COVER

RICH VERSUS POORONE LAST CHANCE

Val Ross October 26 1981
COVER

RICH VERSUS POORONE LAST CHANCE

Val Ross October 26 1981

RICH VERSUS POORONE LAST CHANCE

COVER

Val Ross

Their view of the road is the same from their corrugated tin shanties, half hidden in jungle, the local people, Mexican Indians, watch the tarmac with fascination. Airport buses flash past, bound for the sugar-fine beaches and costly white hotels of Cancun. For a moment the pale faces of tourists peer from the windows into the dense jungle gloom. As the dust settles, the locals calmly return to their chickens, their dysenteric children and the challenge of survival on spare change, beans and scraps. Little of the wealth of the grand resorts has trickled down to them. But their awareness of the contrasts grows more acute each day. This week, their sense of irony will be challenged as the road hums with limousines bearing the leaders of 22 nations—including the world’s richest and poorest—to Cancún. The leaders have come to search for the solution to the era’s most awesome crisis: the terrible, widening gap between the world’s northern rich and its southern poor. Despite the miasma of mellow rhetoric, it is not compassion that is forcing the meeting of these heads of government in the sealed conference room of the Cancún Sheraton. It is necessity—the realization by both rich and poor that resolving the wealth gap is an economic imperative for all concerned. For the wealthy North—to be represented by Austria, Britain, Canada, France, West Germany, Japan, Sweden and the United States—a stronger, wealthier South may hold the promise of a cure for stagflation and recession, a cure that may lie in access to large new markets. For the South, represented by the world’s two most populous nations, China and India—along with 12 others—the very life and death of their people depends on getting more help from the North, and help that is truly suited to their needs.

In the forefront of participants’ minds is the disquieting thought that, in a world that spends $1 million a minute on arms, the North is often vitally dependent on its poorer, more unstable brothers for strategic minerals and fuel. Also disturbing is the fact that the bread baskets of the world are still in the hands of those who least need them. An awareness of interdependence, however, will not prevent splits from developing within each bloc. Europe and the hungry South will likely join together to confront the big grain suppliers—the United States and Canada. The delegates of oilrich southern countries—Mexico, Algeria, Nigeria, Saudi Arabia and Venezuela—may turn out to have more in common with a rich resource exporter such as Canada than with their fuel-less fellow developing nations. Cancún, says Bernard Wood, executive director of Ottawa’s North-South Institute, “is a high-risk project.”

Nevertheless, the delegates are united in the conviction that talk is infinitely better than the alternatives: instability in resource-rich but food-poor countries and new moves by the North to protect home markets against the embryonic industries of the South. Resources are flash points around the globe. Over the oilfields of Iran and Iraq rages a continuing war. South Africa occupies Namibia with its rich deposits of uranium and chromium. And nearby lies volatile Zaire, producer of the bulk of the planet’s cobalt.

Cancún comes at a time when there is a growing credibility gap between the North’s past promises and the desperate reality of life in the South. And the gap is growing as fast as the gulf between some of their respective GNPs. In gross numbers, there are more landless peasants, more unemployed people haunting urban slums and more deaths from starvation than before. The second United Nations-designated Development Decade ended last year without the developed countries coming more than halfway to meeting the aid target—0.7 per cent of GNP—which they themselves had endorsed at the beginning of the decade.

At the same time, the South is now realizing with bitterness that the rich have been getting richer “helping” the poor. In fact, aid is often seen by its donors as a useful tool of economic policy. In Canada, for instance, more than 50 per cent of the $1.2-billion aid budget must be spent within the country buying tractors, fertilizers and consultants’ services. Still, a recent report by the federal trade department argued that Canada’s aid is “overly philanthropic” and that even more support for Canadian industry should be its explicit purpose. In the U.S., the emphasis is on tying aid to military objectives. As Ernest B. Johnston, deputy assistant secretary of state, told the U.S. Senate foreign relations committee last March: “One has only to look at our major borrowers to see the strategic importance of the political stability these [aid] institutions foster.” That is why the lion’s share, or 42 per cent of the U.S. aid budget, currently goes to Egypt, Israel and Turkey—hardly the hungriest. In order to bypass potential public controversy, the United States frequently channels military support through aid agencies—for example, the $380 million in loans to El Salvador (mostly for guns, not butter) sent via the World Bank, the International Monetary Fund (IMF) and the International Development Association (IDA).

Even the Green Revolution—the much-fanfared tripling in the past 38 years of the Third World’s rice and cereal production through application of modern farming techniques—has proved to be a Trojan horse. With the gift of high-yield crops came a hidden new dependence on expensive imported fertilizers and fuel-guzzling tractors. And, paradoxically, increased food production has not solved the problem of hunger. Under the tutelage of Western advisers, Indonesian farmers switched from soybeans to high-yield rice, with the result that Indonesia now enjoys what one UN study has called “a new world’s record in protein deficiency.” Drought-stricken Mali, once almost self-sufficient, produces only one-quarter as much food as in the mid-1960s. Again, because of foreign advice, the rest of its scanty arable land is now committed to cash crops (cotton, groundnuts), which can be exported for hard currency to service the national debt.

There are literally millions of other casualties of the Green Revolution in India's Punjab region where the introduction of mechanical harvesters is calcu lated to be cutting out 90 million man-days of employment annually. "Nothing has contributed more to the underdevelopment of the Third World than aid,” Moroccan academic Mahdi Elmandjra thundered at a Canadian conference on future studies this month in Montreal, giving voice to towering disillusionment. At the same time, a rising chorus of radical Third World intellectuals is calling for an end to the North-South dialogue altogether and its replacement with a campaign for southern self-sufficiency.

In the run-up to Cancún, other developments have been equally discouraging. An open North-South clash at last month’s UN-sponsored Paris conference for the 31 poorest nations was narrowly averted by the late-night cajolery of Canadian diplomats. The meeting’s compromise resolution affirmed in principle the need for major increases of money to break the poor out of the poverty trap, but, tactfully, it did not pin the North to figures or a timetable. Only days later, when addressing the UN General Assembly, U.S. Secretary of State Alexander Haig beat the principle back into oblivion. “A massive increase is unrealistic,” he said. “No more time should be lost in such sterile debates.” This month, the Commonwealth’s Melbourne Declaration produced such a vague endorsement of freer trade that even protectionist Canada felt comfortable signing it. Then, in a speech last Friday to the World Affairs Council in Philadelphia, President Ronald Reagan restated the tough don’tcount-on-our-generosity message he had delivered earlier in the month to the joint meeting of the World Bank and the IMF. In the process, he risked enraging the upcoming conference’s Third World participants by comparing modern-day poor countries to early frontier America. Said |Reagan: “Few countries are less developed than we were when the original settlers arrived.”

Reagan’s argument to the conference is that the only way for the South to get richer is through the production of a bigger pie, and that means good old American free enterprise. This notion clashes with that of other delegates, in particular Prime Minister Pierre Trudeau, France’s François Mitterrand and Sweden’s Thorbjörn Fälldin who counter that the size of the pie is fixed. The question is one of redivision.

Moreover, Reagan’s free-market message is certain to strain the credulity of most African and Asian leaders. So far, the free market has produced mostly trouble for the Third World. Anthony Hokororo, minister counsellor of the Tanzanian embassy in Ottawa, for one, charges that pharmaceutical companies have regularly used Third World women as contraceptive guinea pigs. Among the best known examples are the A. H. Robins Co.’s Daikon Shields. The contraceptive devices were finally recalled from U.S.-backed clinics in 42 developing countries by the U.S. Agency for International Development long after reports that they had caused 200,000 cases of serious intrauterine infection and 17 deaths in the U.S. In addition, Third World nations are still a dumping ground for faulty machinery, stale drugs and carcinogenic chemicals. And that is going on a full 12 years after Kenyan leader Tom Mboya died while being treated on a resuscitation machine that had been banned as ineffective in North America.

Up until two years ago, the Velsicol Chemical Corp. of Chicago was making $45 million a year selling the developing world pesticides that had been taken off the market in the United States. This year, at least three European firms have been convicted of unloading decayed food onto Senegalese and Indochinese refugee camps. Similarly, a number of Belgian firms are under investigation by the European Community’s (EC) ¡¿development commission for ^sending southern clients shipaments of animal feed instead of ^promised table cereal.

Not only is the magical private sector marketplace providing people with supplies they don’t need, it is failing to provide what they do—oil, for one thing. Francisco Parra, vice-president of the Geneva-based International Energy Corporation, recently produced a study detailing the listless drilling and exploration performance of the major private oil companies inthe Third World. Threatened by the development of new sources of supply outside the multinationals’ control, Exxon actually lobbied to squelch a World Bank plan to finance Third World oilfield development. In fact, faced with unstable local politics, language and cultural barriers, large corporations are less than anxious to rush into the kind of relationship that Reagan is proposing for them.

For their part, Third World governments are also wary of the arranged marriage. One reason is their weak bargaining position with giant corporations. A case in point is a proposed $2.5-billion open-pit copper mining and smelting project in Panama (total GNP $3 billion).

Britain’s Rio Tinto-Zinc Co.—which has been promised $1 billion of its needed backing by Ottawa’s Export Development Corporation—is currently pressing the Panamanian government to exempt it from the national labor code. Notes Robert Carty, author of the upcoming book Perpetuating Poverty: The Political Economy of Canadian Foreign Aid: “This project could distort the entire Panamanian economy—and make it dependent on copper, one of the world’s most volatile commodities on the international metals markets.”

Still, discouraging though the private sector development record is, government-to-government public sector aid has proved no better. Even high officials in the Canadian International Development Agency admit that public aid is notoriously more wasteful than private charities or non-governmental organizations (NGOs) such as Oxfam. In fact, the acronym of one CIDA-backed project in Haiti, the Développement Régional et Intégré de Petit Goave et de Trou-de-Nippe (DRIPP) is known locally as Dépêchez, ramassez immédiatement et puis partez (Hurry, grab what you can, and run). Not only is the aid wasteful, it usually goes to the wrong people—to the Wai Benzu (Tribe of the Mercedes-Benz), as local aid-dispensing bureaucrats are known in Swahili. In the early 1970s, food aid from foreign governments was rationed in Bangladesh by means of ration cards available to anyone with a fixed address. That excluded the starving landless peasants, but kept the government workers fed. In Haiti, CIDA found itself paying salary supplements to some local officials involved in the project. Jean Christie, acting director of the Ottawa-based NGO Inter Pares, cites two of the most notorious examples. In 1972, earthquake relief to Nicaragua disappeared into the pockets of government leaders. And in 1975 special World Bank aid was issued simply to prop up the government of Indonesia when its highly corrupt stateowned oil company, Pertamina, went bankrupt to the tune of $10.5 million. Says Christie,“Government-to-government aid just reinforces local governments.”

Recently, however, from the alarming array of unappetizing development alternatives has come the faint promise of new options. That’s the “strange alliance” (as one high-level World Bank official put it) between Reaganite conservatives and Third World radicals. Both, for different reasons, are harsh critics of the existing aid establishment, both see increased North-South trade as part of the solution. This paradoxical alliance is a hopeful development if it results, as Irving Freidman, economist with First Boston Corporation, believes it will, in “new pragmatism and practicality.” But the drastic changes it implies may still be disastrous unless they are accompanied by sensitivity to the problems up for discussion at Cancún.

There is more faint comfort in the agenda itself. With an astoundingly brief 10 hours allowed for discussion, the talks of necessity would be so general that conflicts would not have time to turn into crisis. Canada proved to be remarkably flexible by giving up its right to make opening remarks. And because there was to be no final communiqué, no time would be wasted squabbling over the wording. Ground rules approved in advance by all countries forbade accusations and discussion of individual countries’ grievances. Instead, talk was to focus on the following areas:

Trade: This, says the North-South Institute’s Bernard Wood, is the topic with “the greatest potential for a meeting of minds.” The world’s fastest-growing markets are in developing nations and currently more than a third of U.S. trade and one-sixth of the EC’s is with the South. Canada, with its trade dependence on the U.S. market and its protectionist tariffs, is likely to be odd man out in the press for freer access. The litmus test of Canada’s bad faith was its recent decision to consider slapping another five years of import controls on Third World textiles. The trade proposals Reagan was to bring to Cancún include expansion of the tariff benefits known as the Generalized System of Preferences (GSP) under which the North waives import duties on certain Third World commodities. In the 13 years since they were instituted, GSPs have proved useful to the South —but less so than hoped, because many goods are exempted and because the preferences have little application to the poorest nations scrambling for a corner of the market. In fact, what Reagan is proposing is economic survival of the fittest.

Hong Kong and Taiwan would benefit, but grossly underdeveloped countries— such as Bangladesh in Asia, Mali in Africa and Honduras in Central America—which depend on a single commodity for the bulk of their earnings, would sink. The dependence of the South on volatile commodity markets is an everpresent complaint. It is impossible for fragile economies to plan a budget when, for example, the price of cotton dropped to 65 cents a pound from 98 cents a pound last year. For its part, the EC can point to its own, oft-commended commodity price stabilization scheme, the Lomé Convention. Under the convention, a $750-million buffer fund helps to average roller-coastering prices of African, Asian and Caribbean commodities in return for preferential access for the EC to those countries’ markets. But Washington, committed to the unregulated operation of the market, is unlikely to accept a Lométype accord. Not only that, as David Lo-1 max, an economist with London’s Na-> tional Westminster Bank points out, “price stabilization schemes are rather expensive to administer—and they tend to break down unless they have the full support of participants.” Even Anthony Sampson, author of the Brandt commission report on international development issues, told Maclean's, “I’m skeptical of such ‘common fund’ proposals to support commodity prices.”

The most compelling argument for a stabilization plan may be found in America's own backyard. For one thing, Costa Rica blames wildly fluctuating coffee prices for its threatened finan~al collapse. junta says it cannot afford to carry out a vital land reform scheme—with the aim of bringing peace to the country— because of unstable resource prices. Says George Price, prime minister of newly independent Belize: “The NorthSouth dialogue is the only issue that counts in Central America. If you don’t bring stability and justice to the markets, you will never have stability and justice in the countries.” Food: The problem is simple enough. The South is starving and facing an immediate shortfall of 20 per cent in this year’s cereal requirements. One of its demands: improved distribution and storage systems for grain. What will split Canada and the United States—suppliers of 80 per cent of the world’s grain—from Europe and the South is whether the suppliers or the consumers should foot the bill. Reagan is expected to put forward an alternative offer, one of improved technical assistance and agricultural research.

Energy: The availability of relatively cheap fuel to North American consumers continues to rankle in the South. One American uses the same amount of energy as 1,072 Nepalese, yet the Reagan administration has made clear that it has no interest in opening a dialogue on ways to share its advantage. Moreover a proposal for an “energy affiliate” of the World Bank, which would provide soft loans to help the South meet its fuel bills and finance state-owned oil companies, has been killed by the Reagan administration. Thequestion of how the South will buy energy turns on the issue of indebtedness.

Debt: Debt and international finances: The World Bank’s contribution of soft loans, comfortable interest rates and long-term repayment is the Third World’s lifeline. It helps them feed their people, fuel their economies and compete in world markets. But this year the United States—which provides roughly a third of the backing for the Bank, the IMF and the IDA—has cut its support back from a promised $1.4 billion to $820 million. At Cancún, Reagan is expected to propose transferring the richest debtors, such as Brazil and Argentina, onto higher-interest private sources. At the same time he will offer to commit Washington to the continuation of the IDA’S low-interest, long-term loans (which really amount to gifts) to the poorest. He may also propose a plan to encourage private investment in developing countries through an insurance scheme. But that suggestion smacks of a double standard, since it means that U.S. taxpayers would subsidize private sector risk-taking in the South.

The South will counter with a plea for an increase in the amount of money the IMF makes available through Special Drawing Rights (SDRs) or bank-backed currency. But it is unlikely to be successful. As Netherlands Central Bank economist André Szasz points out: “SDRs are ‘created money’ — and as such are highly inflationary. They could devalue loans already outstanding. Instead, probably over bitter protests, the IMF and World Bank will go for more co-financed deals arranged through private banks. This, in practice, will mean higher interest rates, tougher terms—and an inevitable hike in the already astronomical Third World debt. According to IMF figures, the 94 developed countries owned a total of $359 billion in 1979. The interest payments alone were an incredible $62.7 billion.

Even if there is any progress at the Cancún conference and afterward, however, the fundamental problem remains. “It is apparent,” comments Inter Pares’ Jean Christie, “that nothing is going to happen that will address the question of power. People can talk ad nauseam about appropriate technology, loans and aid. But the crux of underdevelopment is the lack of control that people have at the local level in the Third World.

Implicit in the development visions of such aid establishment reformers as former West German chancellor Willy Brandt, or CIDA’s Executive Director Marcel Massé, is the fact that transfers of power and enormous social changes must take place in both North and South. Until that happens, the problems of mass poverty, starvation, unemployment, the pollution and depletion of the planet’s resources, and war between the haves and have-nots cannot really begin to be solved. Says Robert Kerton, a Waterloo, Ont., professor of economics who is an active member of the Consumers’ Association of Canada: “Our wasteful lifestyle is already in the process of being corrected. We’ll have to use our ingenuity to make substitutions.” Cancún represents, in effect, a last chance to alter attitudes, if not nuts and bolts. “People will say that the conference was a flop,” says Agustin Barrios-Gomez, Mexican ambassador to Canada. What he hopes is that the conference, which cost his government $8 million to host, will nevertheless break the long-standing North-South deadlock. “What is really important,” he insists, “is that we are maintaining a dialogue.” For the poorest countries, however, talk is the most useless form of aid.

With files from John Dizard. in London, Iain Guest in Geneva, André McNicoll in Ottawa and Chris Moseley in Stockholm.