It there was some hope of a significant change in the international economic order, it has been found to be misplaced. Things are, of course, not back to what they were before 1974 inasmuch as the US, western Europe and Japan have not recovered their old confidence in the possibilities of continuous growth. But as a group they have retained their pre-eminence in the world economy and there has been no great change in the overall power balance in the economic field.
The hope of a movement towards a new international economic order, it may be recalled, was based above all on the OPEC’s success in quadrupling the prices of oil and making it stick. This was regarded even by those who, like India, were hit hard by it, as a turning point in the third world’s dealings with the rich and powerful western countries because it was the first time that producers of a raw material had managed by their own action to change the terms of trade to their advantage. It also gave rise to the twin expectations that the oil exporters would divert a substantial part of their enormous foreign exchange surplus to other developing countries who in turn would be able to jack up the prices of the raw materials they produce.
Hopes
Needless to say, neither of these hopes has been fulfilled. Countries with substantial surplus oil revenues have not been wholly insensitive to the problem of the mostly adversely affected nations but they have not compensated the latter for even one-half of the burden that their action in raising the prices of oil has placed on them. Indeed the oil-rich governments are spending much more on the purchase of highly sophisticated military hardware which they cannot use effectively than on assisting the most adversely affected third world countries.
Again, no other group of countries has been able to repeat the OPEC’s performance and it does not appear that any group can do so in the near future for the simple reason that oil is a very special commodity, firstly because a few countries around the Persian Gulf account for two-thirds of the proven reserves in the non-communist world and secondly because the West and Japan critically depend on it for their very survival.
Another factor behind the hope of a new economic order was the widespread belief that stagflation – stagnation plus inflation – in the West and Japan represented a crisis of the capitalist system, that the countries concerned would not be able to overcome this dual and unprecedented challenge easily and that this would alter the power balance in the world economy to the advantage of the Soviet Union and its allies. This belief, too, has turned out to be misplaced.
The capitalist West and Japan are doubtless no longer as confident of being able to maintain a steady rate of growth as they were in the previous three decades. Indeed, the more discerning of their people fully recognise by now that the world’s non-renewable resources are limited and cannot possibly sustain an ever rising standard of living. They have also become sensitive to the problems of pollution and the ecological imbalance resulting from the rapid growth of the automobile and chemical industries. But excepting Britain and Italy, all other members of the OECD, the rich man’s club, are well on the way to economic recovery. Last year as a group they achieved an overall trade surplus of around six billion dollars despite their incurring a deficit of about 20 billion dollars with the oil exporters, which itself was substantially lower than what it was in 1974.
Debt
More significantly, there has been no improvement in the bargaining capacity of communist countries in their dealings with the West. The total debt which the Soviet Union and other Eastern bloc countries owe to the Western nations on account of trade and credits rose by 10 billion dollars in 1975 to reach the staggering figure of 32 billion dollars – they owe eight billion dollars to West Germany alone – and is expected to increase to 40 billion dollars by the end of the year. Indeed a point has been reached where western policy-makers are concerned lest these debt obligations prove too heavy for some of the East European countries which, unlike the Soviet Union, are not rich in natural resources. Some of them are even toying with the idea of using the Soviet bloc nations’ dependence on Western technology and credits to extract concessions from them. Mr. Kissinger’s statements have been loud and clear on this question.
It is generally known that the Soviet Union has been importing massive quantities of grains as a result of the disastrous crop failure last year which brought down the output from an anticipated 215 million tonnes to around 137 million tonnes. But not many people know that western specialists believe that it will continue to need to import very substantial quantities of grain even in normal years if it is to achieve the meat target it has set itself in order to meet the growing demand for animal protein at home.
Some other trade figures are also pertinent in this context. Between 1971 and 1975, the Soviet Union imported 6.3 million tonnes of large diameter steel pipes, largely from West Germany, though it is the largest producer of steel in the world, 2,000 complete plants from the West, including the Volga car and the Kama truck factories, and consumer goods worth 48 billion dollars, which accounted for 40 per cent of its total imports. To complete the story it pays for its imports largely by exports of raw materials.
The important issue in the present context, however, is not whether and how far the Soviet Union lags behind the West in the technological field in absolute terms or whether the communist system encourages or inhibits the application of new technology, but whether there has been a significant shift in the economic power balance between it and its allies on the one hand and the West and Japan on the other. Surely the answer to this question must be in the negative.
This lack of improvement in the Soviet group’s position vis-a-vis the West and Japan has been accompanied by another significant development in the past decade. Not only do the people in these countries aspire to Western standards of living but the governments, too, have come to regard it necessary to do all in their power to fulfil these expectations in the interest of social and political stability. The result is reflected in the figures of increasing imports from the West and the decline in aid to third world countries – 1.2 billion dollars in 1975 against the West’s 16.7 billion dollars and the OPEC’s 5.1 billion dollars. Incidentally, in the Soviet Union’s case its total aid constitutes only 0.03 per cent of the GNP against the UN target of 0.7 per cent to which Moscow is a party by virtue of its having supported the relevant resolution in the General Assembly.
Backwardness
Spokesmen for the COMECON countries are doubtless wholly within their rights in arguing that they do not “bear any responsibility whatsoever for the economic backwardness of the developing world” or that their first duty is to their own people. But certain consequences flow from this approach. For instance, as far as external aid is concerned it leaves the developing countries little choice but to continue to depend on the West. Also, it must inevitably strengthen the status quo, however strident the criticism against it in the communist bloc and the third world. Both these harsh realities found expression at the recent UNCTAD-IV in Nairobi.
It does not follow that the West has no compulsion to accommodate the developing countries on some of their demands. It has, for the West has a stake in a measure of growth in the third world so that a spirit of despair and extremism does not seize it. For its own sake the West needs a reasonably stable international environment which only a steady rate of development in the poor countries can ensure. Indeed, that is why the EEC has widened the scope of its generalised preferences for developing countries and members of the OECD continue to extend assistance on fairly generous terms to them. But all this is very different from the hopes and calculations which prevailed in 1974. All in all it is reasonably clear that the West will make only such concessions as it believes it can easily afford. This poses a challenge to the third world countries. They can meet it not so much by making demands on others as by intensifying cooperation among themselves.
The Times of India, 28 July 1976