The Case for a Global Marshall Plan

By GEORGE J. CHURCH

More than a third of the people in the world suffer from serious malnutrition. In 36 countries, income averages less than $265 per person per year; in another 34, less than $520.

These figures from the World Bank point up the desperate poverty in many of the 100 nations that are euphemistically classified as less developed countries (LDCs). People in the industrialized countries with pressing economic problems of their own might well say, "So what?" Poverty has long been a fact of life, and Americans especially feel that they have done more than their share in giving foreign aid since World War II. It is not, however, a question of altruism. The advanced countries have an urgent self-interest in improving a situation that in a few years may well overshadow any other international issue.

The self-interest is partly political: poverty in the LDCs provides fertile soil for demagogues. So far this spring, there have been three political outbreaks: a Marxist coup in Afghanistan, bloody riots in Peru, a guerrilla invasion of Zaire. Each has had special causes, but the potential will exist for many more such explosions until the 3 billion or so citizens of LDCs can see some prospect for improvement in their lives. A few years ago, a French author wrote a futuristic novel in which the world's hungry banded together in a kind of vengeful crusade and descended on the industrialized world. One need not take that vision literally to recognize the seriousness of the threat.

Economic self-interest also should prompt the advanced nations to alleviate Third World poverty. It is simply not reasonable to think that the industrialized world can maintain, let alone expand, its economies in a kind of closed circle. It must bring in more and more of the rest of the globe, not only as suppliers of raw materials, but also as trading partners.

The economic conditions of the Third World, of course, are not uniform. The OPEC nations have become world financial powers, and a handful of once depressed countries, such as South Korea and Taiwan, are developing flourishing new industries. But the majority of LDCS have been knocked backward in the 1970s by a devastating one-two punch: oil price boosts that have raised the cost of running the most primitive factories and farm machines, and recession in the industrial world that has restricted markets for cotton, copper, cocoa, tin and other raw materials sold by less developed lands. In many countries of Asia and Africa, economic growth rates have dropped to around 2% a year -- not enough to keep up with population expansion, which averages 2.6% for the LDCs. The poor countries have borrowed a staggering $200 billion, half of it since 1973, to pay for imports of fuel and food. Yet despite a startling rise in food imports, from 20 billion tons in 1970 to 45 billion tons in 1975, the average African, for example, had less to eat last year than he did in 1970.

These strains have bred North-South tensions that easily match in bitterness the East-West ideological clashes. At conference after conference, LDCs have demanded a "new international economic order" involving vaguely defined transfers of wealth from North to South. Sometimes these demands have focused on acceptance of cartels that would jack up the prices of raw materials, sometimes on insistence that rich countries give preferential tariff treatment to products from LDCs. Poor-country spokesmen have accused multinational companies of ripping off their resources and proclaimed a right to nationalize them, while contending that multinationals have some kind of obligation to step up investment in the LDCs. Through all these assertions has run a consistent theme: the rich countries are engaging in an economic version of imperialism, and have, in conscience, a debt to pay to the South.

Northern statesmen, with much justice, have regarded this rhetoric as a kind of impractical Robin Hoodism. But with no discernible justice, the industrial countries have kept a tight lid on their assistance to LDCs. Japan spends only 0.21% of its burgeoning G.N.P. on foreign aid, vs. a U.N. target of 0.7% for industrial nations; the U.S. figure is 0.27%. True, the U.S. carries the heaviest defense burden in the non-Communist world. But Congress has foolishly sought to forbid aid to countries producing goods that compete or even might compete with American products.

The Northern attitude is myopically stingy. Almost every industrial nation is caught in an economic bind. Unemployment is unacceptably high, yet efforts to bring it down by stimulating the domestic economy through tax cuts and heavier government spending might pump up already high inflation. Selling more goods to other industrial nations is no answer, either. It leads to furious charges that the exporting country is destroying jobs in the importing nation; witness the anger in the U.S. and Europe against Japan's export prowess.

Government leaders and a few private businessmen in the industrial lands are beginning to recognize that growth in the LDCs offers a way out of this box. Economic advance in the poor countries, so goes the argument, would open markets for steel, chemicals and other products now glutting the North, increase production and employment in the U.S., Europe and Japan--and do all that at little inflationary price.

Peter G. Peterson, chairman of the investment banking firm of Lehman Bros. Kuhn Loeb, points out that LDCs already receive more than one-third of U.S. exports, including more than 40% of foreign sales of commercial aircraft and electrical machinery. Even the industrializing LDCs that are competing effectively with Northern factories in such products as clothing and shoes, he asserts, buy more from the rich nations than they sell to them. He endorses much more aid to LDCs because he considers them to be potentially "important engines of less inflationary growth for the developed countries."

There are a few signs that the rich nations are becoming more interested in aiding LDCs. The West German government is preparing some actions to announce at next month's economic summit meeting, in Bonn, of the seven biggest industrial powers. Included: cancellation of debts owed to West Germany by some of the poorest countries. Japan promises to increase its foreign aid to $2.2 billion by next year, double the 1976 figure, though still a pittance in comparison with the nation's $29.6 billion in monetary reserves.

Unfortunately, there seems to be little chance that these small steps will lead to any sustained effort by the rich nations to help the poor. Says U.S. Treasury Secretary W. Michael Blumenthal: "In view of our domestic problems, no substantial increase in assistance seems feasible at present." Many Western statesmen contend that the LDCs lack the infrastructure (roads, ports, dams, railways), political organization and expertise to use much more aid than they are now getting. Says West German Economics Minister Count Otto Lambsdorff: "I do not believe that a kind of Marshall Plan for the Third World--which today would have to be shouldered jointly by the U.S., Europe and Japan--is a feasible solution."

Yet a new version of the Marshall Plan that rebuilt Europe after World War II may well be the most workable solution. Only such a plan could overcome the widespread feeling among voters that much aid to LDCs is wasted because it consists of piecemeal efforts by the givers to finance uncoordinated projects. It is often forgotten that the Marshall Plan involved far more than the mere ladling out of money: it committed the U.S. to aid countries that drew up detailed and effective plans to use the cash and goods for rebuilding. This coordinated planning is vital--especially since the task of promoting growth in the poor countries will be much harder than the reconstruction of Europe was; postwar Europe had the skilled work force and industrial base that LDCs lack. A new Marshall Plan ought to commit the U.S., Europe and Japan not only to give more, but to give more according to a comprehensive and effective plan.

Formal aid would not be the only component of such a plan. One other step that the rich countries should take together is to lower the tariffs and scrap the quotas that keep many products of the LDCS--beef, sugar, cotton textiles, shoes --out of Northern markets. These rising barriers hurt precisely those LDCs, such as Argentina, Brazil, India and Mexico, that have the best chance of building sound economies based on a mix of industry and agriculture. The World Bank estimates that trade barriers cost LDCs $24 billion a year in lost exports of manufactured goods alone.

The industrial countries should also join with the poor lands in agreements to stabilize the prices of raw materials such as copper, coffee, tin, bauxite and manganese. Partners in these agreements would set up common funds to buy and stockpile commodities when prices plunge, sell off the stocks when shortages send prices soaring.

There are dangers in such agreements. They could become inflationary if they set price floors but not ceilings, as some LDCS would like. Many Western governments also fear that commodity agreements would tempt some poor countries to lock themselves into one-commodity economies rather than pursue diversification. Yet for the foreseeable future, Ghana will be dependent on cocoa and Zambia on copper -- and wild price swings make it impossible for them, or similar one-commodity countries, to do any rational economic planning. Moreover, industrial nations always seem to lose more on the inflationary run ups in raw-materials prices than they gain on the subsequent drops. Peterson, usually an ardent advocate of free markets, is willing to explore the idea that the industrial nations should join stabilization agreements "on a few selected and sensible commodities where specific rules and clear implementation mechanisms not only might be negotiated but might work."

Industrial countries could also adopt the plans of West Germany, Sweden and Denmark to forgive some of the debts owed to them by the poorest of the poor -- not Brazil or Mexico, certainly, but nations like Togo and Bangladesh. Insisting on collection only makes further aid meaningless: it goes largely to pay interest and principal on the debts, and is thus in effect given by the rich countries to themselves.

These vital steps would not remove the need for more outright aid in the form of large grants rather than loans. The amounts should be coordinated among the givers; for example, West Germany and Japan, with their bulging reserves, could give far more than others. A summit of wealthier nations could set goals for giving, and the World Bank could coordinate the projects.

The givers should agree to stop bank rolling showcase projects like the steel mill that every nation seems to consider a symbol of pride. Instead, they should insist on a large expansion of help to agriculture: rural cooperatives, extension services, development of simple technologies.

Industrial aid should be directed toward making use of the recipient's special resources. Desert countries are ideal for solar-power projects; the technology developed there would help the industrial countries too. Jungle-covered nations have the rain fall to generate cheap hydroelectricity, which could be used to power aluminum smelters and cement manufacture. It might make more sense for the rich but energy-short nations to finance such factories in the LDCs -- and contract to buy large shares of their output at stable prices-- than to build those energy-gulping plants on their own territory.

How much would all that cost? The World Bank reckons that much progress would be made if the 17 leading industrial na tions, which now give $13 billion a year in official development aid, would add $15 billion more. That is a huge sum -- the U.S. spent only $12 billion in four years under the Marshall Plan -- but hardly beyond the ability of industrial nations.

The aid givers would have to insist on tough conditions: not only effective economic-development plans, but also population-control programs and the reform of universities that produce too many lawyers and literary scholars, too few agronomists and engineers. If some LDCs equate these conditions with colonialism, they can refuse the aid. The givers must be prepared to aid some peoples ruled by one-party dictatorships -- there are almost no impoverished democracies -- while spurning the Idi Amins who blatantly trample human rights.

Any Marshall Plan for the developing nations would admittedly be imperfect. But consider the alternatives: for the LDCs, continued poverty; for the industrial nations, endless political threats and damage to their own economies. Rich and poor countries do not have to like each other to realize they have a common interest they cannot escape.

-- George J. Church

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