November 26, 1984

November 26, 1984 | Backgrounder on Trade, Economic Freedom

"U.N. Conference on Trade and Development, Part 3: The TruthsUNCTAD Will Not Face"

(Archived document, may contain errors)

394 November 26, 1984 U. N. CONFERENCE ON TRADE AND DEVELOPMENT PART 3 THE TRUTHS UNCTAD WILL NOT FACE INTRODUCTION The United Nations Conference on Trade and Development UNCTAD)* is a Geneva-based agency of the General Assembly of the United Nations between international trade p o licies and economic development in the Third World, UNCTAD quickly fell under the control of a radical Third World majority and a coterie of international bureaucrats, who have been seeking to create a collectivist international economic order. With a sta f f of 448 and a two-year budget of $56.5 million, of which $14.1 million is supplied by the United States, UNCTAD is today both brain trust and advocate for the Third World majority that increasingly controls the family of United Nations institutions Found e d in 1964 to consider the relationship The tragic irony, however, is that what UNCTAD advocates will actually make it more difficult for Third World nations to grow and develop. If the UNCTAD majority and its secretariat have their way, the approaches tha t have fostered development will be hindered, while those that have hindered development will be fostered. Even more ironic is the fact that a number of UNCTAD's own studies controvert some of the organization's major proposals and ideological stances.

The reason for this gap between what works when it comes to development and what UNCTAD proposes lies in the organization's ideology and politics. On hand, UNCTAD's ideology requires conformity to a."party line" whereby free trade is viewed as This p a per is the third in a series on UNCTAD. It was preceded by Heri tage Foundation Backgrounder No. 348 Cheating the Poor April 30, 1984, and Backgrounder No. 374 Blocking Economic Growth August 20, 1984. 2 llrobbery,ll prices set by market forces are consid e red unfair, and multinational corporations are seen as economic vampires. On the other hand, the politics of UNCTAD forbids any consideration of two subjects 1) the impact of the Organization of Petroleum Exporting Countries (OPEC) on the international ec onomic problems of the 1980s; or 2) what development strategies have and have not worked in the developing world.

This combination of ideology and politics forces UNCTAD to ignore or to deny three great truths that must be faced if eco nomic development is to accelerate in the Third World 1) OPEC oil prices have had a major impact in ending ''the golden age of developmentll that the developing countries experienced from 1945 to 1980 2) Multinational Corporations (MNCs) have made great contri butions to the development of Third World nations 3) The success or failure of many Third World countries to grow and develop can be explained largely by the domestic policies pursued by those countries.

OPEC OIL PRICE INCREASES: A DISASTER FOR THE DEVELOPING COUNTRIES Between 1950 and 1980, Third World nations enjoyed an enormous amount of growth and development nearly 500 percent through an annual growth rate of 5.4 percent and the growth rate increased each decade--from 4.5 percent in the 1950s, to 5.3 percent in the 1960s, to almost 6 percent in the 1970s. Industrial growth moved ahead at the even higher rate of 7.3 percent, while the Third World's share in the production of heavy industry increased from near zero in 1950 to 9 percent in 19

81. Finally, gross domesti c capital formation, an indicator of decreasing dependence on external resources for internal investment, rose from 10 to 12 percentjin the 1950s, to 17.8 percent in the 1960s, to nearly 27 percent by the end of the 1970s Gross domestic product rose by Wh a t these statistics demonstrate is that the developing countries have grown much more quickly than today's developed countries did when the latter were at similar stages of under development. Despite the usual pictures of gloom and doom presented by UNCTAD officials, one UNCTAD document, which re viewed the post-1945 record of the developing countries, referred to this period as 'la golden age of economic growth.lI1 Report by the UNCTAD secretariat, A Strategy for the Technological Trans formation of the De v eloping Countries, TD/B/C.6/90, September 23, 1982 All of the figures presented above are taken from this document 3 Why Third World Development Faded In the early 1980s, however, this Ilgolden aget1 faded. It did so, according to the standard line of UNC T AD officials because the "external environment" turned 81decisively hostile1' to development. The factors that UNCTAD officials cite as responsible for this Ildecisively hostile1I environment stemmed from domestic policies of the developed countries in th e north--high inflation rates, economic recession, high interest rates, reductions in foreign aid, increasing protectionism, declining imports from developing countries, and the increasing burden of debt servicing in Third World countries.

Nowhere do UNCTA D documents or studies mention one of the major causes of this stagnation--the shattering impact worldwide that the OPEC oil cartel and its price rises have had on rich and poor economies alike. While OPEC obviously is not the sole cause of the economic m a ladies of the 1980s, the steep oil price in creases in 1973-1974 and 1979 were major contributing factors to the two recessions in the past decade, the consequent inflation that spiraled throughout the world economy, the declining demand for developing co untry products, the unemployment in the developed countries, the consequent demands for protectionism and the massive indebtedness of the developing "countries--an indebtedness now reaching $800 billion.

When OPEC increased the price of oil by 400 percent in 1974 the oil exporting nations increased their revenues from $14.5 billion in 1972 to $110 billion in 19

74. Most of this increase was extracted from such oil importing developed countries as West Germany, Japan, France, I taly, and the United States. But the oil importing developihg countries were hit hard as well. The oil import costs for the 90 countries in this category rose from 4 billion in 1973 to over $15 billion in 1974, an increase that amounted to more than all t h e official foreign aid offered to these countries by the developed world increases added another 10 billion per year to Third World oil bills and were responsible for lowering the aggregate growth rates of the oil importing nations by over 20 percent Furt her OPEC price In addition to their direct impact, the oil price hikes also imposed indirect financial burdens on the developing countries.

Higher oil prices also meant increased costs to them for those goods the developed countries that had si gnificant energy inputs such as machinery and fertilizer. At the same time, efforts by the developed countries to reduce inflation led developing countries. Budget cutting to control inflation meant cuts in foreign aid, and the fight against unemployment l ed some governments to succumb to rising demands for protectionism to unemployment and recession, which further reduced imports from These figures are all taken from a standard textbook on economic develop ment, Michael P. Todaro's Economic Development in the Third World (New York: Longman, 1981 pp. 490-493. 4 UNCTAD's World without OPEC The pricing policies of OPEC obviously should have been a central concern at UNCTAD meetings. But they were not. On the one hand, the "interestff of llsolidarityll among t h e Group of 77 the bloc of some 120 developing nations) insured that OPEC and its energy prices would not appear on the agenda of UNCTAD meet ings. On the other hand, the fact that the UNCTAD secretariat is beholden to the radicals who control the Group of 77 insured that the issue of OPEC and its impact would not appear in UNCTADIs studies and reports. The result In the cornucopia of documents produced by the UNCTAD secretariat, there is not one paragraph let alone one monograph, on OPEC's impact on intern ational trade or development.

Unwilling to face the truth about OPEC, UNCTAD is forced to deal with the disastrous effects of the oil cartel by designing schemes to extract from the developed countries the direct and indirect costs that OPEC's price hikes have placed upon the energy-poor developing countries. This has led UNCTAD to call for debt relief, guaranteed export income facilities, greater amounts of foreign aid, the restructuring of world industry brain drain taxes, the issuing of more paper gold, and an in crease in borrowing quotas at the World Bank and the Interna tional Monetary Fund (IMF).

MULTINATIONAL CORPORATIONS: ENGINES OF GROWTH AND DEVELOPMENT A second truth UNCTAD will not face is that multinational corporations (MNCs) have made great contributions to the economic growth of many developing nations. According to one scholar Ankie M.M. Hoogvelt, more goods are now transfered internationally through multinational corporations and their affiliates than are exported and imported among natio n s. He also reports that over half of the manufactured goods exported by developing nations are a result of multinational a~tivity This outstanding MNC record of accomplishment apparently cannot be recognized by UNCTAD because the activities of the MNCs do not fit into the development schemes favored by UNCTAD.

Development in participation with MNCs means private investment private technology, the repatriation of profits, and the introduc tion of cultural and social patterns that are accused of being alien to the "genuine values and traditionsf1 of developing country cultures.

Instead of seeing multinational corporations as engines of growth and development, UNCTAD ideologues see them as part of a Ankie M. M. Hoogvelt, The Third World in Global Development (London: The MacMillan Press, 1982 p. 3. 5 northern conspiracy" to control and dominate Third World coun tries in the post-colonial age. This viewpoint was recently articulated by Jan P. Pronk, Deputy Secretary-General of UNCTAD in a special issue of the U NCTAD Bulletin designed to celebrate the organization's twentieth anniversary: as soon as [the developed nations] learned that they could continue to influence the political and economic process in the Third World with other means than those used in the c o lonial era, they turned towards them foreign private investment soon became more important than development aid; on many markets investment production and pricing policies became more strongly influenced by transnational companies than by inter government a l bodies established to give weight to the interests of poorer countries 4 Given this perspective, it is not surprising that UNCTAD has been a vanguard in the United Nations crusade against multina tional corporations. The U.N.'s majority and secretariat h ave been demanding that developed countries accept binding codes of conduct on restrictive business practices and on the transfer of technology. The purpose of these codes is to place the activities of multinational corporations under the control and scru tiny of international officials or Third World bureaucrats. Some aspects of these codes merely prohibit practices that restrict competition and production and are already banned in most developed countries.

Other aspects of the codes go much farther, seeki ng to regulate interchanges between buyers and sellers that traditionally have been private transactions between MNCs and nationals of host countries. If these codes were adopted, almost all exchanges involving industrial designs, trademarks, patents, and inventor certificates would be subject to international regulation.

These codes also would force the MNCs to 1) rapidly transfer technology commensurate with development needs 2 recognize trade union representatives 3) protect the rights of employees and their condition'of employment 4) train and pro mote local workers 5) cooperate with the host government's plans for environmental protection 6) make available to "Govern ment, union, and the general public detailed financial accounts and other data" for t he branch as well as the parent company; and 7) help alleviate balance-of-payments problems of the host governments (thus opening the door for the regulation of profits conflict and litigation between the MNCs and host governments.

By merely inviting such conflict, the adoption of UNCTAD's codes will deter the flow of private investment funds to the developing Such a vague list of l'obligationsll is an invitation to UNCTAD Bulletin, September 1984, p. 7 6 countries If investors do invest and such conflicts do arise however, such differences would be adjudicated in the courts of the developing country host.5 The ammunition in this crusade is a plethora of UNCTAD studies. Ironically, though, a number of these studies confirm that MNCs have made great contribu tions to particular developing countries, and they weaken the case that UNCTAD spokesmen and Third World radicals make against the MNCs.

UNCTADIs Committee on the Transfer of Technology, for example commissioned studies on the transfers in the food process ing industry in ord'er to determine whether the technology transferred was relatively costly and inaccessible to developing countries because of trademarks patents, or other proprietary rights of the MNCs whether the technology transferred was overpriced w hether the technology transferred was lIinappropriate.l These studies and others were intended to document the charges that MNCs make technology relatively inaccessible, over priced, and inappropriate. The evidence was then to provide the basis for a symp athetic document that would make the case for A New Technological Order" that would abolish trademarks, patents and other private controls on the flow of technology.

The studies on technology in the food processing industry however, could not have been comforting to UNCTAD ideologues.

Instad of mobilizing evidence against the MNCs, these studies documented three truths that UNCTAD apparently does not want to face 1 development, and exports of some developing countries MNCs have had a significant role in pr omoting the growth 2) Significant amounts of technology are readily accessible for nations that want to put that technology to work 3) Policies adopted by Third world governments can retard economic growth and development; indeed, such policies can even t h reaten the progress made by MNCs Milk Processing in Peru: An MNC Success Story UNCTAD's study of the transfer of technology in the milk processing sector of Peru demonstrates the valuable contribution A good discussion of these codes may be found in Ervin Lazlo, et al The Objectives of the New International Economic Order (New York: Pergamon Press 1978 pp. 134-146 7 that Perulac-Nest16 and Gloria-Carnation have made .to the,economic growth and development of that country.6 According to the report Peru's da iry processing industry was "stagnantt1 until the entry of the two multinationals in 19

39. Then the industry grew rapidly.

New.processing techniques were introduced; more efficient methods of collection, transportation, and dist ribution were worked out changes were made in production techniques; and large numbers of dairy farmers profited. According to this UNCTAD study, while the dairy processing sector flourished under the leadership of the multinationals, the other sectors of Peru's agriculture stagnated vian government adopted price controls to provide Ilcheapl' food for its growing urban population urban consumers, the Peruvian government imported large quantities of powdered milk and offered it for sale to the MNCs for thei r processing purposes at subsidized prices, which were substantially lower than the prices of whole milk produced by dairy farmers within Peru. Consequently, as the UNCTAD study reports, 'IPeople drank cheap imported milk, while local producers of fresh mi l k went bankrupt It The UNCTAD study reveals that the multinational corporations helped sectors of Peru's agriculture. Where the MNCs were not involved, agriculture stagnated. When the Peruvian government intervened it adopted policies that decreased agric u ltural production; it undid part of the success of the MNCs; and it squandered scarce foreign exchange on unnecessary food imports This progress was almost destroyed, however, when the Peru To keep down milk prices for Food Processing in Mexico: Accessibl e and Cheap Techology UNCTADIs study of Mexico reveals that technology for food processing and canning was accessible, available, appropriate and cheap Strangely, however, the study did not concentrate on this key factor. Instead the author focused.on two i ssues barely related to Mexico's economic development or to the transfer of technology 1) that technology was being used to process soft drinks instead of fruit juices; and 2) that rich agricultural land in northern Mexico was being used to grow tomatoes f or export to the U.S. during the winter months. This UNCTAD study urged the Mexican government to prohibit these two ! While the study implied that these problems somehow were caused by U.S. capitalism and multinational corporations, they in fac t Technology and Food Processing in Peru facture.

Professor Manuel Lajo, Faculty of Economics, Pontifica Universidad Catolica The Case of Milk Products Manu A report prepared by the UNCTAD Secretariat in cooperation with of Peru. Ami1 5. 1982 Technology, T rade, and Transnational Corporations in the Food Processing Sector in Mexico A study prepared by Sam Lanfranco Assistant Professor of Economics, Boston University, March 19, 1982 A Case Study.

TD/B/C6/75. resulted from Mexican domestic policies. The autho r of the Mexican study merely discovered a number of policies adopted by the Mexican government of which he disapproved A Success Story in Thailand: Exports of Cassava Pellets and Pineapples According to this UNCTAD study, Thailand made "striking advances f f in commercially cultivating, processing, and exporting cassava pellets and pineapples.8 In the early 1960s, neither of these crops was heavily cultivated, and exports of both were negligible. Within 15 years, however, cassava crops accounted for the sec ond largest amount of acreage planted in Thailand after rice), and the production of pineapples had risen from 1,000 tons in 1967 to one billion tons in 19

77. Today, both commodities account for one-tenth of Thailand's total exports.

Since most of the pr ocessing of these products is done in Thailand 80 percent of the value of the cassava pellets remains within the country, and well over half of the prices go to the small farmers who grow them. Similarly 80 percent of the value of the export of canned pin eapple remains within Thailand.

Almost all of this increased production, moreover, has taken place in areas that were previously uncultivated.

The idea for this came not from "external forcesf1 but from Thailand's Board of Investment, which particularly e ncourages export-oriented, agriculture-based activities that rely on small independent farmers. Finally in terms of technology transfer and multinational corporations, this study uncovered abuses by the host government instead of the MNCs--the processing plants were mostly copied and reconstructed by Thai entrepreneurs in violation of existing international agreements on patent and property rights.

UNCTAD's study of the cassava pellet and pineapple process ing industries demonstrates a number of truths tha t UNCTAD does not like to face 1) Export-oriented policies can foster growth and development 2) Free markets and economic incentives can foster economic development 3) Small farmers can be efficient producers, especially when they are able to share in the gains of increased production 4) Some technology is available and can be used appropriately in developing countries Technology and Food Processing in Thailand searchers at Thammasat University, Bangkok, April 6, 1982, TD/B/C6/AC.6/5.

A report prepared by re 9 DOMESTIC POLICIES IN THIRD WORLD COUNTRIES: A CRUCIAL FACTOR IN DEVELOPMENT None of these case studies presents any evidence that the activities of multinational corporations have been obstacles to the economic growth and development of the nations c o ncerned In fact, all of the evidence is to the contrary. In Peru, MNC activities transformed a stagnant dairy industry into one of the most healthy in South America. Policies pursued by the Peruvian government, on the other hand, fostered stagnation and d e teriora tion in the other agricultural sectors and almost undid the success of the MNCs In Mexico, MNCs were largely responsible for vastly increasing the agricultural productivity in northern Mexico. In Thailand, government policies fostered the producti on processing, and export of new cash crops, which resulted in much greater income for its farmers.

Within UNCTADIs own documents, then, there is evidence that the world view of UNCTAD officials and staffers is mistaken.

Yet in a document that drew upon t hese studies, the Secretary General of UNCTAD, Gamani Corea, still saw the pressing need for IIa New Technological Order Nowhere in the Secretary-General's document was there an acknowledgement that MNCs have contributed toward the growth and development of the countries studied.

The reason for this omission is obvious. Thailand's export oriented activity is an approach to development rejected by UNCTAD ideologues. As a result of Thailand's efforts, develop ment has occurred by producing more and earning m ore--that is more pineappples are available to more people, and the farmers who produce the pineapples are earning more money, which will be used to spur the production of more goods and services.

If applied to Thailand, UNCTAD's approach would have conce n trated on producing fewer pineapples and charging more for them and the increased earnings would go not to farmers, who might squander1f them on 'consumption goods, but to government bureau crats, who would I1investl1 them in development projects design ed to fulfill national economic plans.

CONCLUSION The above case studies indicate another truth that UNCTAD does not want to face--that the success or failure of development programs depends heavily upon the domestic policies and programs pursued by Third World governments. Over the past 20 years, some countries have increased agricultural production while others have not. Some countries have greatly expanded their exports while the exports of others have declined and stagnated. T h e policies that Third World governments adopt do matter when it cqmes to economic growth and development 10 Given the abundance of information available, it would seem that an organization concerned with trade and development would engage in comparative, e valuative research of development programs of all kinds--agriculture, medicine, public works, light manufac turing, heavy industry, export promotion. The results of this research could then be used both to inform UNCTAD members generally and to allow dele gates from developing countries to review the evidence, compare their experience, and advise each other. Such studies cannot be undertaken by UNCTAD, however, because of what they reveal about the world view and philosophy of UNCTAD.

Despite the words "tra de and developmentll in its title UNCTAD is really about power--power for OPEC and new cartels power over the International Monetary Fund (IMF), power over the General Agreement on Tariffs and Trade (GATT), and power for international bureaucrats. The pur p ose of this quest for power is the extraction of billions of dollars of resources from the developed countries in order to ameliorate the major effects of OPEC's price hikes on UNCTADIs Third World majority and to hide the failures of collectivist develop m ent plans throughout the Third World. The proposals that were prepared for UNCTAD VI held in 1983 in Belgrade, added up to an Ifimmediate relief program that, if adopted, would have cost the developed capitalist countries about $90 billion.g But as some o f UNCTADfs own studies reveal, more money international planning, and greater controls on multinational corporations will not make it easier for Third World countries to grow and develop. If UNCTAD really wants to spur development, it must study those coun t ries that have succeeded and failed in this area over the past two decades such studies, however, it soon will find that much of what UNCTAD opposes, namely, the use of markets and private sector forces, is largely responsible for the development successe s in the Third World If the Organization undertakes Prepared for The Heritage Foundation by Stanley J. Michalak Professor of Government, Franklin and Marshall College The Times (London), March 31, 1983.

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