for Human Society
The 1980s brought the world to the
threshold of a new era, shaped by powerful yet relatively unfamiliar forces with
which we have not yet fully come to
terms.
We began to reach ecological limits.
Contrary to expectations, the first limits
we face are not limits to the extraction of
oil and mineral resources. Rather they
are ecological limits to the demands we
place on hydrological and soil systems,
and the disposal of our wastes into the
air, water, and soils.(4) With respect to
earth’s ecological system there is no
longer an expanding pie. What one person takes to increase his wealth, directly
increases another’s poverty. We completed the transition from life on an open
frontier to life in a closed system, an
event that coincided with an abrupt reversal of North to South capital transfers
from net positive to net negative.
At the same historical moment, an
almost invisible process has created a
new institutional force in society–the
transnationalization of capital. This force
transcends the state and poses a greater
threat than any dictator in arrogating the
right and ability of people to control
their own affairs and demand accountability from the state.
Role of International Assistance
Many of the official international assistance agencies have been important players in the transition processes of the
1980s. They have steadfastly promoted
growth as the answer to the global crisis,
without addressing the inherent conflict
between growth and ecological demand.
Thus they have continued to fund large
projects that deprive the poor of their
means of livelihood and destroy the
ecology to allow the relatively more
privileged to continue expanding their
consumption.
For many years the major international assistance agencies contributed to
strengthening the state at the expense of
civil society. In the late 1980s they
shifted their ideological orientation,
strengthening the forces of transnational
capital at the expense of both the state
and civil society. In both instances they
have contributed to the separation of
power from place–loosening the bonds
of community and democratic control
essential to community harmony and
environmental stewardship. All the while
they contributed to the debt burdens that
now give them the power to dictate economic policies in favor of transnational
capital, reducing the ability of the state
to regulate its own economy, leaving
people increasingly subject to forces over
which they have no control, and sustaining the ecological subsidies that the
South provides to support the North’s
unsustainable over-consumption.
Created to serve a growth-centered
development vision that is the source of
their legitimacy, they have been reluctant
to challenge the premises of that vision,
to think the unthinkable–that their very
existence may be part of the problem.
SOUTH TO NORTH RESOURCE
FLOWS
In 1988 net South to North financial
transfers reached $32.5 billion. Overall,
developing countries transferred a net
$115 billion to developed countries from
1983 to 1988, not counting capital flight
(UNDP, p. 79.). Financial transfers,
however, are only part of the story.
Money is an insubstantial human artifact,
a means of keeping track of our respective claims on real resources. It may
dominate our lives, but we cannot eat it,
wear it, live in it, breath it, drive to
work in it, or drink it. What is far more
significant than the net financial transfers
from South to North are the net transfers
of real resources–finite ecological resources on which all life and wealth
ultimately depends.
Sustaining Over-consumption
The industrial nations, with roughly 20
percent of the world’s population, account for some two-thirds of the world’s
use of important metals and three-fourths
of its energy use. Their economies have
generated two-thirds of the greenhouse
gases that are altering the global climate,
three-fourths of the sulfur and nitrogen
oxides that cause acid rain, most of the
world’s hazardous chemical wastes, and
90 percent of the chloroflourocarbons
that are destroying the ozone layer (During, p. 156).
An American consumes more than
sixty times as much paper and paperboard as an African–half of it for packaging–and more than twelve times as
much as a Latin American–whose forests North Americans express great concern about saving (Postel and Ryan, p.
87). The products of the soil–such as
food, wood, and natural fibers–consumed by a Dutch person requires five times
as much land outside the country as
inside–much of it in the South (During,
p. 156).
Here we see the real bottom line.
Northern lifestyles depend on the extraction of a disproportionate share of natural and ecological resource inputs from
the South. The South is then expected to
absorb a disproportionate share of the
waste generated by the use of these resources. We live in a world divided
between the over and under-consumers of
earth’s natural wealth–the over-consumption of one being dependent on the under-consumption of the other. The
reversal of North-South financial flows
that occurred in the 1980s gave the over-consuming nations of the North a
new lever for dictating economic policies
to Southern countries to sustain their
profligate life-styles a bit longer. Its
financial “assistance” to the South, both
concessional and commercial, created the
debt that now creates a desperate need
for ever greater borrowing to cover debt
servicing, thus giving this leverage to the
multilateral agencies that control access
to further borrowing.
Development by Eviction
North-South patterns of expropriation
exist within, as well as, between nations
and are reflected in many official development projects. Dams, commercial tree
farms, agricultural estates, industrial
projects, market development, transmigration projects, mines, prawn farms,
nuclear power plants, tourist resorts all
require access to land and water resources. The appropriation of these resources
for officially sanctioned projects deprives
the urban poor of their homes, farmers
of their lands, and fisherfolk of their
access to the sea, while destroying forests and fish breeding grounds, eroding
fragile soils, depleting ground water,
polluting local rivers and fouling the air.(5)
It is estimated that in India more than
20 million people have been displaced
since independence to make way for
large development projects, and the
number is accelerating as population
pressures and resource competition grow
(Maloney, 1990-91). In each instance
the weak are evicted from their homes
and livelihoods–in the name of development and the national interest–usually
without compensation–almost without
exception to benefit those already better
off than themselves. In many instances
the projects are planned and funded by
international assistance agencies, leaving
behind the debt that then allows the
North to dictate Southern economic
policies.
Southern poverty is not a measure of the
insufficiency of Northern charity. It is a
measure of the North’s expropriation of
the South’s rightful share of ecological
surplus. Efforts to increase the charity
obscure this basic reality.
TRANSNATIONAL CAPITAL:
BEYOND STATE POWER
The market ranks with the modern state
as one of the most important of human
creations. Private ownership and competitive local markets have been cornerstones of political pluralism and economic accountability, and an important stimulus to technological innovation and
productivity. Their success and significance have been dramatically underscored by the fall of the communist empire in Eastern Europe. However, like
the power of the state, if unrestrained,
market forces can turn destructive and
oppressive. They must be balanced by
the forces of the state and civil society,
and the power of both state and market
must be connected to place and held
accountable to people.
Unfortunately, the fall of communist
regimes has not marked the passing of
ideological extremism posing as economic science. While the extremists who
advocated all power to the state, in their
own hands of course, have been thoroughly discredited, their fall has temporarily strengthened the hand of an equally dangerous group of ideological extremists who advocate all power to the
market–in effect to transnational capital.
International assistance has shown a
propensity to follow power and the institutions that concentrate power–largely to
the detriment of civil society. Until the
1980s, it supported the concentration of
state power. In the 1980s, as transnational capital began to transcend the
power of the state, the international
assistance system, wittingly or not,
aligned itself with this new force, becoming its ideological champion in the
name of structural adjustment and export-led economic growth, and setting to
itself the task of removing the policy
barriers to transnational capital’s ascendence over state and people as the arbiter
of economic power.
Eroding Legitimacy of Capitalism
The principle of private ownership of
capital is the foundation of capitalism’s
legitimacy. The owner, an identifiable
person known to the people of his or her
community, controls the use of capital
and ultimately is accountable under the
law for the consequences of its use.
The past several decades have witnessed the professionalization of corporate management, a broadening of participation in stock ownership, and the
emergence of investment funds and institutions that manage other people’s capital. Each has contributed to separating
the management of capital from its ownership and eroded capitalism’s original
basis of moral legitimacy. With the
transnationalization of capital, we are
confronted with a new form of capitalism
in which that legitimacy has all but evaporated.
Capital’s professional managers are
now no more accountable to its “owners”
than to the states that issue their well
used passports. While richly rewarded
for their services, these managers are
employees, not owners. Yet without real
accountability to the owners, their jobs
generally depend on their ability to make
the capital they manage grow, i.e., to
replicate itself. In a sense they work for
capital itself.
Separating Power from People and Place
As capital has become transnationalized,
it has become a largely autonomous force
transcending national interests, with
allegiance to no state, and accountable
only to itself. It represents free floating
economic power unattached to people or
place, mocking the power of both state
and people and rendering democratic
institutions impotent as instruments of
citizen control.
The countries where transnational
capital chooses to base production facilities are temporary locations of convenience, of interest only so long as wages
and taxes are low, and environmental
and health restrictions minimal. Transnational capital has completely separated
power from place, and even from people–establishing itself as the ultimate
absentee landowner. Daly and Cobb have
put it succinctly:
Free traders, having freed themselves from the restraints of community at the national level and
having moved into the cosmopolitan world, which is not a community, have effectively freed
themselves of all community
obligations (Daly and Cobb,
1989, p. 234).
Gerald Epstein (1990-91), demonstrates
what this has meant for the United
States. He documents how U.S. incorporated transnationals, by basing their
production facilities abroad to capitalize
on cheap labor and then importing their
products back to the United States, account for a major portion of the enormous U.S. trade deficit and resulting
foreign debt. Similarly, their practice of
avoiding U.S. taxes by sourcing profits
in low tax countries accounts for the
substantial budget deficits of the U.S.
government. Furthermore, with their
production facilities located abroad they
have no direct self-interest in maintaining
the social and physical infrastructure of
the United States, now in a critical state
of deterioration. Rather their self-interest
lies in maintaining a strong global U.S.
military presence to assure the security
of their international investments. The
combined effect of exporting jobs and
reducing social services has created
sharp increases in the disparity between
the incomes of America’s rich and poor.
Shifting Power from Labor and State to Capital
Every student of introductory economics
learns the theory of comparative advantage, which tells us that under conditions
of free trade each nation applies its resources to producing those goods and
services for which it is the most efficient
producer relative to other nations. Free
trade thus maximizes economic efficiency and benefits everyone by making
quality goods available at the most favorable prices.
Unfortunately, free trade advocates
seldom mention the essential qualification on which the theory is based. The
factors of production, including capital,
must be confined within national boundaries–forcing the owners of capital to
employ domestic labor in the production
of those goods and services in which
their country has a comparative advantage. If not so confined, capital simply
moves its factories to countries that offer
the least overall production costs (lowest
wages, taxes, social benefits and health,
safety and environmental standards),
exports back to the high cost markets,
and increases the returns to capital and
management relative to those of labor
(Daly and Cobb, 1989)–exactly as Epstein describes the U.S. experience.
Laborers who have successfully
achieved high wages and attractive working conditions suddenly find themselves
competing for their jobs with the world
labor market, including vast numbers of
unemployed willing to work on whatever
terms are offered. National governments
find that with the flow of goods and
capital beyond their control, they no
longer have the means to regulate their
own economies. The critical decisions
increasingly are made by international
bankers and investment managers who
are largely beyond the reach of national
laws.
Eroding the Power of Democratic Institutions
The clearest statement of transnational
capital’s policy agenda is found in proposals being spearheaded by U.S. negotiators in the current round of GATT
(General Agreement on Trade and Tariffs) negotiations.
Elimination of barriers to the free
flow of trade and investment capital
across national borders–which removes from national governments
the ability to regulate their own
economies and restrain the economic
power of transnational capital.
Assignment of authority to a Geneva
based agency accountable to national
delegations on which transnational
corporations are heavily represented
to set maximum health and safety
standards that could be exceeded by
individual nations or community only
on presentation of conclusive scientific proof of harmful effects–effectively removing from
both nations and localities the right
to set standards higher that those
deemed adequate by the regulated
industries.
International guarantees of intellectual property rights–thus assuring the
North’s perpetual technological monopoly and the South’s unfavorable
terms of trade.
In the aftermath of the fall of communism in Eastern Europe, the advocates of
unrestrained international markets have
presented themselves as champions of
democratization. Their claim falls wide
of the mark. Democracy depends on
citizen action. Its building blocks are
active, self-governing communities that
control their own resources, manage
their own political and economic affairs,
and build a sense of civic stewardship
and attachment to place. The proposals
of the free trade advocates would enshrine in international law the transfer of
control from people and community to
impersonal institutions driven by an
economic logic that assigns no intrinsic
value to community, ecology or future
generations.
BALANCING MARKET, STATE,
AND CIVIL SOCIETY
In the 1980s most international assistance
agencies made an ideological commitment to export-led, free-market growth
strategies, emphasizing production for
international markets and calling for
removal of all barriers to the free flow of
trade and investment across national
borders. In so doing they aggressively
aligned themselves with the interests of
transnational capital.
Historical Foundations of Export-Led Growth
Export-led economic orientations are not
new to Southern countries. The colonial
period featured enclave economies that
commanded the most lucrative national
resources to produce for export. Foreigners and a wealthy local elite who
controlled the enclave profited handsomely. The majority of the population
was left to fend for itself with whatever
resources remained.
We might presume that breaking
down these dualistic structures in favor
of integrated, diversified, domestic economies serving local markets would have
been the first priority of any newly independent Southern nation. Yet in the
majority of Southern countries these
structures persist to this day. Now we
see multilateral agencies and Northern
governments actively promoting policies
that, when implemented within the context of dualistic structures, severely
exacerbate existing social and economic
disparities–as dramatically demonstrated
in Brazil–previously touted as one of the
free trade success stories.
East Asia’s Economic Experience: Ideological Mythology versus
Practical Reality
The experience of Japan, South Korea,
Taiwan, Singapore, and Hong Kong is
commonly invoked to demonstrate the
miracles of export-oriented, free-market
capitalism unrestrained by the oppressive
hand of government. Singapore and
Hong Kong–small cities–one still a
colony–with no rural sectors–are of
limited relevance.
The economic histories of Japan,
South Korea, and Taiwan do provide
important insights, but bear little resemblance to the free market myths attributed to them. Each built its economic
success on a foundation of radical land
reform, massive investments in basic
education, strong family planning programs that stabilized population growth,
and dense networks of rural organizations that integrated the rural economy
and supported broad participation in
early economic growth.
Because of land reform, farms were
small, management was intensive, and
the income benefits of improved productivity were widely shared. A strong rural
market resulted, which stimulated the
emergence of small and medium rural
industries to meet local demand. Larger
firms supported by backward and forward linkages to an integrated diversified
national economy were well positioned
to compete in growing international
markets at a time when there was little
competition from other low wage countries.
Government provided strong guidance and protected producers in the
domestic agricultural and industrial sectors from foreign competition. Government policies strongly favored domestic
ownership of productive assets and control of technology.
Limited Models
While South Korea and Taiwan enjoyed
temporary success from a narrow economic perspective, they face growing
social, environmental, and even economic crises (Bello and Rosenfeld, 1990).
Both have sacrificed social and environmental concerns for high levels of economic performance. Taiwan has severely
poisoned its soil and polluted its waters.
South Korea is experiencing growing
social tension as demands from the working class for a greater share in prosperity
grow. Japan has become one of the
world’s wealthiest nations. This wealth
has built a vast international economic
empire that is spreading environmental
disaster throughout the world, while the
living standards of Japan’s people remain
relatively modest.
East Asia provides little support for
the ideologically pure free market approach advocated by many official assistance agencies. Its economic success
resulted from an intelligent melding of
the forces of both state and market. Its
social and environmental failures resulted from the lack of a well developed
civil society able to moderate both state
and market power and balance social and
environmental with economic priorities
(Korten, 1990). Its successes and failures
point to the need for balanced pluralism,
a dynamic mix of market, state, and civil
society–each bringing distinctive contributions to the collective national interest
(Broad, Cavanagh, and Bello, 1990-91).
The most important institutional challenge of the 1990s is to strengthen the
institutions of civil society as instruments
of social innovation and a counter to the
excesses of both state and market power.
Most official assistance agencies are
poorly equipped for this task. The use of
their funds to turn NGOs from social
critics and innovators into public service
contractors, which is the predominant
consequence of their recent interest in
NGOs, is stimulating the growth of market oriented NGOs. It is doubtful that it
will constructively strengthen civil society, a more complex task requiring
wholly different orientations and institutional capabilities.
THE USES OF
INTERNATIONAL ASSISTANCE
The World Bank, in its first annual report on The World Bank and the Environment, (1990, p. 11) acknowledges
there have been “…a few well-publicized
cases in which Bank projects actually had
negative environmental consequences
such as contributing to the destruction of
tropical rain forests and posing threats to
wildlife, indigenous people, and established human settlements…” It is true
that only a few of the many such cases
involving Bank and other donor funding
have been well publicized. Many others
have escaped public notice, as for example the expensive Asian Development
Bank projects in Bali that replaced fully
functional farmer-built facilities in the
traditional Subak irrigation systems with
facilities that were often either nonfunctional or unsuited to farmer needs. Or
the Japanese funded irrigation project in
Ilocos Norte, Philippines that threatened
to obliterate the sophisticated Zanjera
irrigation systems at a cost of more than
$100 million (Siy, 1986).
From Selective Cases to Aggregate Statistics
Given the vast resources being poured
into international assistance, we might
expect serious efforts to assess the effectiveness of that investment. Surprisingly,
there have been remarkably few attempts
to determine the aggregate long-term
outcomes of foreign assisted development projects, even against purely economic criteria.
A few years ago multi-agency study
of foreign aid headed by Robert Cassen
(1986) reported that from two-thirds to
three-fourths of aid projects (somewhat
higher in the case of the World Bank)
were judged by their sponsoring organizations to be satisfactory by rate-of-return or other standards. However, such
evaluations are usually made at the time
of project completion, are carried out by
agencies that have a substantial self-interest in favorable evaluation findings,
and depend on heroic assumptions about
the extent to which the flow of project
benefits will be sustained beyond the
withdrawal of project staff and financing.
One of the rare efforts to test the
validity of these assumptions is reported
by Michael Cernea (1986) based on
special follow-up studies by the Operations Evaluation Department of the
World Bank of 25 Bank assisted agricultural projects. Cernea’s sample was
limited to projects that Bank staff, at the
time of project completion, had rated
successful with good prospects to generate a continuing stream of benefits. Conducted several years after project completion, the follow-up studies found that
thirteen of these twenty-five “successful”
projects had in fact failed. They did not
produce a continuing stream of benefits
sufficient to justify the investment.
Most donors would seriously protest
any effort to extrapolate from such limited data. However, in the absence of
more complete data, we may note that
taking relatively optimistic estimates that
75 percent of projects are successful at
the time of project completion and 50
percent of these subsequently fail to
sustain an acceptable flow of benefits
suggests that less than 40 percent of
development projects may produce sufficient net returns to justify the investment. Based on my own field experience
I would be inclined to the view that this
is probably an optimistic estimate.
Discipline
Whether or not international assistance
contributes to self-reliant development
depends in substantial measure on the
discipline with which it is used by the
recipient. Moderate amounts of assistance applied in highly disciplined ways
to increase domestic productive capacity
can certainly strengthen the domestic
economy in ways that build local control
and self-reliance.
Where discipline is lacking, assistance is more likely only to produce
profits for suppliers and contractors,
finance profligate life styles for the rich,
relieve pressures for domestic tax collection, subsidize the exploitative extraction
of natural resources, mask economic
mismanagement, release other funds for
military expenditures, reduce pressures
for essential social reforms, aid capital
flight, add to debt burdens, and make
recipient governments beholden to foreign interests.
It all comes down to what has become a widely recognized, though freely
ignored, truth. International assistance is
only useful in supplementing domestic
resources within the context of a disciplined national policy environment that
encourages the efficient and equitable
use of all available resources, both foreign and domestic. In the presence of
such conditions the need for external
assistance is greatly reduced. In their
absence, aid is of little help–and is usually counterproductive.
INTERNATIONAL ASSISTANCE
AND EXTERNAL DEPENDENCE
Growth alone can be achieved with other
people’s money, labor, management and
technology. Development of a nation’s
capacity to use its own resources to meet
its own needs is another matter. This
reality is illustrated by the oil producing
countries of the Middle East that have
achieved spectacular growth by selling
off a nonrenewable resource, but depend
on others for everything–from managers
and engineers to laborers. Only by the
most narrow definition could one maintain that they are “developed.”
Of course there is the possibility of
using other people’s money while using
one’s own labor, management and technology. Here the differences between
domestic savings, and international transfers as sources of investment capital for
development become important.
Domestic savings are in local currencies. These purchase local goods and
services, thereby strengthening local
technical capacity and stimulating the
local capital goods industry. This
process may be slow and produce
few showcase projects, but it builds
local capacity and self-reliance. Returns on investment are in local currency and stay in the economy.
International transfers provide foreign exchange to purchase goods and
services abroad, thus strengthening
foreign productive capacities. Results
are more dramatic and provide a
greater sense of progress within the
enclave. Domestic capacity building
will be reduced and dependence increased. If transfers are in the form
of foreign loans or investments, repayment or profit repatriation must
be made to foreigners in foreign
exchange.
A substantial portion of official assistance comes in the form of loans, to the
extent that in 1988 debt from official
sources averaged 60.3 percent of total
foreign debt for the 44 Southern countries for which the World Bank reported
data.(6)
The Debt Trap
If capital transfers in the form of loans or
investments are invested in productive
activities that generate sufficient foreign
exchange to cover repayment then repayment may not be a problem. Neither is
there a problem if the country owns
advanced technologies that command a
high value added in international markets
and earn it a robust trade surplus. Such
situations are rare among Southern countries, leaving four options when payments come due.
Borrow more foreign exchange. This
option, if available, is the easiest in
the short-run, but it prolongs and
worsens the problem.
Sell off natural resources such as
forests, minerals, and oil in international markets. This reduces future
productive potentials, may result in
environmental damage, and leaves
the country dependent on foreign
purchases once its own resources are
depleted.
Sell or lease productive assets such
as agricultural lands, fishing rights,
and industrial facilities to foreigners.
This transfers control of the nation’s
productive assets to foreigners, displaces local producers from the lands
and fisheries on which their livelihoods depend, and weakens local
control and the possibilities for economic self-reliance.
Export migrant workers and/or sell
cheap local labor to export-oriented
foreign investors, taking steps to
keep labor costs low and minimize
health, safety, and environmental
regulation. This commits a country
to low social and environmental standards to attract mobile investments
that will move elsewhere whenever
more favorable terms are offered.
It is rare that consideration is given at
the time an international loan agreement
is signed to how it will be repaid. The
annual payments look relatively small
and the magic of inflation and economic
growth are expected to make repayment
relatively painless. The official bankers,
whose promotions depend on their ability
to obligate funds, assure the borrower
that taking the loan is the responsible
path to modernization.
While even grants tend to create a
growing dependence on foreign exchange, there is no need to repay. With
loans, however, domestic resources that
might otherwise improve domestic living
standards must be diverted to earn the
foreign exchange for debt service, now
nearly $200 billion a year for all developing countries (UNDP, 1990, pp.
78-79).
Role of the Multilateral Banks
The standard response of the international assistance agencies to a country experiencing a debt crisis is to recommend
further loans. However, such loans are
contingent on the country meeting certain conditions. Some conditions are
quite sensible, such as selling off inefficient public enterprises, increasing domestic tax collections, and eliminating a
variety of subsidies that benefit primarily
upper and middle classes.
However, other measures call for
orienting the economy toward production
for exports, removing barriers to imports
and facilitating foreign ownership of the
country’s resources and economic activities. Each of these measures tend to shift
control of the economy from local people
to transnational capital–trading increased
economic dependence and foreign claims
on the country’s resources for possible
short-term improvements in economic
statistics.
INTERNATIONAL COOPERATION: AGENDA FOR THE 1990S
Our task for the 1990s is to come to
terms with our global reality. We must
learn to live in constructive balance with
earth’s ecology, achieve some semblance
of economic justice, and bring the forces
of transnational capital under human
control.
The day of international assistance as
capital transfers is passed. We cannot
buy our way out of the global crisis. Our
efforts to do so are based on a
misdefinition of the nature of the problem–a misdefinition that is inherent in
organizations whose primary function is
the transfer of capital to finance economic growth. These organizations necessarily define the problem in terms of the
only solutions they are capable of offering–even as it becomes evident that
these “solutions” are deepening the crisis.
This is particularly true for the multilateral banks, and it is not surprising to
find them in the lead in assuring all who
will listen that increased international
lending is the answer to whatever problem presents itself. In pursuing their own
bureaucratic interests, they increasingly
have become instruments of the forces of
transnational capital, draining power
from the state and ultimately undermining the forces of democratization that are
our hope for strengthening civil society.
Applying their traditional “solutions”
under new labels, such as an environmental lending facility, is not likely to
produce more beneficial results.
Most of the conventional assistance
organizations have become a problem
posing as a solution, erecting active
barriers to more appropriate action. It is
time to dramatically reduce their roles
and funding, and to consider the possibility that many of them should be completely dismantled.
The essential task is the opposite of
that to which the traditional assistance
agencies are dedicated. It is to reduce the
extractive flow of environmental resources from South to North so that
Southern people may apply them to
improving the quality of their own lives.
This can only be accomplished by bringing Northern lifestyles into line with
ecological reality, reducing the North’s
dependence on the resource subsidies
that the South has been providing Northern consumers since the beginning of the
colonial era, and reallocating the use of
global resources so that all people have
the opportunity to live a decent life. This
effort must be backed by negotiations
leading to international debt settlements
that substantially wipe out existing debts
under terms that preclude recreating
them, and by measures to strengthen the
ability of civil society to hold both the
state and transnational capital accountable.
This is no small agenda. It requires
bringing to bear enormous quantities of
human intelligence and voluntary energy
of a type that emerges more readily out
of the self-motivated commitment of
social movements than government
funded projects.
If public policy and funding are to
play a nurturing role we will need to
create a new system of international
organizations appropriate to an agenda
very different from the one most of our
current development assistance agencies
were created to serve. The centerpiece
organizations of this new system will
function as public foundations to facilitate people-to-people and government-to-government problem solving action. The
creation, strengthening and shaping of
appropriate institutions into a support
system for a global development cooperation movement presents one of the
major challenges of the current decade.(7)
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Notes
1. Development Assistance Committee (1990), Policy Statement by DAC AID Ministers and Heads of AID
Agencies, paragraph 31.
2. Ibid., Table 23, page 227.
3. Compiled from tables in Ibid.
4. The evidence and its consequences for the daily lives of most people in the world has become so pervasive as
to need no further documentation here. Readers who feel a need for documentation on the limits we face in regard
to fertile soils, water, and the alteration of earth’s weather and ozone layers are referred to the annual State of the
World reports issues by the Worldwatch Institute in Washington, D.C.
5. See Rich (1990). Numerous case studies are documented or referenced in ACFOD, et. al. (1990).
6. World Bank, “Table A-12: Composition of Debt Outstanding, 1970 to 1988,” World Development Report, p.
168.
7. For further discussion see Korten (1990).