The World Economy at the Crossroad

Professor Billings is in the Department of Economics, School of Business, at Boise State University In Idaho.

In May of 1974 the General Assembly of the United Nations adopted a monumental Declaration and Action Programme on the Establishment of a New International Economic Order. The great majority of the voting members of the United Nations solemnly proclaim(ed) our united determination to work urgently for the establishment of a new international economic order based on equity, sovereign equality, interdependence, common interest and cooperation among all states, irrespective of their economic and social systems which shall correct inequalities and redress existing injustices, make it possible to eliminate the widening gap between the developed and the developing countries and ensure steadily accelerating economic and social development and peace and justice for present and future generations.’

The Declaration went on to proclaim: "It has proved impossible to achieve an even and balanced development 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 provisions, would establish the right of a country to expropriate foreign owners and institute the right to form cartel or monopoly producer associations among the commodity exporting countries, ventures similar to the already famous oil cartel—the Organization of Petroleum Exporting Countries (OPEC).

This apparently distant and therefore unimportant event in the lives of most Americans deserves greater attention in the United States than it has to this point received. As many continue to remind us, we live in an increasingly interdependent 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 implications of the proposed radical restructuring of the international market economy?

"The Rights of Englishmen"

The central purpose of this short essay involves a reminder of a precious legacy—the heritage of what Kingman Brewster, former President of Yale University, has called "The 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 "system of natural liberty" so enthusiastically endorsed by John Locke, Adam Smith and the founding fathers and architects of our free market order two hundred years ago.

It is my contention that the New International Economic Order would not be an "order" at all, but would indeed be, according to one economist, "an 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 willing 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 common law and the Anglo-Saxon tradition.

The inspiration for the "Program of Action" to implement a New International Economic Order has been shaped largely by a radical, Marxist critique of the international capitalist system. International imperialism and dependency—cornerstones of the existing international economic system, so the argument goes—are said to be the causes of underdevelopment. As one radical writer has voiced the argument, the capitalistic system, with its giant multinational corporations, maintains and intensifies the system of dependency and misery that now characterizes our world economy and accounts for so much of its difficulties and injustices. To overcome these evils, a system of independent socialist countries is needed in which information and technology flows freely between countries, but capital, i.e., power, does not.3

In essence the developing countries want a redistribution of power from the more advanced nations to the currently less developed countries. And as a matter of fact, the developed countries "should not merely tolerate but police the process of . . . extortion" which is to take place through the creation of commodity cartels and unilateral processes or expropriation. The demand by the developing countries for "full permanent sovereignty" entails a demand for the right to unilaterally 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 countries.

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 transformation and change. Economic development is fundamentally and overwhelmingly a matter of the attitudes, social institutions and motivations, and therefore of domestic origin. It is a question of the structure of incentives confronting individuals, of the social milieu in which human beings 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 property and freedom of contract and exchange. Even Karl Marx was unequivocal on this point—capitalism was and is a great engine of economic growth.

What, then, are the principal ingredients in this "Program of Action" for the implementation of the New International Economic Order—proposals which would so drastically alter the international economic environment?

First, the new order would facilitate 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 international commodity agreements would be brought about in order to both reduce the fluctuations in earnings 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 producing (exporting) and consuming countries. Furthermore, there is little evidence that economic development has been retarded by fluctuations in the exports of the developing countries.

It seems doubtful that international commodity agreements can make any significant contribution to the development efforts of the less developed nations. A less obvious problem with these commodity agreements, but of crucial importance for the free market order, is the expansion of the role of political competition at the expense of market competition in the allocation and distribution of the world’s resources.

A third demand on the part of the less developed countries is to increase the flow of financial resources to the developing countries on concessionary terms. The expanded foreign aid flows would include a reduction in the burden of the repayment obligations on previously accumulated debt obligations to the developed world. On this point, suffice 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 Furthermore, 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 access to the markets of the high income countries for the processed and manufactured exports of the developing economies is a fourth important component of the New International Economic Order. The modernization and diversification of the less developed countries depends crucially, according to this argument, on the expansion of manufactured exports by the currently poor countries. Once again, unfortunately, attention is deflected from the fundamental source of progress—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., textiles, 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 obtained 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 advocates of the New International Economic Order that free trade has been at fault ignores the significant impediments that the world currently imposes on the flow of goods across national boundaries. As one economist has said, "The NIEO policy would rest upon the dubious assertion that nonexistent free international trade is a culprit rather than a needed remedy."6

However, as the sugar, steel and electronic consumer goods issues unfortunately testify, the people of the United States have yet to recognize the advantages of specialization and free trade so profoundly demonstrated in the intellectual refutation of mercantilist doctrines two centuries ago.

Finally, a crucial ingredient in the demands of the developing countries of the world is the implementation of an "International Code of Conduct" for the multinational enterprise which has come to be such an important force on the international economic scene. In contrast to the Organization of Economic Cooperation and Development (OECD), an association of developed countries 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 abrogation of contracts—a far cry from the enforcement of contracts under the rule of law.

It is asserted that the multinational corporation has kept "sovereignty at bay" as the giant enterprises blackmail the poor countries. However, it is simply not the case. The realities in recent years have been just the opposite. The State, even when small, has maintained firm control. Witness the ways in which the large petroleum firms do the bidding of the OPEC cartel members. Look at the treatment 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, "The reason for optimism 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 give it the optimum chance of supplying the needs of mankind in an increasingly crowded world."7 And I might add that this role for the multinational enterprise should take place in a world in which the State, 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 "Program of Action" under the Declaration for a New International Economic Order involves a political confrontation between a small group of high income countries and a much larger group of relatively poor countries. It would displace the world economy predicated on market transactions through voluntary exchange with a managed international economic system relying on political competition 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 a New International Economic Order is to an important extent a demand for greater power for these international bureaucrats, disguised as a demand for more justice for the ordinary people of the developing countries."8

Relations between the so-called developed countries and the less developed 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, private 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 people of this planet has been characterized by the Nobel Prize winning economist Friedrich A. Hayek: "Unless 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 imagination of our liveliest minds, the prospects of freedom are indeed dark." Fortunately, the free market order and its international extension has something going for it—the enormous accomplishments in the past and the potential for the future in the generation of wealth, prosperity and the promotion of individual freedom. The enemies of freedom, be they socialist planners, international bureaucrats, misguided 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 encourage the transfer of wealth instead 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 natural liberty"—private property and individual freedom—should take the offensive. The current demand for a new international economic order with these coercive and extralegal characteristics deserves to be fought and rejected by all those who value the freedom and sanctity of the individual and his property.  



‘United Nations General Assembly Resolutions 3201 (S-VI) and 3202 (S-VI) (May 1, 1974) cited in Franklin R. Root, International Trade and Investment, Fourth Edition, Southwestern 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 before The Group of Eminent Persons to Study the Impact of Multinational Corporations on Development and International Relations, cited in Root, p. 437.

*Johnson, op. cit.

P. T. Bauer, Dissent on Development, revised edition, Harvard University Press, 1976. ‘Martin Bronfenbrenner, "An Old Reactionary Free Trader on the New International Economic Order," Nebraska Journal of Economics and Business, Vol. 16 (1977), pp. 5-18. ‘Walter Wriston, People, Politics and Productivity: The World Corporation in the 1970′s, Citicorp, New York, September 15, 1976.

‘Johnson, op. cit., p. 16.

9′Wrists, op. cit.