Demand for New International Economic 
Order should be revived
Negotiations on major economic issues facing the world economy have been in progress,
albeit at a painfully slow pace - both within and outside the United Nations
By Aftab Ahmad Khan

Since the late 1950s the Third World has been articulating it’s dissatisfaction with the global economic institutions and with the international arrangements and patterns of financial flows, trade, commodity pricing and technology transfer.

The non-aligned movement is itself a manifestation of this assertion of will. The Group of 77 has been both active and vocal. The calculated raising of oil prices by the oil producing countries in 1973 was another expression of the same will. The growing strength of the movement for Islamic solidarity must also be placed in the same category. Negotiations on major economic issues facing the world economy have been in progress, albeit at a painfully slow pace - both within and outside the United Nations.

In this process two resolutions of the General Assembly have outlined the main features of the desired change. The first is the 1974 resolution on the establishment of a New International Economic Order (NIEO). The second is the Charter of Economic Rights and Duties of State also adopted in 1974. While the first outlines the main areas and directions of change, the second sets about the principles in achieving and maintaining a new order. A series of other world conferences have examined and recommended changes in every major area of international economic relations.

Independent efforts at North-South dialogue have sought mutually beneficial relationships. The efforts of the Brandt Commission in this direction have been widely acclaimed. The South Commission which was set up in 1986 as an independent group of eminent persons from developing countries under the chairmanship of former President Julius Nyrere in its report released in 1990 titled, “The Challenge to the South” also made a commendable effort to focus attention on the flaws of the existing global economic order and has illuminated critical areas of national and international policy germane to development in the Third World.

The main proposals associated with the establishment of NIEO are as follows:

(a) Measures to provide a just and equitable relationship between the prices of exports and the prices of imports in the developing counties with a view to ensuring sustained improvement in their unsatisfactory terms of trade.

(b) Preferential and non reciprocal treatment for developing countries.

(c) More favourable conditions for the transfer of financial resources to developing countries.

(d) Targets for Third World industrialization, greater transfer of technology from the advanced to developing countries and the creation of indigenous technology for the developing countries.

(e) Expanded role for producer associations.

(f) A reformed international monetary system that would promote development and provide adequate flow of real resources.

(g) More international aid with targets for official development assistance and external debt relief.

The contemporary world economy shows little promise in terms of achievement of these proposals, though it may continue for diplomatic reasons to pretend otherwise. The industrialised North now has less incentive than before to resuscitate a substantial agenda for wide ranging North-South dialogue for re-structuring the existing international economic order after the dramatic changes that have occurred in the post 1989 world.

Vast differences in their respective fortunes and consequently in their geo-political interests have emerged among the nations of the South over the last two decades. Coupled with the unfolding of events in Eastern Europe, they have also strengthened the conviction in much of the North that time is on its side in influencing the future trajectory of global development. The implication is that the South must acquiesce, however reluctantly to North’s views on how the South should develop, politically and economically. A second corollary is that the South must accept and live with the intellectual and economic terms of trade established by the North in the distributions of gains and losses emanating from global economic transactions. It must accommodate deliberate North induced distortions in global markets for agriculture, minerals, labour and textiles in which South might demonstrate greater comparative advantage and productive efficiency. Yet it must correct distortions in which the North might have an advantage (such as financial services) with insufficient off setting compensation by way of aid, debt relief and new capital flows and with new demands for respecting intellectual property rights.

The demise of the Second World on which the South relied for pursuing what once appeared to be an attractive alternative model has also dampened the South’s exertions for NIEO. Too many nations of the South relied on East European or Western financing and preferential trade arrangements for playing either the wrong end or both ends of the East-West game during the cold war. For them the demise of the Second World as a globally influential partner and financial sponsor is a serious blow. The East European and Soviet republics have now become competitors in attracting aid and Western capital. The eclipse of the Second World has deprived the Third World of moral support in international fora where North-South dialogue on various aspects of NIEO was earlier conducted.

To a significant extent, as pointed out in South Commission report, the South has let itself down over the years through sustained domestic mismanagement. Heavy spending on armaments in a large number of developing countries showed inadequate regard for genuine development priorities. In many countries of the South, there was self-indulgence with the public purse by leaders whose avarice stretched belief. These were hardly the images likely to impress the North about the South’s commitment to welfare-oriented growth.

In terms of the current dominant economic theory with it’s faith in the ‘magic of the market,’ the existing market structure provides the most appropriate framework for economic develop in the Third World. The principal problems of development according to this view lie in the domestic economy of the developing country in the form of market imperfections, unproductive or inadequate land, poor governance, corruption, inadequately developed human resources, low rates of savings and investment and socio-political rigidities.

The best approach to overcome these weaknesses is through market oriented domestic policies. Given appropriate internal policies, the international system-aid, foreign investment and foreign trade-can play a crucial supporting role in development. As such, the appropriate Third World strategy for economic development is to foster those domestic changes, which promote foreign trade, foreign investment and other financial flows.

The appropriateness of the current liberal approach in the case of a large number of developing countries is, however, questionable. The proponents of this view ignore the fact that the market tends to favour the already well endowed and thwart the less developed. Unregulated international trade and capital movements will accentuate and not diminish international inequalities. The existing system creates declining terms of trade for the South. Inelasticity of demand for the primary product exports of the less developed countries and the existence of competitive international markets for those products lead to lower prices for many Third World exports. At the same time, the semi- monopoly structure of Northern markets and the rising demand for manufactured goods lead to higher prices for industrial goods of the North.

There is undoubtedly a strong case for brining about changes in the existing global economic system in order to ensure enlarged net transfer of resources on appropriate terms by the writing down/writing-off of debt unwisely incurred by many developing countries in the past as well as by enlarging the flow of financial resources from the international agencies and directly by the rich countries, greater control of transnational corporations (TNCs) and greater TNC transfer of technology to developing countries, and trade reforms including commodity agreements.

The countries of the North and the South also perceive a mutual interest in ensuring global economic security and prosperity in order to avert prospects of (a) human degradation (famine, starvation, diseases, natural disasters etc), in a world increasingly seen as a global common, and /or (b) preventing violent conflict within or between these blocs. North and South also share the desire to narrow, not widen the large gap in income and wealth between them. North and South accept implicitly that the gap can only be narrowed by a faster rate of growth in the South then in the North, but growth in both places nonetheless.

The North, however, has yet to crystallize it,s thinking in a precise and concrete agenda for action.

The prospects of any extensive and meaningful change in the existing global economic system however, are quite dim on account of the absence of Southern unity and the undermining of the credibility of commodity threat. Southern unity has been weakened by the differential impact of food, energy, debt and recession crises, by the growing gap between the newly industrialised countries (NICs) and the least developed countries as well as by the traditional regional and political conflicts.

The credibility of the commodity threat was undermined by the inability to develop other OPEC like producer associations, by unwillingness of OPEC to link the oil threat to Group of 77 (G-77) demands in a meaningful way, by declining demand of Southern raw materials. The G-77, no doubt is surviving at the UN, but the establishment of NIEO has become increasingly irrelevant to the development strategy of a large number of Third World countries.

The inequities of the present international economic order can only be rectified when the Third World has unity and will and capacity to be self-reliant.

Unfortunately, at present the Third World lacks collective muscle and many of its countries can too easily be manipulated by the G-8 countries. A new international economic order cannot be the product of human compassion and charity on the part of the developed world. Peaceful resolution of intra-South disputes and the determined pursuit of a negotiating strategy evolved by mutual agreement alone can make developing countries strong enough to be heard.