Foreign Relations of the United States, 1977–1980, Volume I, Foundations of Foreign Policy

58. Address by the Director of the Policy Planning Staff (Lake)¹

Houston, Texas, November 5, 1977

The United States and the Third World

I will speak for a while first on the approach of a new Administration to the crucial economic issues we are addressing with the developing nations. The phrase “new Administration” may no longer be accurate after 10 months. But I think we do have an approach to these issues that is new in some of its directions and priorities. Before getting to the specific issues themselves, let me say a few words about context.

For many years during the period after World War II, American relations with Latin America, Africa, and Asia were looked at primarily through the prism of the cold war. And especially with regard to Africa and Asia, our concerns for close relations with our traditional allies cut across our inclination to support the movement toward independence by Europe’s colonies.

In recent years, we have come to look at the problems of the Third World more in their own right, in terms of realities of the Third World itself. We can do so because we have come to appreciate better the limits to the influence of both the Soviet Union and the United States in the Third World. We must do so because of the growing importance of the Third World to us, politically as well as economically, and because only bad policy ensues when we allow either our global fears or our global hopes to skew our vision of the facts.

This is not to say we should be indifferent to the influence of the Soviet Union in the Third World or elsewhere. We and the Soviets have different views of history and of the future; our relationship continues to have competitive, as well as cooperative, elements.

But in terms of our own self-interest, we must begin to deal with the developing nations on a basis which takes full account of their growing importance to us. And we should understand that the determination of Third World nations to decide their own policies, their wish to determine their own fates, is a basic protection for the world of diversity we want to see preserved.

So it is no longer possible to say that East-West relations or ties among the industrial democracies are more important to us than North-South policies. For different reasons, they are all vital to U.S. interests and to the kind of world we want for our children. Advancement of our objectives in one area cannot be divorced from progress in another. Worldwide energy security, for example, affects the economic welfare of the industrial democracies, the developing world, and the eastern Communist states. Economic cooperation among the United States, Europe, and Japan affects growth in the Third World; by the same token, their economic health is important to our own.

Another way of looking at the importance of the U.S.-Third World relationship is to enumerate some of those problems which cannot be solved without their cooperation.

• Controlling the proliferation of nuclear weapons requires the assistance of India, Iran, Brazil, and Argentina, among others.

• Restraining the dangerous growth of conventional arms races must be addressed on every continent.

• Human rights, including the economic dimension of those rights, are a concern to us wherever they are in jeopardy.

• Managing an economically interdependent world to assure global growth and promote economic equity requires close cooperation between the governments of the industrial democracies and those of the developing nations.

Managing the Relationship

For many of these first months in office, the Administration has been reviewing—and arguing about—how this complex, interconnected relationship with the developing nations can be managed. Let me summarize some general conclusions we have come up with in six points.

First, we must adopt a positive and constructive attitude in addressing international problems encompassing the developing countries. We will seek common ground with these countries, for progress will only be possible when solutions are mutually beneficial to all parties.

Second, we will recognize in our actions that interdependence is more than a slogan. It requires us, as we fashion our domestic economic policies, to take into account their impact on the rest of the world, including the Third World. Traditionally, the economies of the developing countries have relied upon the economic dynamism of the major industrial economies. We must continue to be reliable on that score. But it is increasingly true that we have a major stake in the health and vitality of the Third World, as well. No less than 35% of our exports went to developing countries, while almost half of our imports came from them.

Third, the structure of the international system is changing, gradually evolving from a “North” and a “South” into a global community in which all countries have responsibilities as well as rights. Much of the North-South rhetoric has, unfortunately, implied that only the industrial nations have obligations. This cannot be true. If fully accepted, it fosters both paternalism and resentment. Even the phrase “North-South,” and the dichotomy it sets up, obscures the gradations that exist among nations. This analysis does not mean we can—or should try to—split the Group of 77.² But as the economies of developing countries advance from one level to another, it is important that they show increasing concern for the global welfare. They will have a growing stake in the common good.

Key oil-producing nations, for example, now ponder the damaging effect of rising oil prices on the health of the global economic system and, therefore, on their own long-term economic development. Even small oil price rises can easily wipe out the gains which the Third World could reap from aid, investment, and loans from the industrial nations. Treasury Secretary Blumenthal calculated the other day that each percentage point of increase in oil prices adds $400 million to the U.S. energy cost; it has an even more devastating impact on other countries.

Each nation must also face its responsibilities to its own citizens, who are most in need—and our own country is no exception. However well-functioning the international economic system, development is fundamentally a challenge for each government and society to address in its own terms.

Fourth, while our policies must be global in their concept, their implementation must be specific to each situation. Policies must be tailored to take into account the great diversities that exist among the developing countries.

For the economically stronger countries, the most appropriate areas of cooperation are trade and access to private capital and technology. Most of Latin America is now in this position. While aid still plays an important role in the region, its prosperity depends primarily upon the continuing evolution of an open international financial and trading system in which developing countries can participate ever more fully.

For the poorer nations, including most African countries, official development assistance—foreign aid—remains the vital source of external capital. Africa will benefit from the intention of the World Bank—and of our own Agency for International Development—to focus concessional assistance on the nations most in need.

Fifth, we accept the diverse models of economic and political development that the less developed countries (LDC’s) have chosen to benefit their peoples. But we also believe that certain human rights have universal application. Human rights include not just the basic rights of due process, together with political freedoms, but also the right of each human being to a just share of the fruits of one’s country’s production.

Sixth, we recognize that the economic and social issues we all face—such as protecting the environment and the oceans—are global problems from which Communist countries are not immune and to which they can and should make a positive contribution. Consequently, it will be our policy to encourage a constructive role by the centrally planned economies—to increase their development assistance generally and to join us and developing countries in a global development effort.

Basic North-South Issues

These six principles only have meaning, of course, in terms of the specific issues we face: liberalizing trade, insuring adequate balance-of-payments financing, improving our foreign assistance performance and reorienting its focus in the direction of poor people, stabilizing commodity price fluctuations, and facilitating the flow of investment and technology on terms fair to companies and governments. Underlying many of these issues, however, are at least three basic tensions.

1. We frequently face difficult choices between our short-term and our longer term interests.

2. We sometimes confront a tension between what we consider to be sound economic policy and, at the same time, our desire to maintain a positive momentum in our political relationships with the developing nations.

3. On almost every issue, we must find ways to enhance the participation of LDC’s in international decisionmaking in a way that is acceptable to them and to us.

Let me say a word about each.

First, trade-offs between short-term and longer term interests.

We are, as you know, in a period of economic difficulties, both in the United States and abroad. Governments everywhere are under pressure to respond to the immediate plight of their citizens, particularly the need to protect jobs. This results in at least two policy dilemmas for the United States.

• It is axiomatic that a liberal trade regime is in the interest of both the developed and the developing nations. Freer trade can promote the long-term development of the resources the world needs, provide lower prices and greater choice for consumers, and increase opportunities for producers in all countries. Trade can be an engine for economic development and a means for developing nations to participate in the international economic system. All this is accepted in principle, as the stated goal of all countries participating in the current multilateral trade negotiations in Geneva. But the harsh political reality is that these longer term benefits are threatened by short-term protectionism.

The United States has been in the forefront in encouraging the negotiations to move forward. We must continue to do so, while seeking to cushion the impact of immediate dislocations. In the months ahead the United States will be vigorously pushing for trade liberalizing measures in the current trade negotiations in Geneva. We will be giving special attention to products of interest to LDC’s. And we will do our best to work with other countries to devise trading rules which promote trade between the developed and developing world.

• Another example of the need—and the difficulty—in protecting the future against shorter term pressures is the issue of foreign assistance. Our foreign aid program has undergone many changes over the past decade, from the large, capital-intensive programs of the 1960’s to the small programs we now increasingly support—much of which is focused on rural development.

This Administration intends to give more priority to development assistance than it received throughout the 1970’s. We see these development programs as an integral part of our overall strategy of promoting flows of development finance, as the most efficient and direct method of transferring resources to countries which do not have full access to private capital markets, and as the most direct way to attack poverty.

We believe that larger and more effective foreign assistance programs—bilateral and multilateral—are in the U.S. national interest and in the interest of global development. So year by year, it is increasingly important to convince the Congress and the public that devoting resources to the fight against poverty abroad is tied to the ultimate health of our economy here at home.

The Administration consequently faces the challenge of demonstrating to American citizens that foreign assistance works—that it can, together with other policies, make a difference in the global food, energy, or population balance and that it can, by mobilizing the assistance of other donors and encouraging sound domestic policies on the part of recipients, stimulate growth and equity.

Let me say another word about our approach to foreign assistance. Our focus on meeting basic human needs, which is an integral part of our overall human rights policy, is not as simple as it may appear. We face at least two basic challenges here.

• In some cases, we face a dilemma when we consider foreign assistance for countries where political and economic human rights are denied. Our assistance is targeted on improving the economic conditions of poor people. Since aid is generally government-to-government, the regime concerned inevitably derives some political boost from our assistance. But we do not want to deprive poor people because of the nature of their government. In such cases, our decisions must be made on a pragmatic, case-by-case basis and very human terms.

• In addition, meeting basic human needs is not, in our view, a welfare program but a way for a country and a society to develop. Accordingly, we will encourage host governments to make an increasing commitment of their own to the needs of their poor, at the same time as we increase our aid to them. Many developing countries faced with balance-of-payments problems, high energy prices, and the need for massive domestic investment, may resist placing a priority emphasis on the well-being of their poor. Because the poor are often excluded from the political process, their concerns are given less weight by governing elites. If we place conditions on our aid, these elites could charge us with attempting to intervene in their internal affairs. Our challenge is to be sensitive to their concerns, while promoting our views and our commitment to the poor.

A second dilemma which underlies our North-South efforts is the need both to maintain a cooperative multilateral political environment for discuss-ing economic issues while expressing our differences over what are the soundest and most effective economic policies that can serve our common long-term interests.

I can think of two cases where this issue has arisen. In the area of commodity policy, the developing nations have proposed the negotiation of an integrated commodity program for 18 different raw materials. The idea is to relate international efforts to address the problem of each commodity market through a common financing mechanism—a common fund. This proposal has assumed a strong political significance in the North-South dialogue.

The United States and other industrial nations agree with Third World leaders that commodity issues are of central importance to the world economy and to the economic development of many countries. But we are convinced that effective measures can be devised only if each market is addressed as an individual case and that these individual arrangements form the best basis for a common commodity policy and funding arrangement. Negotiations on this question begin November 7.³ We will enter them in the hope that we can advance a positive and realistic position. We face the challenge of supporting what we consider sound economic policies, while working to maintain a constructive negotiating atmosphere.

Another such area is debt. Developing countries have been seeking generalized forgiveness of past official debt, which many of them see as a structural impediment to future development.

We seek to respond to such financial needs by arranging additional resource transfers, through bilateral and multilateral foreign assistance. But our analysis shows that every debtor is in a different situation. Some have little problem managing their debts. Others face only a temporary difficulty in servicing their loans. Still others may face long-term structural problems characterized by an inadequate net flow of financial resources.

In cases of extreme and urgent need, obviously we stand prepared to discuss debt rescheduling. But in the divergent circumstances we face, we believe any generalized debt forgiveness would be inadvisable. First, the benefits to debtors would bear little relationship to their development needs, since some nations with the largest debts are growing fast and can more easily service them. Second, by treating all countries alike, we would, in effect, be discriminating against those countries which have struggled to pursue policies to reduce their indebtedness over time. And third, a general debt moratorium would be seized upon by those who have traditionally cried “giveaway” at any effort to transfer resources to the Third World.

A third basic issue underlying North-South economic relations is the need to expand LDC participation in the management of the world economy.

One of the major drives behind the new international economic order is Third World desire for greater political participation in the global economy. The developing nations want not only a larger slice of the global pie, they want to be at the table when the pie is sliced and have a voice in its apportionment.

We are convinced that it is essential to widen the circle of international decisionmaking. We believe that the economic system must be fair, and equally important, it must be seen as fair. But going from principle to practice presents us with difficult issues.

• First, there is the question of how broadbased global economic management can be. While we live in a world of sovereign nations, it is also a world of states which are unequal in their ability to influence the system, for good or bad. Thus it is exceedingly difficult for the international community, including developing countries themselves, to select which developing countries should play the largest role.

• There is also the practical question of which management arrangements and institutions should be expanded. Should the most advanced developing countries be invited to join the Organization for Economic Cooperation and Development? Would they want to? Should their voice and vote be enlarged in international financial institutions, and if so, are they willing to undertake commensurate obligations? Should we make a special effort to incorporate LDC’s into institutions which have yet to be created—such as for energy or the oceans? These are some of the issues we are addressing now.

To summarize, I think it is fair to say that despite the increasing complexities of North-South relations and the conceptual as well as practical problems we face, the Administration has made considerable progress in formulating a set of positive development policies.

• We are intent on making substantial increases in our foreign assistance, while emphasizing the focus on meeting basic human needs.

• On commodities, we reversed the policy of previous years and have accepted the principle of a common fund to facilitate buffer stocks.

• We have agreed to an expansion of World Bank activities, also a reversal of previous policy.

• The Administration has agreed to the expansion of International Monetary Fund lending and is now seeking congressional agreement.

• In the trade negotiations, we are willing to reduce trade barriers on products of special interest to LDC’s.

• We will vigorously negotiate for a system of internationally coordinated national food reserves.

• And for once, we are taking the United Nations very seriously on economic and social issues.

The general principles I have suggested tonight are only a shorthand for reality. This is especially true when one speaks in the abstractions of economics. Our statistics and our analyses concern the lives of billions of people in the coming generation—people here in America and people abroad. If we turn inward, toward protectionism and indifference, the human cost would be intolerably high. That is the essential problem we will be addressing on almost every foreign policy issue we now face.

Contributions of scholars such as yourselves can be threefold.

• Your objective analyses of events in Latin America and Africa are valuable as scholarship. They are also valuable for policymakers trying to understand the facts with which we must deal.

• Equally valuable would be your thoughts on some of the policy dilemmas I have discussed. I am quite sincere in hoping each of you will consider writing me with your views and suggestions. Asking you to do so is one of the reasons I came here.

• And finally, whatever your views, let me urge you to press them on decisionmakers in both the executive branch and the Congress and to contribute to the public debate on these issues.

Such involvement may seem, to many of you, inconsistent with the objectivity of a scholar. I have no quarrel with such an individual conclusion. But before reaching it, I hope you will consider one point.

We are emerging now from the most contentious period in the last 100 years of our nation’s history. The war in Vietnam so engaged the passions of us all—as it should have done—that we began to think too easily about all policy issues in terms of simple categories: right or wrong, interventionism or noninterventionism, realpolitik or idealism.

As I have tried to suggest tonight, the time has passed when we can think in the simple terms of any doctrine, whether derived from Munich or Vietnam. The complexities of our challenges, the necessary breadth of our priorities, and the depth of our dilemmas elude such simple formulas.

If we are to have a decent public debate on our policies—which we want—and if we are to show how progressive policies abroad are in our long-term national interest—as we must—then there can be no substitute for the participation in those debates of scholars such as yourselves. For one essence of scholarship is to help us comprehend more clearly the complexities we must address, without retreat to a world of comforting simplicity.

1. Source: Department of State Bulletin, January 1978, pp. 24–27. Lake delivered his address before members of the African Studies Association (ASA) and Latin American Studies Association (LASA) at their joint meeting.
2. The Group of 77 is a caucus of developing countries formed in 1964 at the first U.N. Conference on Trade and Development to present a unified bargaining position in their negotiations with industrialized countries. It is now composed of 115 developing countries. [Footnote in the original.]
3. Negotiations on the Common Fund (see footnote 7, Document 47) opened in Geneva on November 7. (“Third World’s Hopes for Common Fund Seem Dim as Commodities Parley Opens,” The Wall Street Journal, November 8, 1977, p. 16)