WHEN I TRAVELED THROUGH noncommunist Asia as vice president in 1953, I always made a point of not just meeting with leaders in their regal offices, but also making stops to examine conditions in the poorer neighborhoods. With the grinding poverty I saw—children with distended stomachs, jobless men milling in coffee shops, and open sewers befouling the air—I could understand why these slums were a fertile breeding ground for communism. Many of the leaders whom I met at that time viewed communism as an attractive shortcut to economic prosperity. When I visited those same countries in 1985, no one entertained such illusions. With the collapse of the Soviet economy, the allure of socialist central planning had vanished. As a model for political and economic development, Soviet communism had been swept into the dustbin of history.
The defeat of communism in the underdeveloped world does not mean the victory of freedom. I visited more than a dozen nations and colonies on that 1953 trip, including Indonesia, Malaysia, Cambodia, Laos, Vietnam, Singapore, Burma, the Philippines, South Korea, Taiwan, Hong Kong, Ceylon, India, Pakistan, Iran, and Afghanistan. Some, such as Vietnam and Afghanistan, took the fatal detour of communism. Others, such as India and Burma, turned down the dead end of socialism. Only a few, such as South Korea, Taiwan, Singapore, and Hong Kong, drove down the road to prosperity by adopting free-market economics.
Among the developing nations of Africa, Latin America, East Asia, and South Asia—regions that can figuratively be described as the southern hemisphere—the path to economic development remains strewn with obstacles. Corrupt government officials, mismanaged economic policies, and misguided development strategies hold back the potential of talented and hard-working peoples on every continent. These problems—most self-inflicted—have locked these countries into a vicious cycle of poverty from which they seem powerless to escape. Only if we work with them to overcome these obstacles can we ensure that the success of freedom in the southern hemisphere follows the failure of communism around the world.
If we wash our hands of these concerns, the future will become a tale of two worlds—one rich and the other poor, one surging ahead with high technology and the other lagging behind with obsolete industrial plants and subsistence agriculture, one smug in its ease and comfort and the other increasingly resentful and hostile. The average annual per capita income of the more than 4 billion people of the underdeveloped world has stagnated at less than $800, compared with $21,000 in the United States. If we ignore those less fortunate than ourselves, we will not only disregard our moral responsibility, but also imperil our vital economic and strategic interests.
One quarter of the people in the underdeveloped world live below the threshold of poverty. Thirty thousand people die every day from dirty water and unsanitary conditions. Average life expectancy is twenty years shorter than in the United States. Because population growth is three times greater than in the West, the average per capita income will fall by the end of the century. We cannot stand back and watch from afar as the underdeveloped world sinks in an economic morass. We should not allow it, and the billions of people who live there will not tolerate it.
Contrary to the Marxist cant in many American universities, the West did not cause the poverty, famine, malnutrition, and disease that afflict poorer nations. The West, however, must not ignore their problems. As the world’s only superpower, the United States has a particular responsibility to act. Until the collapse of communism in the Soviet Union, the rationale for most of our aid to developing nations was to counter the threat of direct and indirect Soviet aggression. Now we must recognize that even in the absence of a Soviet threat, it is imperative to continue to provide aid to the developing nations. Without our help, they cannot succeed. This does not mean that we should write a blank check to ineffective or corrupt governments. It does mean that we need a new aid program that will encourage developing nations to help themselves.
In addition to our moral obligation, we have major economic and strategic interests at stake. First, we will benefit if we can unlock the vast untapped economic potential of these countries. Seventy-five percent of the world’s oil, as well as other critical raw materials, is in the underdeveloped world. By the year 2000, four out of five people will be living there. In 1900, the ten largest cities in the world were in Europe. By the end of the decade, eight out of ten will be in the southern hemisphere. If the per capita incomes of these countries were to rise to Western European standards over the next century, annual U.S. exports would increase by $3 trillion, infusing new vitality into our economy. Since every $1 billion in new exports produces 25,000 jobs, the United States could over the coming decades generate 75 million new jobs for future generations of Americans. Greater economic prosperity in the underdeveloped world means money in the pockets of American workers.
Second, if we ignore the southern hemisphere, we risk being dragged into potentially deadly regional conflicts. Poverty will no longer produce communism, but it can still produce brutal, radical regimes. Since the end of World War II, millions of people have died in over 120 wars in the underdeveloped world, forty of which are still being fought today. As the Persian Gulf War demonstrated, instability half a world away can have a profound effect here at home. Such conflicts could disrupt the flow of oil or other resources that are crucial to our national security. Our economic destiny could be held hostage by capricious and hostile rulers such as Saddam Hussein. The danger to the United States has been heightened because many of these countries are acquiring the technologies to manufacture nuclear weapons and ballistic missiles. While our allies in the underdeveloped world face the most immediate threat, we will not be immune from future threats.
Third, unless we foster economic opportunity in the underdeveloped world, our borders will be overwhelmed by a flood of economic refugees. The developing countries have a total population of over 4 billion people today and will have an estimated 7.2 billion in the year 2025. The ranks of unemployed and underemployed workers could swell from the hundreds of millions to the billions in the next century. The developed world cannot draw artificial lines in the sand to keep these people from fleeing their hopeless poverty. Even now, more than two thousand Mexican workers emigrate illegally to the United States every day. If we turn our back on their problems today, we will find them on our doorstep tomorrow.
Many on both the American right and left advocate a policy of disengagement from the underdeveloped world. Some argue that these countries are no-man’s-lands of corruption—“kleptocracies” in which a few rulers rake in millions of dollars through theft while millions of workers eke out a few dollars through backbreaking labor. Others contend that we should focus our energies and resources on the poor and homeless in New York and Los Angeles rather than on those in Ouagadougou and Calcutta. But most responsible observers recognize our moral and strategic interests in assisting the people of the underdeveloped world. The question then becomes not whether we should help but how we can help most effectively.
More than other developed countries, the United States ought to know the paths to success. Only a hundred years ago—a passing moment in terms of human history—America was part of the underdeveloped world, with a per capita income of only $210. Also, the success of the four Asian tigers—Taiwan, South Korea, Hong Kong, and Singapore—should serve as a positive example that less developed countries can make the transition from poverty to prosperity. Many of our previous aid programs have amounted to nothing more than conscience money thrown at the problem of world poverty or spent to prevent Communist expansion. Today, we must reorient our approach to the southern hemisphere, applying the lessons of the successful development of East Asia’s newly industrialized countries.
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During my 1953 trip, two of my most discouraging stops were in Taipei and Seoul. Both appeared to be economic basket cases, capitals of countries artificially divided by the pull and tug of the cold war, saddled with massive expenditures for national defense, and preoccupied with short-term survival rather than long-term prosperity. Hong Kong and Singapore, still British colonies, seemed to face equally dim futures. By avoiding the economic dead end of communism and embracing the market, however, these countries turned the corner. Within thirty-five years, they moved from the periphery of the underdeveloped world to the threshold of entering the developed world.
After the Communist victory in China’s civil war in 1949, Taiwan stood on the brink of collapse. Its industrial and agricultural output was less than half of that of 1937. In 1949, its per capita income was $50, roughly the same as the Communist mainland. Taiwan today has become one of the world’s most dynamic economies, with annual real growth averaging over 9 percent over the past three decades. It possesses $73 billion in foreign exchange reserves, the world’s fourth largest after the United States, Germany, and Japan. The 21 million Chinese in Taiwan export $14 billion more a year than do the 1.1 billion Chinese on the mainland. Taiwan’s per capita income is $6,335, more than nineteen times higher than that of the People’s Republic of China across the Straits of Formosa.
With its territory overrun three times by Communist armies in the Korean War, South Korea emerged as an economic wasteland, with a per capita income of $50 in 1953. Despite allocating over 5 percent of its GNP to national defense over the past forty years, it has grown from an economic pygmy of the 1960s to a potential economic giant of the 1990s. In 1989, South Korea’s per capita income reached $4,600, nearly four times that of its Communist counterpart to the north. This success—which has been fueled by a 20 percent annual growth rate in exports over the past quarter of a century—not only raised the ire of protectionists in the United States, but also piqued the interest of leaders in Moscow and Beijing, who distanced themselves from their longtime North Korean Communist allies to gain economic benefit from their former South Korean capitalist enemies.
Even though it lives in the shadow of the People’s Republic of China, Hong Kong has maintained a consistent policy of free-market economics over the past four decades. Despite its tenuous existence as a British protectorate six thousand miles from London, Hong Kong’s main problem has not been an exodus of emigrants but a tide of immigrants. Its economy had an annual growth rate of 6.3 percent in 1989, yielding a per capita income of $10,350. We must insist that Beijing build upon this success when Britain returns this territory in 1997. Hong Kong could then serve as a catalyst for the prosperity of one-fifth of the world’s people.
Under the leadership of Prime Minister Lee Kuan Yew, Singapore has catapulted itself into the ranks of the world’s fastest-growing economies. While exploiting its geographic position to serve as a major transshipment point for East Asian trade, it has also made its own economic mark. With a territory of 225 square miles—one-fifth the size of the smallest U.S. state, Rhode Island—and a GNP of $24 billion, Singapore is mile for mile the most economically dynamic country in the world. Over the past quarter of a century, its economy has grown at an annual rate of 7 percent, pushing its per capita income to $10,450 in 1989. With little territory and even fewer natural resources, growth could have come only through developing its human resources. As Lee once said, “This place will survive only if it has got the will to make the grade. It’s got nothing else but will and work.”
The four Asian tigers succeeded because their governments adopted policies that unleashed the creative potential of their people. Though this appears mundane at first glance, anyone who has studied the underdeveloped world knows that most of its governments have spent enormous time and resources sapping the energies of their peoples. The leaders of the Asian tigers understood that the most basic human motivation—the desire to better the condition of one’s self and family—is the mainspring of economic growth. People, regardless of their education and background, have responded to such basic economic incentives from the dawn of time in every corner of the world.
The first correct move of the successful developing countries was to ignore the advice of Western academics who, like snake oil salesmen, pushed development strategies based on import substitution and statism. Advocates of import substitution believed that economic contact with the industrialized world hindered development. They therefore urged high tariffs, prohibitive barriers to multinational investment, major subsidies to favored industries, and rigid self-reliance through the elimination of imports wherever possible. Domestically, their premise was that economic development was unnatural and that governments had to adopt comprehensive programs to compel their people to produce. They insisted that the state not only had to provide the needed infrastructure, but also had to fashion industrial strategies and to mobilize—through coercion if necessary—an apathetic people. As one prominent Western development theorist wrote, “The special advisers to underdeveloped countries who have taken the time and trouble to acquaint themselves with the problem, no matter who they are . . . all recommend central planning as the first condition of progress.”
Ne Win, Burma’s longtime dictator, epitomized this approach. When I met with him in 1985, I asked why he did not follow China’s example of providing economic incentives for his people to produce, particularly since Burma was the poorest nation in Asia. He replied candidly, “The Chinese people are different. They respond to positive incentives. The Burmese people are lazy. They will only respond to negative incentives.” Not surprisingly, Burma’s economy atrophied during his rule.
The Asian tigers rejected this theory. They understood that there were five keys to successful development:
Base development on the foundation of competitive markets. Free-market institutions—private property and floating prices—create the incentives for people to produce. Only through the right to own private property can an iron link be forged between work and reward. And only market-based prices can provide the indispensable signals to consumers and producers that drive an economy toward greater efficiency. Yet in much of the underdeveloped world, governments have continually undermined confidence in the sanctity of property by nationalizing entire industries and have systematically meddled with free prices through controls and subsidies.
A hint of condescending racism exists in the views of development academics who depict the people of the underdeveloped world as torpid, unenterprising, and shortsighted. Though some of these countries have low literacy rates, their peoples have always responded when presented with incentives to produce. It has been the peculiar genius of many of their leaders to contrive elaborate ways to give them incentives not to produce. No psychological difference exists between the Chinese on the mainland and those in Taiwan, Hong Kong, and Singapore. The poverty of the former and the prosperity of the latter results from a difference not in talent but in incentives. Deng Xiaoping understood this. While he is still a committed Marxist, his economic reforms gave millions of Chinese incentives to work their way out of poverty rather than insisting on doctrinaire socialism, which guarantees everyone an equal share of poverty.
Facing stiff economic competition is the key to becoming a stiff economic competitor. Those who argue that developing countries should protect their “infant” industries with tariffs until they mature as world-class producers fail to realize that unless they face international competition, these firms will never learn to walk on their own. While many underdeveloped countries hunkered down behind protectionist walls and erected domestic cartels and monopolies, the Asian tigers threw themselves in the fray of the world market and also maintained a competitive environment domestically.
Some say that Japan’s international success supports the need for protectionist development strategies. That argument captures only half the picture. While Japan has maintained high tariff barriers, its producers faced a highly competitive domestic market. Few American cars were permitted to slip into Japan in the 1950s and 1960s. But the competition between domestic producers—Nissan, Honda, Toyota, Mitsubishi, and others—was intense, thereby priming Japanese automobile companies for their expansion abroad.
Invest in human capital. The leaders of the Asian tigers understood that the critical component of development was human capital. Although its abundance in land and natural resources significantly helped the development of the United States, the key was the enterprising nature of its people and the value they placed on education. The same has been true among the four successful developing countries. Each has invested a high proportion of its GNP in education—as high as 4.4 percent in Singapore—and has encouraged its people to study abroad. All four have literacy rates far above the underdeveloped world’s average, with Taiwan and South Korea even matching Western standards.
Keep the economic burden of government low. Though many today scoff at the theories of supply-side economics, they have refocused attention on an important truth: the more you tax something, the less you will get of it. If government imposes high taxes on the fruits of work—incomes and profits—there will be less economic activity just as surely as night follows day. While many countries in the underdeveloped world raised taxes to try to capture more revenue, the successful developing nations in East Asia understood that low taxes produce high growth, which eventually generates more government revenue even at lower tax rates. Governments in unsuccessful developing countries have sought to carve out for themselves a bigger piece of the pie, while the successful ones have focused on increasing the size of the pie.
Taxes are not the only problem. In much of the underdeveloped world, there is an almost cultish worship of state intervention in the economy. The state reserves monopoly industries for itself, controls all imports and exports, maintains an iron grip on new businesses through the licensing of commercial and industrial activities, restricts the mobility of labor and capital, enforces wage and price controls, and subsidizes enterprises and sectors in accordance with an overall plan or at the behest of certain interest groups. In none of the Asian tigers did such idiocy infect the thinking of economic policymakers.
This has been particularly true in the area of investment. It is almost a cliché to criticize developing countries for their senseless investments in economic white elephants. Steel plants, government airlines, six-lane superhighways leading nowhere, and newly built capital cities—all status symbols of development—have been the focus of billions of dollars of state-directed spending. While such “industrial strategies” continue to seduce Western academics and liberal pundits, virtually all of those resources were wasted. Anyone who has spent time discussing economics with government bureaucrats in the underdeveloped world knows that they are the last people on earth who should control national investment. The contrast with the policies of the Asian tigers—where investment remained under the control of the private sector—could not be more stark. When their governments did intervene in the economy, the purpose has been to strengthen—not to weaken or displace—the private economy.
Create conditions to attract foreign investment. While much of the underdeveloped world handed the West’s multinational corporations their walking papers, the successful developing countries were rolling out the red carpet for them. They understood that foreign investment meant new jobs and that by attracting such investment they were not losing control of their economic destiny but were creating the prospects for a better economic future. They never cavalierly nationalized foreign firms, as many underdeveloped countries did in the 1960s and 1970s, but rather let these companies profit according to the dictates of the market. While the Asian tigers ascended the economic ladder, the others dropped into economic sinkholes. In Africa, only the Ivory Coast under President Félix Houphouët-Boigny followed this lesson and welcomed foreign investment.
Make exports the engine of economic growth. Since few countries in the underdeveloped world have sufficient size to fully exploit economies of scale with modern production techniques, they can succeed only through exports to the world market. Since the early 1960s, all of the successful developing countries of East Asia adopted some kind of export-oriented strategy. In 1990, their total export revenues accounted for 60 percent of their aggregate GNP. Exports made up 34 percent of GNP in South Korea and 55 percent in Taiwan. With their role as transshipment points for regional trade, those figures were even higher for Hong Kong and Singapore, reaching 135 percent and 191 percent, respectively.
These lessons—the keys to the success of the Asian tigers—should not be startling. In a contest that pits a strategy based on state control and intervention in every aspect of economic life against one based on free markets, private initiative, and competition, the latter will always prevail. The collapse of the Soviet economy proved this point dramatically. Many observers explain the success of the four Asian tigers as a product of East Asia’s Confucian heritage, with its emphasis on a strong work ethic. While culture does affect economic performance, the decisions of their leaders to unleash market forces represent the real secret to their success. Not only do their policies have little to do with the philosophies of East Asia, they are also not unique to Asia. If other countries free the mainsprings of the market, they will enjoy the same success as the Asian tigers.
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For most of the underdeveloped world, learning the lessons of the successful developing countries represents only half of the battle. Before these maxims can begin to generate economic growth, many less developed countries must overcome the hurdles of political instability and economic mismanagement that have blocked them since they won their independence from the European powers. Without sound and stable government, neither foreign firms nor domestic entrepreneurs will risk their capital through investments. Without responsible fiscal and monetary policies, incentives to produce will evaporate. While we should seek to help those in poorer nations, we should not deceive ourselves into believing that any aid will make a difference until a solid foundation of political stability and economic common sense has been laid.
There are many different reasons for the poverty and turmoil in the underdeveloped world. In Latin America, fledgling democracies wage an uphill battle against massive governmental corruption, narrow-minded economic thinking, powerful drug cartels, and brutal Communist insurgencies. In Pakistan and India, human and economic resources are not applied to development projects but are instead squandered on the military. In Africa, incompetent and corrupt leadership has severely handicapped a continent that has yet to struggle to its feet, much less enter the global economic race. Most African nations have rejected communism, but too many have adopted socialism. In the Middle East, the Arab-Israeli dispute has been matched by the growing intensity of inter-Arab strife.
Internal political instability remains the most debilitating feature of the underdeveloped world. Since my 1957 trip to Ghana, the first sub-Saharan nation to be granted independence from a colonial power, forty-seven other nations in Africa have become independent. There have been more than sixty coups and thirty-five assassinations of high government leaders. More than 10 million people have been killed in civil wars, and more than 15 million have died of starvation. No end to this pattern is in sight. Only three of the continent’s fifty countries have had stable governments over the last twenty years. In Liberia, a brutal dictatorship was replaced in a bloody civil war in which three tribally based guerrilla bands sacked the country and killed more than ten thousand people. In Ethiopia, two ethnically based “liberation fronts” toppled the barbaric Communist regime of President Mengistu Haile Mariam. In South Africa, progress toward ending apartheid has not produced progress toward peaceful change, with black-on-black violence killing thousands of people.
In Latin America, there are still fifteen different groups of Communist insurgents and three major drug cartels holed up in jungle hideouts. In Colombia, successive governments have fended off repeated assaults by drug barons and Communist guerrillas, with violence directly related to drugs and terrorist groups claiming the lives of tens of thousands of Colombians over the past decade. More than 300 judges and court personnel were murdered between 1985 and 1991, and a total of 18,000 assassinations occurred in 1989 alone. In Chile, Communist terrorists have unleashed a campaign to overthrow the government of President Patricio Aylwin, striking 279 times in 1990. In Peru, the Shining Path—numbering an estimated 5,000 hard-core Communist guerrillas—has murdered more than 11,000 people since its founding in the late 1970s. Political violence in Peru, predominantly committed by the Shining Path, has caused $10 billion in damage over the past decade.
In Asia, democratic governments have landed on hard times in recent years. In India, where political parties have long been the source of corruption in domestic politics, they are now becoming the instigators of ethnic and religious strife. In the state of Uttar Pradesh, Hindu extremists have battled Muslims for control of the Babri Mosque, leading directly and indirectly to more than two thousand deaths. At the same time, open armed conflict has raged in three areas. In the last eight years, India has had five different prime ministers, two of whom have been assassinated by radical factions. In Myanmar, formerly Burma, a military government seized power in a bloody coup in 1989, with the junta now permitting drug traffickers to ply their trade and launder their money from bases on its territory. In the Philippines, Communist rebels continue to undermine President Corazon Aquino’s fragile base of power, while the competence of her own leadership has been called into doubt. There have been six coup attempts since she came to power in 1986, and many of her original ministers have resigned out of frustration with her directionless policies.
Many believe that democracy is the answer to the underdeveloped world’s problems. According to this logic, because democratic government has proved to be the best form of government in the developed world, the West should export it to the rest of the world. In this view, the United States should use its influence and leverage to force the dictators in the developing world to hold elections so that these countries can enjoy the fruits of political stability and escape poverty.
But democracy is not an Alice in Wonderland solution to these problems. Much of the underdeveloped world lacks the political traditions necessary to make democracy function properly. In some countries, ethnic hatreds, class divisions, and even tribal rivalries would frustrate the most well-intentioned advocates of democracy. A spirit of compromise and a willingness to accept defeat in elections are not universal human traits. Many political figures still adhere to Mao’s dictum that political power comes from the barrel of a gun. For democracy to work, these nations must first transform their political cultures.
Democracy is not a potted plant that can be transplanted into any soil. Instead, it must take root naturally, growing stronger with work and time. As the countries of Eastern Europe are realizing, the seeds of democracy have difficulty growing in the barren soil left behind by communism. It took the Western world hundreds of years to develop working democratic systems. We should not deceive ourselves into believing that the nations of the underdeveloped world can do so in one year. Democracy is government by people. Since people are not perfect, we must not expect democracy to be perfect. While democracy is the best form of government, it does not guarantee good government.
Some democratic leaders have instituted economic policies as bad—if not worse—than those of the worst dictators of nondemocratic nations, while some authoritarian regimes have pursued enlightened economic strategies. We welcome the fact that twelve nations in Latin America moved from dictatorship to democracy in the 1980s, but political progress has not been matched by economic progress. To the contrary, the per capita income of the more than 400 million people in Latin America declined in that same period. More often than not, a majority of people in a developing country will not support the temporary cuts in wages and welfare that might be necessary to build a sound foundation for economic progress.
Many democratically elected leaders in the underdeveloped world have irresponsibly played politics with the national economy, flooding their countries with cheap money to buy votes before an election and reaping the whirlwind of hyperinflation after they have been safely returned to office. While this strategy wins votes, the ensuing inflation erases any short-term economic benefit that the people may have gained. Brazil, Peru, Argentina, Bolivia, and Colombia—where leaders repeatedly exploited this tactic—all experienced four-digit inflation in the 1980s.
Chile is a classic example of a country in which the seeds of economic reform grew in authoritarian soil. In the 1980s, Chile under President Augusto Pinochet scaled the economic ladder, while the rest of Latin America fell down the ladder. From 1986 to 1989, the average annual growth rate of the Chilean economy was 7 percent. Foreign investment grew 11 percent in 1990, totaling $1.1 billion in a $26-billion economy. While we rightly condemned Pinochet’s political repression, the fact that an authoritarian government triggered this growth did not lessen the economic benefits to the average worker.
Nor are democratic governments immune from political corruption. In the Philippines, democracy has gone astray. Since her election in 1986, President Aquino’s government has been ravaged by corruption and intracabinet strife. Instead of working to improve conditions for the Filipino people, many ministers have worked to improve the balances in their own checkbooks. Unfortunately, the Aquino regime has fallen victim to the “Philippine disease,” the mixture of nepotism and corruption that has infected Filipino politics for much of the past century.
This does not mean that we should not support the aspirations for democracy of the peoples of the underdeveloped world. We should encourage the rise of democratic governments when the conditions exist for their success, while not falling prey to the idea that it represents a universal quick fix. In recent years, democracy has made some meaningful inroads. In Latin America, Cuba remains the last bastion of totalitarian government, and some of the new democracies in the rest of the region, such as in Brazil, Argentina, and Mexico, have begun to improve their economic performance. In East Asia, South Korea held free elections in 1988, while Taiwan, Hong Kong, and Singapore have significantly opened up their political systems. Africa’s track record has also improved. In Mali, President Moussa Traore’s military government was driven from power in March 1991 by a group of army officers who committed themselves to democratic elections. In Zambia, President Kenneth Kaunda agreed last year to end two decades of one-party rule with elections in October 1991. In Benin, dictator Mathieu Kerekou was ousted in March 1991 in the country’s first free elections in history. In the Cape Verde Islands, the electoral victory of Movement for Democracy ushered out sixteen years of one-party rule. In Ethiopia, seventeen years of Communist repression ended with the victory of the Eritrean Liberation Front and the Tigre People’s Liberation Front, both of which have pledged to implement free-market reforms and institute democratic pluralism.
While we cannot, and should not, transplant our system into the underdeveloped world or micromanage every developing country, we can make meaningful contributions. We should invest resources in helping these nations develop the social and political institutions needed for democracy to work. In 1982, President Reagan established the National Endowment for Democracy (NED) to encourage the growth of democratic government around the world, not only by sending teams to observe the fairness of elections, but also by funding a wide range of organizations, including prodemocratic think tanks, newspapers, civic groups, and labor unions. It has also done important work, particularly in Eastern Europe, in training democratic political parties in the basics of grass-roots organization. It represents a practical and realistic approach to promoting Western ideals in what is still a largely undemocratic world. Despite its successes, however, it must fight tooth and nail in Congress for its pitifully inadequate $25-million budget. If we are truly committed to seeing freedom and democracy flourish in the underdeveloped world, we should start by substantially increasing the funds for the NED.
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The theology of state economic interventionism—epitomized by nationalized industry, state subsidies, and price controls—still attracts a large following in the underdeveloped world, producing scores of economic horror stories.
In the 1980s, Latin America—despite its abundant natural resources and talented peoples—went into reverse gear economically. While the world enjoyed a major boom, Latin America’s economy went bust. In nineteen out of its twenty-one countries, living standards have declined. Per capita income fell by more than 10 percent for the entire region. In Peru, Argentina, and Nicaragua, it fell by 25 percent. The average annual rate of inflation among Latin American countries exceeded 1,000 percent in 1990, over ten times higher than in 1982. The region’s total foreign debt rose from $116 billion in 1980 to $421 billion in 1990. Mexico—whose stability is a vital interest of the United States—saw the peso’s dollar exchange rate escalate from 23 to 1 to 2,813 to 1 in less than ten years.
In sub-Saharan Africa, living standards went from bad to worse. Sixteen of the world’s twenty poorest nations are located on the continent. In 1990, nineteen of sub-Saharan Africa’s fifty countries had a per capita income of $300 or less. Six—including Ethiopia, Chad, Somalia, and Tanzania—had per capita incomes of less than $200. Torn by civil war and sapped by socialist policies, Mozambique, whose real GNP declined by 1.4 percent annually for a decade, managed to generate a per capita income of only $80. Between 1981 and 1987, per capita GNP for sub-Saharan Africa’s six most populous countries fell at an annual rate of 4 percent. Over the past decade, the area has experienced a negative growth rate of 2.2 percent. Over the past two decades, African exports as a proportion of total world exports fell by 50 percent, while foreign investment in Africa dropped from $2.3 billion in 1982 to $500 million in 1986. Today, one-fourth of Africa’s population faces a chronic shortage of food.
While it is generally assumed that Israel’s economic problems are caused by its high defense budget, Israel is actually a textbook case of an economy hobbled by a tradition of socialist economic policies. The Israeli government owns and operates 190 companies, which account for one-fifth of Israel’s industrial output and are worth more than $15 billion. In addition, the government owns 93 percent of all land. One-quarter of all Israeli goods and services are under price controls. Taxes consume 50 percent of Israel’s GNP. Worse, Israel’s protectionist policies—in the form of customs and nontariff barriers—force Israelis to pay twice the world price for many consumer goods.
Some of the world’s most highly capable and talented people live in Israel. Its population not only has the highest literacy rates and the best math skills in the world, but also has more scientists per capita than any other country. Israel publishes more technical and scientific papers per capita than any other nation—ten times more than the runner-up, the United States. If Israel abandons its destructive economic policies and embraces the free market, it could enjoy enormous prosperity.
Not even generous U.S. economic assistance has been able to counteract the effects of these socialist policies. Over the past ten years, Israel has received $15 billion in U.S. economic assistance, an amount per capita fifteen times greater than that given to the next largest aid recipient, Egypt. Yet Israel’s real growth in 1989 was only 1.1 percent, while inflation ran at 21 percent and unemployment hit 9 percent. Israel’s foreign debt totaled $16.4 billion, one of the highest per capita totals in the world. Instead of serving as a helping hand, U.S. aid to Israel has become an economic crutch.
India’s economic and political policies represent another case of flawed priorities. Its leaders deserve great credit for integrating an extraordinarily diverse population into a relatively stable democracy. It has 702 million Hindus, 97 million Muslims, 20 million Christians, 17 million Sikhs, 4 million Buddhists, 3 million Jains, and 7 million members of other religions. Its people speak 23 main languages and more than 200 dialects and are divided into more than 2,400 castes. India’s leaders committed a colossal error, however, when they bought into Western academic development theories emphasizing government intervention and import substitution. With the natural industriousness of the Indian people—the average Indian immigrant to the United States enjoys a higher income than the average American—India’s economy should have experienced booming growth in the 1970s and 1980s. Instead, real per capita growth bumped along at a 1.8 percent annual rate over the past twenty-five years, with its economic progress barely keeping pace with its massive population growth.
These mistakes were compounded by the misguided geopolitical ambitions of India’s leaders. Instead of focusing on the dire needs of its people, whose per capita income reached only $340 in 1990, India’s political leadership squandered vast resources trying to elevate their country to the status of a regional superpower. From 1970 to 1990, the Indian government spent ten times more on the military than on education and eleven times more than on health care. Even the rivalry with Pakistan—over which India easily prevailed in battle in 1948, 1965, and 1971—does not represent an external threat sufficient to justify astronomic military spending levels. With a population of 850 million and a GNP of $333 billion, India dwarfs Pakistan’s 107 million people and $43 billion economy. Moreover, New Delhi’s military—the fourth largest in the world—fields twice as many combat aircraft and tanks and seven times more artillery than Islamabad’s.
It is obscene that together India and Pakistan—two of the world’s poorest countries—spend over $11 billion annually on defense and even worse, have active nuclear weapons programs. While the United States has been rightly concerned with nuclear proliferation in South Asia, the exclusive focus on Pakistan’s program has been unbalanced. India, after detonating a nuclear device in 1974, has reportedly developed a small but significant nuclear stockpile. Since India’s leadership has yet to fully accept the legitimacy of Pakistan’s existence—and since New Delhi dismembered East and West Pakistan in the 1971 war—Islamabad concluded that it had no choice but to try to acquire its nuclear deterrent. Though we should seek to curb proliferation, particularly in volatile regions such as South Asia, we will not succeed if we ignore the security concerns that originally prompted countries to seek to develop nuclear weapons. We must therefore seek a region-wide solution, based on Pakistan’s proposals for a South Asian nuclear-free zone, that will not only advance our nonproliferation objectives but also enhance security and stability.
India and Pakistan are symptomatic of a wider problem. Military spending in the underdeveloped world is spiraling upward by 7.5 percent a year, with the growth of its spending on military hardware outpacing that of the West by a three-to-one margin. A freeze on military budgets would free up $15 billion for economic development and for the dire humanitarian needs of the 180 million malnourished children in the underdeveloped world, 3 million of whom perish each year from preventable diseases because of inadequate medical care.
Many Western analysts argue that because of their problems, the countries of the underdeveloped world deserve massive foreign aid. Their view of the world comes from a Charles Dickens novel. A cause-and-effect relationship, they contend, links the wealth of the industrialized world and the poverty of developing countries. Exploitation by multinational corporations and unbalanced terms of trade keep making the rich countries richer, while the poor nations grow poorer. Only vast transfers of resources from north to south through credits, low-interest loans, and development grants can balance the moral equation. They call in effect for an international entitlement program that would make the West the world’s welfare agency.
Generous humanitarian assistance should be provided for those in desperate straits in the poorer countries of Africa. The infant mortality rate of Africa stands at 11 percent, reaching 18 percent in the Western Sahara. Half of the continent’s 480 million people are infected with malaria. But filling Africa’s tin cup with Western money is a stopgap measure. It will not solve Africa’s chronic economic and social problems.
But if Africa’s leaders want to know who is responsible for its economic disasters, they should just look at themselves. To blame the West—or the legacy of European colonialism—ignores the socialist policies that have transformed once-prosperous agricultural areas from breadbaskets into basket cases. All the aid in the world will achieve nothing unless combined with sound market-oriented policies. Over the past decade, the United States and other Western industrialized countries have injected over $100 billion in aid and credits into sub-Saharan Africa. Most was wasted because inefficient and corrupt governments refused to put into place policies to provide average farmers and workers with incentives to produce. If we attempt to carry these countries on our back, the moment they are on their own they will fall flat on their faces.
The argument that developing countries need the international dole to progress at a reasonable rate, if at all, is wrong. Those who contend, as one Western academic has, that “foreign aid is the central component of world development” are naive. Neither the Western world nor the Asian tigers needed infusions of external aid to industrialize their economies. We should reject the patronizing notion that underdeveloped nations need handouts to achieve what so many others did on their own. While that should not lessen our desire to help the less fortunate, we must remember that foreign aid goes not to people but to governments. Only if those governments, in turn, institute the right economic policies will we help the peoples of the underdeveloped world, not just its government bureaucrats.
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Western policies toward the world’s pariah states—South Africa and the Communist regimes in Cuba and Vietnam—must address circumstances complicated by human rights and geopolitical considerations. In these cases, establishing normal relations—particularly in the economic sphere—must also serve our interests and values.
The United States, as well as the rest of the world, has rightly condemned South Africa’s apartheid system since its inception in 1948. Worse than the notion of “separate but equal,” apartheid was based on the principle that races should be separate because they were unequal. It violated the fundamental precept of Western morality that every individual deserves to be treated with basic human dignity and granted equal rights. Although blacks in South Africa had a higher per capita income than in any other sub-Saharan African nation, and although far more brutal regimes existed elsewhere on the continent, apartheid’s formal legal inequalities made it different in kind, not just degree. South Africa’s system was not only morally repugnant but also economically stupid. No country can afford to squander the talents and productivity of 86 percent of its people, as Pretoria did by discriminating against all nonwhites. By denying them equal economic opportunities, the South African regime undercut its own potential prosperity.
The economic sanctions imposed by most countries of the West, however, were the wrong response. Though satisfying the self-righteousness of antiapartheid activists, the policy hurt the people we most wanted to help. The economic boycott against South Africa was color-blind, affecting both the white and black communities. But unlike the blacks, the whites were in a better position economically to withstand its effects. The 215 American corporations that divested from South Africa were no longer able to enforce their fair employment practices and spend millions of dollars on social programs that improved the working and living conditions of their black employees. Many American companies, such as Ford Motor Company, had financed black housing, schooling, recreation, and health facilities. If sanctions had remained in place until the year 2000, they would have cost South Africa’s blacks an estimated 2 million jobs. Some key black leaders, who backed sanctions at the time they were imposed, have recently conceded the damage they did to South Africa’s blacks.
Despite the criticism from Western foes of the South African government, President Bush acted correctly in repealing the sanctions in July 1991. President Frederik W. de Klerk had not only met all the conditions stipulated in the sanctions legislation—such as the repeal of the Population Registration and Group Areas Act and the release of all political prisoners—but had also signaled a clear intention to move toward a multiracial society. In addition to the negotiation of a new constitution, further progress toward a just and stable South Africa requires work on two fronts. First, the leaders of black organizations such as the African National Congress and the Inkatha Movement must curb black-on-black violence. A democracy cannot be built while blood flows in the streets. Second, the white government must prepare to redress the economic consequences of apartheid and block efforts by white extremists who do not want South African blacks to play an equal role in society. This means not only equality of opportunity in education and employment but also reparations to blacks whose land and property were seized under apartheid. Only after these steps are taken can South Africa be fully welcomed into the community of nations.
The junkyard relics of Moscow’s former empire in the underdeveloped world pose different problems. Some pundits argue that now is the time to normalize relations with Cuba and Vietnam, that the reasons for our mutual enmity have faded with the cold war, and that the West should extend trade and foreign aid as a peace offering. This view is wrong. The United States must insist that each meet specific political and human rights conditions before establishing diplomatic or trade relations.
We must not allow the brilliant performance of Cuban athletes in the Pan American games to blind us to the fact that Cuba is an economic disaster area. Castro’s government, not the Cuban people, is to blame. Cuban Americans in southern Florida enjoy extraordinary prosperity, while Cubans ninety miles away who stayed behind suffer in abject poverty. After relying for decades on Soviet aid and subsidized trade, Cuba has been squeezed by the twin problems of incompetent government planning and cutbacks in Moscow’s largess. Castro has tried pathetically to rally the Cuban people by calling for a “special time of peace”—a euphemism for wartime austerity. More than 240 items, including fish, fruit, milk, rice, and other basic foodstuffs, are now rationed. Fuel shortages forced state farms to draft over 600,000 bulls and oxen to replace their tractors. Instead of moving Cuba forward, communism has pushed it backward.
Vietnam faces similar problems. While the Soviets pumped in over $33 billion in economic and military aid since 1979, the Vietnamese have sunk into a self-inflicted economic malaise. Poor harvests in the late 1980s pushed 7 million people to the verge of starvation. Today, Vietnam has a 20 percent unemployment rate and cannot absorb the 1 million new workers who enter the labor force every year. Trade with the former Soviet Union and Eastern Europe, which accounts for 60 percent of its total trade, has plummeted. Hanoi is scrambling to service its $18-billion debt to Moscow. Vietnam now sells old U.S. military equipment, such as tanks and armored personnel carriers, as scrap metal to earn hard currency on the international market. With a per capita income of $130, it is one of the five poorest nations in the world.
Because Cuba and Vietnam continue to challenge our interests, the United States must link diplomatic and trade ties to changes in their foreign policies. Castro continues to funnel millions of dollars of arms and ammunition to the Communist guerrillas in El Salvador and to encourage their obstructionism in the ongoing peace talks. During the past twelve years, the Salvadoran civil war has caused over $2 billion in economic losses and seventy thousand deaths. The United States must not expand political or economic contacts that would increase Cuba’s ability to undermine democratic governments in Central America.
Vietnam’s leadership has continued its quest for regional domination. It is sadly ironic that those who fought to expel French colonial rule from Indochina now view that region as their natural imperial domain. Despite the withdrawal of Vietnamese forces from Cambodia in 1989, Hanoi provides the essential economic and military support needed to keep its client, Hun Sen, in power in Phnom Penh. In addition, the Vietnamese dominate Laos, where they have brutally used chemical weapons against the Hmong people in the southern part of the country.
Even if Vietnam were to facilitate a peace settlement in Cambodia and allow genuine self-determination for Laos, we should insist on two other conditions for normalization of relations. First, Hanoi’s rulers must provide a full accounting of the 2,273 Americans still missing in action from the Vietnam War. Second, they must liberalize their totalitarian political system, particularly in the south. Since the borders of the unified Vietnam were established by conquest, not concord, we owe it to the Vietnamese people—millions of whom fought with us as allies—to demand improvements in the regime’s human rights record before we restore economic and political ties.
Angola is a classic example of a country where Soviet-style communism has lost the battle, but freedom has not yet won the war. In June 1991, the Moscow-backed government in Luanda and the freedom fighters of the pro-Western Unita movement signed a political settlement that ended sixteen years of war and provided for multiparty elections. With the final pullout of Cuban troops from Angola in the summer of 1991, the conditions exist for ending the strife and poverty imposed on the Angolan people by communism. While we must exercise vigilance to ensure the fairness of the elections, the United States should also stand ready to assist Angola—rich in natural resources and human talent—to rebuild its economy once a freely elected government comes to power. We should help a free Angola, not only for its own sake, but also to create an example of what could await other former Soviet-client states if they choose to join the free world.
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For decades the underdeveloped world has been bleeding from self-inflicted wounds. While the world moved toward free trade, many underdeveloped countries isolated themselves in economic autarchy. Yet today there are many encouraging signs that these developing countries might finally integrate themselves into the world economy.
In his much-heralded work, The Other Path, Peruvian economist Hernando De Soto analyzes the lessons of Peru’s massive underground economy and advocates a complete break from economic authoritarianism, with its stifling bureaucracy, government intervention, and state subsidies. While De Soto reminds his readers that economic and political freedom are the twin pillars of stability in the underdeveloped world, his main message is that developing countries must solve their own problems, not look for help from abroad. His book won plaudits throughout Latin America, indicating that many developing countries may be ready to take critically important steps on the road toward market-based prosperity.
This new sense of hope is evident throughout the underdeveloped world. In the early 1950s, many governments adopted the socialist model as a shortcut to industrialization. Today, many of these same countries have cast aside socialism and embraced capitalism. The success of the four Asian tigers has spread to Thailand, Indonesia, and Malaysia. In Latin America, the Chilean example of economic growth has attracted widespread interest. In South Asia, India and Pakistan are turning toward the market. In Africa, several heads of state have adopted the rhetoric of radical economic change, even though their actions still fall far short in practice.
Our policies must build on this hope. Our strategy should therefore advance along four fronts:
Assist population control programs. We must help break the link between spiraling population growth and poverty. At current rates, the underdeveloped world’s population will increase 23 percent by the year 2000 and 77 percent by the year 2025. Countries such as Mozambique, Ethiopia, Tanzania, and Somalia will need to maintain real economic growth rates greater than 3 percent just to keep their per capita incomes from dropping. Unchecked population growth will put them on an ever-accelerating treadmill that will outpace any potential economic performance.
Where they have been tried, family planning programs have largely worked. Thailand reduced its population growth rate from 3.1 percent in the 1960s to 1.9 percent in the 1980s, which in turn helped sustain an average annual growth rate over 7 percent during the decade. But today only half the women in the underdeveloped world have access to standard birth control methods. More than 125 million additional couples would use birth control methods if they were available. Unless family planning programs are expanded, the economies of the underdeveloped world will forever languish behind the curve of population growth.
Many pro-life advocates argue that the United States should stand by the so-called Mexico City policy, which denies funding to any family planning organization that employs abortion in any of its activities. They contend that to condone abortion even implicitly is morally unconscionable. Their view is morally shortsighted. If we ban all funds to such organizations, we might prevent hundreds or thousands of abortions. But if we provide funds for birth control methods other than abortion—even if the same organizations we aid engage in abortion with money acquired from other sources—we will prevent the conception of millions of babies who would be doomed to the devastation of poverty in the underdeveloped world.
Abortion is a deeply divisive issue in the United States. We can honestly disagree on that issue insofar as it affects policy in this country. We should not, however, try to export our views on abortion to overpopulated countries in the underdeveloped world, whose values and circumstances differ so profoundly from our own. Unless the population growth rates are slowed, many developing countries will forfeit their only chance to provide a better standard of living for their peoples.
Reduce trade barriers to exports from the underdeveloped world. To promote economic growth, foreign trade, not foreign aid, should be our principal instrument. Over the past forty years, the United States has poured more than $400 billion in foreign aid into the underdeveloped world. The results have been meager. Foreign aid alone often only serves to prop up inefficient industries, increase industrial subsidies, and raise trade barriers. The developing countries cannot immerse themselves in the healing waters of free trade unless the industrialized world keeps its markets open to their goods.
By removing trade barriers, these countries have the chance to specialize in industries in which they enjoy a competitive advantage over the rest of the world. In the Uruguay Round of the GATT talks, we should push for the elimination of costly agricultural subsidies in the United States and the European Community that prevent the less developed countries from gaining access to our markets.
If we are to preach the gospel of free trade, we must practice it by eliminating our own self-serving agricultural subsidies. Sugar quotas, for example, deprive impoverished sugar-producing countries, such as Guatemala, Jamaica, the Dominican Republic, Colombia, and the Philippines, of vitally important export earnings. These import restrictions also force Americans to pay twice the world price for sugar, which costs them $3 billion a year. In addition, the U.S. government coddles the nation’s thirty thousand peanut farmers. It restricts foreign peanut imports to 1.7 million pounds per year, which is only two-tenths of one percent of total domestic consumption. This absurd quota leaves poor peanut-exporting countries out in the cold, while forcing U.S. consumers in effect to subsidize each American peanut grower an average of $16,000 annually.
By promoting the mutual economic interests of the United States and Mexico through the negotiation of a free-trade agreement, President Bush has taken a vitally important step in the right direction. The best way to promote the development of Mexico’s economy is to grant free access to the U.S. market. This agreement would not be a one-way street. Free trade will increase our exports to Mexico, as well as reduce the flow of illegal workers into the United States.
Many liberals—who claim to be advocates of the underdeveloped world—raise the banner of protectionism in their campaign against the free-trade agreement. Though their hidden agenda seeks to shelter special interests, they have launched a two-pronged attack against the free-trade accord. They argue that U.S. firms will flock to Mexico because of its low wages and that Mexico’s weaker environmental and worker safety laws will give Mexican firms an unfair competitive advantage. Both of these objections are unfounded. If U.S. corporations located their facilities simply on the basis of lower wages, they would all have moved to Mexico already. In addition to wage levels, other variables such as output per worker, transportation capabilities, and the quality of human resources are all part of the economic equation. Moreover, Mexico has committed itself to enhancing protection of the environment and its workers. Free trade will help to provide Mexico with the resources needed to strengthen enforcement of its laws in these two areas.
The strongest argument in favor of the free-trade agreement, however, is not economic but political. Those who contend that we should keep Mexico at arm’s length economically because its government is not fully democratic would compromise a vital U.S. interest. A free-trade agreement could be the key catalyst in moving Mexico toward greater political democracy. If we fail to work with President Salinas to develop Mexico’s economy, we would not only throw U.S.-Mexican relations into a tailspin. We would also send Salinas to an early political grave and give his leftist rivals the hammer to nail his coffin shut.
A new generation of enlightened leaders in Mexico—led by Salinas—has emerged to defend the principles of free-market economics. Their commitment to those principles has been met with tough resistance from Mexico’s entrenched bureaucracy, including rural chieftains, anti-U.S. populists, and corrupt politicians. By signing a free-trade accord with Mexico, the United States will help slay the bureaucratic dragon that has wreaked havoc on Mexico’s economic and political system for the past century. A failure to complete a free-trade agreement with Mexico would not only deal a serious blow to free-market reformers, but it would also send a message throughout all of Latin America that the United States is not serious about helping developing countries achieve economic prosperity.
A U.S.-Mexican free-trade agreement could be the first step toward a western hemisphere free-trade zone. We would derive huge economic benefits from such a trading agreement. In 1989, 13 percent of our exports went to Latin America and the Caribbean, more than our total exports to Japan. If we doubled our exports to this region, we would create 1.2 million jobs for American workers. The purpose of a hemispheric free-trade agreement would not be to form a potential trading bloc against Japan and the European Community, but to increase trade throughout the hemisphere. Free-trade agreements, both regional and multilateral, always serve our interests because they open up possibilities for greater economic growth.
Improve the effectiveness of economic assistance. We must face up to the fact that in the past our foreign aid has done as much harm as it has done good. Too often it has perpetuated bad habits rather than encouraged necessary change. Since foreign aid budgets will almost certainly shrink in the future, we need to overhaul these programs if we expect them to help the people of the underdeveloped world.
First, we need to give our aid on the basis of strict conditionality. We should not extend aid without attaching strings with clearly defined and measurable goals. While we cannot micromanage every dollar of aid distributed, we should monitor our funds to ensure they are not spent irresponsibly on wasteful infrastructure projects or siphoned off into government graft.
Second, we should extend more of our aid on a bilateral, not multilateral, basis. Multilateral organizations such as the World Bank have their own agenda, which does not always coincide with ours. Even though we provide 20 percent of the capital for these organizations, they have in the past made loans that sharply conflicted with our interests. They have, for example, provided discounted loans to Soviet-backed, anti-Western governments, such as Ethiopia, Somalia, and Vietnam. In addition, most multilateral organizations have omnivorous bureaucracies whose regal offices and padded payrolls rival those of the corrupt regimes to which they lend. Before we pour any more resources into these organizations, a major review of their overhead expenses and lending practices must be undertaken. It is wrong to spend millions of dollars on first-class travel accommodations for World Bank staff when the citizens of the underdeveloped world live a third-class existence.
Third, we should establish “enterprise funds” for those countries in the underdeveloped world that have adopted market-oriented reforms. These funds, which should be patterned on those in Eastern Europe, would fund viable business ventures, not frivolous government-to-government aid projects. They would lend money to individual entrepreneurs to start their own businesses, stimulating grass-roots economic activity rather than greasing the wheels of government bureaucracy.
Because of our budget constraints, we spent almost $15 billion on foreign aid in 1991, less than three-tenths of one percent of our GNP. While the needs of the underdeveloped world continue to grow, our aid budget cannot. We must therefore ensure that our aid is spent on projects that stimulate growth from the bottom up, not the top down. If we encourage aid recipients to undertake free-market reforms, open up entrepreneurial opportunities, and generate investment possibilities, our aid will be well spent. If not, we are throwing away not only our money but also any chance to better the lives of the people in the underdeveloped world.
After World War II, the United States extended a helping hand not only to its war-ravaged allies but also to its former enemies in Germany and Japan. Over the past forty-five years, Berlin and Tokyo have surged ahead, while most of the underdeveloped world has fallen behind. Until recently, the United States has shouldered most of the burden of foreign aid. Germany and Japan must now adopt a sense of global responsibility on a par with their burgeoning economic power. While Japan has taken encouraging steps by increasing its foreign aid budget to over $15 billion in 1991, both countries must do far more to give the underdeveloped world the same chance to grow and prosper that we gave them nearly half a century ago.
Facilitate debt relief. The ultimate answer to the debt crisis lies with the underdeveloped world. These countries must restore both domestic and foreign confidence in their economies before any long-term solution is possible. At the same time, Western governments must insist that the banks that recklessly lent billions to uncreditworthy states bear their share of the burden. Western leaders should do their part by not imposing draconian payback schemes that would crush the underdeveloped world’s ability to finance its debt. Too much international pressure could create political instability, which would drive out responsible democratic leaders and drive in radicals who would rather cancel than carry their debt.
The underdeveloped world’s $1.3 trillion debt not only restricts the potential growth of these countries but also serves as a deadly drag on the world economy. Some analysts have proposed elaborate debt-for-equity swaps, in which debtor states would trade ownership of enterprises and resources for cancellation of debt. While these proposals recognize the fact that the debt crisis must be solved by both the creditors and the debtors, they will not by themselves solve the critical economic problems that have forced many developing states to contract excessive debt in the first place.
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The demise of communism does not mean the end of poverty any more than it means the victory of freedom. During the cold war, we addressed only half the problem. Many of these nations suffered from the twin depredations of Communist insurgency and grim poverty. While the Communists talked about the people’s problems, we too often talked only about the Communists. That must now change.
In most of the underdeveloped world, the road toward economic and political reform has been the road less traveled. While some countries have made valiant efforts to escape poverty, they face overwhelming obstacles to success. If these nations have the courage to implement market-oriented reform, we must support them every step of the way. We should not try to run their economic affairs from Washington. Each country in the southern hemisphere has its own distinct traditions. Each country must find its own path to development. Our task is not to point our finger at these countries’ failings. Instead, we should point out the lessons of the underdeveloped world’s success stories. We must help these struggling nations foster their creative energies so that they can unlock their own potential to achieve freedom and prosperity.
To achieve these goals, we must have patience. Many developing countries see America through the eyes of the mass media and our pop culture. They think America is a problem-free society. The television programs we export—“Dallas,” “Knots Landing,” “Dynasty,” and others—paint an unrealistically glamorous picture of America. The people of the southern hemisphere need to understand that maintaining freedom and prosperity requires constant effort and that our country has deep problems that our prosperity has not solved.
The southern hemisphere holds unlimited potential for success, but it also faces daunting odds. We are therefore presented with an immense challenge. If we turn our backs on the countries of the southern hemisphere, we will never narrow the widening gap between the developed and underdeveloped worlds. And if the future becomes a “tale of two worlds,” the foundation of future peace and stability will have been erected on soft ground.