The World Economy; D. Billings

238 The Declaration went on to pro claim: ttIt has proved impossible to achieve an even and balanced de velopment of the international community under the existing international economic order." Later that same year the demand for the new order was followed with the adoption of a Charter of Economic Rights and Duties of States which, among other provi sions, would establish the right of a country to expropriate foreign own ers and institute the right to form cartel or rnonopoly producer associa tions among the commodity export ing countries, ventures similar to the already famous oil cartel-the Organization of Petroleum Export ing Countries (OPEC). This apparently distant and therefore unimportant event in· the lives of most Americans deserves greater attention in the United THE WORLD ECONOMY AT THE CROSSROAD 239 States than it has to this point re ceived. As many continue to remind us, we live in an increasingly in terdependent world. Current trends and recent declarations are bound to shape the future in ways that are not presently understood. What are some of the more important implica tions of the proposed radical re structuring of the international mar ket economy?

"The Rights of Englishmen" The central purpose of this short essay involves a reminder of a pre cious legacy-the heritage of what Kingman Brewster, former Presi dent of Yale University, has called ttThe Rights of Englishmen." These rights include the sanctity of the individual and his property, the freedom of contract, the rule of law, and in general the ttsystem of natu ral liberty" so enthusiastically en dorsed by John Locke, Adam Smith and the founding fathers and ar chitects of our free market order two hundred years ago. It is my contention that the New International Economic Order would not be an ttorder" at all, but would indeed be, according to one economist, ttan experiment in the rule of the jungle-a rule modified by the hope that the largest and most savage carnivores will be so ashamed of.their present existence by virtue of the killing and eating successes of their ancestors that they will offer themselves up as will ing sacrifices to the hundreds of smaller fry."2 This rule of the jungle is not the rule of law which has evolved through trial and error over countless centuries from the com mon law and the Anglo-Saxon tradi tion.

The inspiration for the UProgram of Action" to implement aNew International Economic Order has been shaped largely by a radical, Marxist critique of the international capitalist system. International im perialism and dependency cornerstones of the existing interna tional economic system, so the ar gument goes-are said to be the causes of underdevelopment. As one radical writer has voiced· the argu ment' the capitalistic system, with its giant multinational corporations: maintains and intensifies the system of dependency and misery that now charac terizes our world economy and accounts for so much of its difficulties and injus tices. To overcome these evils, a system of independent socialist countries is needed in which information and technology flows freely between coun tries, but capital, Le., power, does not.3 In essence the developing coun tries want a redistribution of power from the more advanced nations to the currently less developed coun tries. And as a matter of fact, the developed countries Hshould not merely tolerate but police the pro cess of . . . extortion"4 which is to 240 THE FREEMAN April take place through the creation of commodi ty cartels and unilateral processes or expropriation. The de mand by the developing countries for ttfull permanent sovereignty" en tails a demand for the right to uni laterally abrogate contracts. Or, put another way, the law of the jungle is O.K. for the presently poor, but the rule of law should continue to apply to the more advanced coun tries.

The Engine of Growth The great tragedy in all this rhetoric on the injustices of the international economic system is that it deflects attention from the fundamental sources of economic transforma tion and change. Economic development is funda mentally and overwhelmingly a matter of the attitudes, social in stitutions and motivations, and therefore of domestic origin. It is a question of the structure of incen tives confronting individuals, of the social milieu in which human be ings are free and encouraged to develop their talents and seek their fortunes. Economic development in past centuries has been the rule in those societies which have relied largely on a system of private prop erty and freedom of contract and exchange. Even Karl Marx was un equivocal on this point-capitalism was and is a great engine of economic growth. What, then, ··are the principal in gredients in this ttprogram of Ac tion" for the implementation of the New International Economic Order-proposals which would so drastically alter the international economic environment?

First, the new order would facili tate and encourage the formation of international producer associations -commodity cartels, monopolies, like the OPEC oil cartel-in order to transfer wealth from the rich to the poor. Again, the developed nations would be expected to support and encourage the formation of these monopoly ventures. Second, the development of inter national commodity agreements would be brought about in order to both reduce the fluctuations in earn ings from their export efforts and to increase the flow of income and wealth to countries exporting raw materials and commodities. These transfers, however, would require prices above long-run free market prices and therefore bring into being direct confrontations between pro ducing (exporting) and consuming countries. Furthermore, there is lit tle evidence that economic develop ment has been retarded by fluctua tions in the· exports of the develop ing countries.

It seems doubtful that interna tional commodity agreements can make any significant contribution to the development efforts of the less 1979 THE WORLD ECONO]~Y AT THE CROSSROAD 241 developed nations. A less obvious problem with these commodity agreements, but of crucial impor tance for the free market order, is the expansion of the role of political competition at the expense of mar ket competition in the allocation and distribution of the world's re sources. A third demand on the part of the less developed countries is to in crease the flow of financial resources to the developing countries on con cessionary terms. The expanded foreign aid flows would include a reduction in the burden of the re payment obligations on previously accumulated debt obligations to the developed world. On this point, suf- , fice it to say that these demands for greater aid are supported by the presumed guilt feelings borne by the currently well-off nations for past sins of colonialism, imperialism, and exploitation-all catch words in the radical literature on this subject.

The Crutch of Foreign Aid Once again, however, the fact must be faced that economic growth and development is not importantly a function of the volume of foreign assistance. P. T. Bauer in his book, Dissent on Development, provides logical and empirical refutation of the external constraint dogma so popular in many circles. 5 Further more, let us note that in the post World War II period U.S. foreign aid flows have had relatively little to do with economic development for the poor of the world, but have been associated with an interventionist foreign policy designed to encircle the Soviet Union and (at least until recently) to encircle China. The demand for preferential ac cess to the markets ·of the high in come countries for the processed and man ufactured exports of the de veloping economies is a fourth im portant component of the New International Economic Order. The modernization and diversification of the less developed countries depends crucially, according to this argu ment, on the expansion ofmanufac tured exports by the currently poor countries.' Once again, unfortu nately, attention is deflected from the fundamental source of prog ress-changes in domestic attitudes and institutions.

Most of the high income nations of the world currently have a Generalized System of Preferences in favor of the tariff-free entry of manufactured goods from the less developed countries. The U.S. Trade Act of 1974 provides for the duty free entry into the United States of manufactured goods from more than eighty developing economies. The problem here is that the exemption list under the U.S. law essentially comprises the very kinds of goods in which the poor nations do have a comparative advantage (e.g., tex242 THE FREEMAN April tiles, shoes, and the like). Here the proponents of the Declaration are right for the wrong reason. The United States should favor free trade because it allows us to obtain goods cheaper than they can be ob tained out of domestic resources. Free Trade Generally The contribution to world economic development. can be made by the general pursuit of free trade without regard to particular sources. The presumption by the ad vocates of the New International Economic Order that free trade has been at fault ignores the significant impediments that the world cur rently imposes on the flow of goods across national boundaries. As one economist has said, ttThe NIEO pol icy would rest upon the dubious as sertion that nonexistent free inter national trade is a culprit rather than a needed remedy."6 However, as the sugar, steel and electronic consumer goods issues un fortunately testify, the people of the United States have yet to recognize the advantages of specialization and free trade so profoundly demon strated in the intellectual refutation of mercantilist doctrines two cen turies ago.

Finally, a crucial ingredient in the demands of the developing coun tries of the world is the implementa tion of an ~~International Code of Conduct" for the multinational enterprise which has come to be such an important force on the interna tional economic scene. In contrast to the Organization of Economic Coop eration and Development (OECD), an association of developed coun tries which looks to equal treatment of domestic and foreign corporations in host country markets, the less developed countries of the United Nations' Declaration would legalize and encourage the expropriation of property and the unilateral abroga tion of contracts-a far cry from the enforcement of contracts under the rule of law. It is .asserted that the multina tional corporation has kept ~tsovereignty at bay" as the giant enterprises blackmail the poor coun tries. However, it is simply not the case. The realities in recent years have been just the opposite. The State, even when small, has main tained firm control. Witness the ways in which the large petroleum finns do the bidding of the OPEC cartel members. Look at the treat ment and terms exacted from U.S.

multinationals by our neighbors, Canada and Mexico. Despite the radical rhetoric to the contrary, as Walter Wriston of the First National City Bank of New York has said, ttThe reason for op timism about the future of the world corporation rests on the solid base that it is the best way that has yet been found to organize our society to 1979 THE WORLD ECONOMY AT THE CROSSROAD 243 give it the optimum chance of sup·· plying the needs of mankind in an increasingly crowded world."7 And I might add that this role for the mul·· tinational enterprise should tak€~ place in a world in which the State: 1 in all countries, would not be an. instrument of the merchant class;, efficiency and competition would be the relevant criteria. Political Conflict In summary, the UProgram of Ac tion" under the Declaration for a New International Economic Order involves a political confrontation be tween a small group of high income countries and a much larger group of relatively poor countries. It would displace the world economy predi cated on market transactions through voluntary exchange with a managed international economic system relying on political competi tion and the State's monopoly use of force and coercion. Assertions and expressions of guilt for past sins by the currently developed nations would be the rallying cry for the implementation of this rule of the jungle.

Much of the political pull and tug would take place through the bureaucracy of the United Nations-an independent force to be reckoned with on the world economic scene. As one student of the subject has noted, ~~The demand for aNew International Economic Order is to an important extent a demand for greater power for these international bureaucrats, dis guised as a demand for more justice for the ordinary people of the de veloping countries."8 Relations between the so-called developed countries and the less de veloped countries are sure to hold center stage in the deliberations on the nature and evolution of the international economic system for years to come. The United States is likely to find that a responsibility for international order will be thrust upon it, for better or worse. In a very fundamental sense we are in a war over ideas and therefore the minds of people the world over. It is simply a continuation of the age-old battle between two ideas which have dominated thinking on economic and social matters for centuries.

One is the idea associated with the importance of the individual, pri vate property, voluntary exchange and the rule of law; the other is the notion that economic activity ~~is or should be the chosen instrument of the State."9 The central issue facing the peo ple of this planet has been charac terized by the Nobel Prize winning economist Friedrich A. Hayek: ~~Un less we can make the philosophic foundations of a free society once more a living intellectual issue, and its implementation a task which challenges the ingenuity and imag244 THE FREEMAN ination of our liveliest minds, the prospects of freedom are indeed dark." Fortunately, the free market order and its international exten sion has something going for it-the enormous accomplishments in the past and the potential for the future in the generation of wealth, pros perity and the promotion of individ ual freedom. The enemies of free dom, be they socialist planners, international bureaucrats, mis guided but well-meaning do gooders, and indeed the State itself, must deal with these demonstrable realities.

There is no call or need for a new international economic order which would relegate the rule of law to the back burner and emphasize political rule of the jungle; which would en courage the transfer of wealth in stead of its creation; which would have the state expropriate property instead of enforce private property rights. The ((Rights of Englishmen" are on the line. The ((system of natu ral liberty" -private property and individual freedom-should take the offensive. The current demand for a new international economic order with these coercive and extra legal characteristics deserves to be fought and rejected by all those who value the freedom and sanctity of the individual and his property. , -FOOTNOTESlUnited Nations General Assembly Resolu tions 3201 (S-VI) and 3202 (8-VI) (May 1, 1974) cited in Franklin R. Root, International Trade and Investment, Fourth Edition, South western Publishing Company, 1978, p. 432.

2Harry G. Johnson, The New International Economic Order, Selected Papers, No. 49, Graduate School of Business, University of Chicago, October 5, 1976, p. 6. 3Stephen Hymer in a written statement be fore The Group of Eminent Persons to Study the Impact of Multinational Corporations on Development and International Relations, cited in Root, p. 437. 4Johnson, op. cit. sp. T. Bauer, Dissent on Development, re vised edition, Harvard University Press, 1976. 'Martin Bronfenbrenner, ttAn Old Reaction ary Free Trader on the New International Economic Order," Nebraska Journal of Eco nomics and Business, Vol. 16 (1977), pp. 5-18. 7Walter Wriston, People, Politics and Pro ductivity: The World Corporation in the 1970's, Citicorp, New York, September 15, 1976. 8Johnson, op. cit., p. 16. 9Wriston, op. cit. IDEAS ON UBERTY TheImportanceofSa~ng ALTHOUGH assistance from abroad can help a country grow economi cally, such assistance does not excuse that country from the onerous chore of saving. Outside aid can supplement domestic saving but cannot supplant it.

WILLIAM R. ALLEN, "Saving, Foreign Aid, and Growth"