79. Memorandum From the Deputy Secretary of State (Robinson) to Secretary of State Kissinger 1

SUBJECT

  • North-South Challenge

I believe that our public statements haven’t yet brought into focus the essentially political dynamics of the North-South challenge. The more “conservative” elements within our and other governments believe that the situation is basically static except for a growing discontent on the part of the LDC’s; to preserve our democratic-free enterprise-market system, they would resist any significant change in our policies toward the “South.” Although not yet clearly articulated, I believe that the evolving State Department concept reflects acceptance of the fundamental dynamics of the North-South relationship which makes essential an adjustment in our international economic relations so as to assure the survival of our market system.

The underlying trends which support the concept of a dynamic North-South relationship include the following:

(A) The world became intoxicated with the illusion of independence with the number of independent states almost quadrupling in 30 years from 40 to over 150 today.

(B) Many if not most of the newly independent states haven’t the essential elements for a viable economic independence let alone the managerial competence to adjust economic enterprise to the ever changing international commercial realities. We are now witnessing the progressive unraveling of these economies with loss of the momentum created prior to the cutting of the life-sustaining umbilical cord to their “colonial exploiters.” A sense of angry desperation now aligns these “masses” of the community of nations with the champions of radical change in the international economic order.

(C) At the same time that the world was on its independence kick there was a counter current in the form of a techno-commercial revolution which created an accelerating global economic interdependence. This trend impacted on both industrialized and developing worlds. While the LDC’s were losing their independence, the industrialized na[Page 434]tions also became increasingly dependent on the LDC’s—for energy and raw materials to balance expanding needs with decreasing availability at home and for markets for our expanding exports.

(D) These trends have intensified pressures for governmental and inter-governmental action on a broad range of economic issues. Interdependence inevitably will heighten demands for governmental interventions in the market place. This is seen most clearly today in the energy field but will develop in other fields of international economic relations. The issues are economic but also profoundly political. Thus the traditional distinctions between economic and political aspects of our foreign relations are no longer valid.

This synopsis illustrates our need to treat North-South issues as a dynamic challenge to mankind’s sensitivities and imagination. Unless we develop equitable and effective means of responding to the reality of a rapidly changing world we will not be able to preserve or extend the basic elements of the democratic-free enterprise-market system.

What are the consequences of a continuation of these trends? An expanding number of LDC’s will be offered the choice of a radical “new international economic order” or increasing dependence on multilateral financial institutions controlled by the industrialized nations—the IMF, IBRD, creditor clubs (and now, some would argue, IRB and IFAD). The conditions attached to these agencies’ expanded assistance will be resented in the South as “neocolonialism”—benign, perhaps, but nonetheless a further erosion of their new independence. In this situation the politics of the “common front” will rally governments that should know better to the cause of international bureaucratic management of markets, production and prices through LDC-dominated institutions. This is the real objective of the UNCTAD common fund planners. It is the essence of the North-South confrontation.

What should we be doing to turn this set of mutual problems toward a more rational resolution? First, we must create a deeper understanding of the challenge within the U.S. Government, Congress and public. Second, we must establish a common understanding among the industrialized countries. Third, we must design a better orchestrated effort to adjust international economic institutions and all aspects of economic relations to the reality of interdependence while preserving the market system.

To achieve this the U.S. must take the lead in modifying and strengthening the concentric rings of international organizations in which we have strong influence to develop a more coherent and cohesive approach. These rings start with the U.S. at the center, moving out through an inner core of industrialized nations (including FRG, Japan, UK, France and the U.S.), to the OECD, then a CIEC type body with se[Page 435]lected participants representing global interests and finally to a global institution to provide formal legitimacy.

The industrialized-nation inner core would develop from bilateral and ad hoc arrangements. The OECD must be made more effective by strengthening and expanding the mandate of its Executive Committee. We must continue our efforts to build on this process, with the State Department controlling over-all coordination of international economic policies. This can be achieved through the OECD Executive Committee, with the Under Secretary of State for Economic Affairs playing the lead role for the United States.

CIEC can be a crucial element in reconciling the views of North and South. It is not too soon to begin our planning for CIEC in some modified form beyond its initial trial year. This will require an in depth analysis of the North-South issues and alternatives for modifying CIEC to gain both effectiveness and legitimacy.

The key requirement is to demonstrate readiness to cooperate and adjust. Neither supine concessions to radical demands nor a stand-pat “them versus us” resistance to change should be our posture. The over-all design of our responses to the challenge already has been largely articulated in your addresses to the U.N. Seventh Special Session2 and to UNCTAD IV.3 The main elements are:

—broader and more meaningful trade concessions to LDC’s through the MTN and otherwise;

—further expansion of earnings-stabilization programs managed by existing international financial institutions;

—comprehensive steps to reduce price fluctuations in basic commodities produced by LDC’s, in some cases using buffer stocks which should be jointly financed by producers and consumers (the financing feature representing some change in U.S. policy);

—international measures to promote rational development of resources in LDC’s—the IRB proposal;

—increased sensitivity to the need for more liberal rescheduling of the external debts of LDC’s approaching bankruptcy;

—substantial expansion of the financing capacity of the international development banks;

—a serious, comprehensive effort to create systems for the more effective transfer and application of technology to the LDC’s, as outlined in your UNCTAD speech;

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—development and operation of a World Food Reserves system that gives greater food security to the LDC’s as well as industrialized countries;

—more grants and other concessional terms on bilateral aid to the poorest LDC’s;

—better coordination of both multilateral and bilateral aid so as to maximize developmental effects, including joint planning of aid priorities and programs among donors and recipients.

In all of these measures we must recognize the diversity of the LDC’s, with their different potentials, problems and political outlooks. To summarize:

North-South relations must be treated with the creativity and urgency required by accelerating interdependence.

We will either make adjustments in the existing order so as to offer hope to the LDC’s or risk seeing the democratic-free enterprise-market system become the dinosaur of the 20th century.

This task is a fundamental aspect of our international relations. It demands the elevation of North-South economic relations to a place of continuing priority in our foreign policy machinery, effective assertion of leadership by the State Department within U.S. Government councils dealing with international economic issues, and strengthening of the OECD process of politico-economic policy coordination to deal comprehensively with North-South issues.

  1. Source: National Archives, RG 59, Records of Deputy Secretary of State Charles W. Robinson, 1976–1977, Lot 77D117, Box 6, CWR—Memos to the Secretary, April 1976–June 1977 (1 of 2). Confidential. The text of the memorandum was relayed to Kissinger, who was attending an OECD summit in Paris, in an unnumbered June 22 telegram. (Ibid., Box 3, CWR—Telegrams)
  2. See footnote 4, Document 63.
  3. See footnote 3, Document 78.