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U.S. Department of State

Department Seal Alan Larson, Under Secretary of State
for Economic, Business, and Agricultural Affairs

Center for International Strategic Studies
Washington, DC, April 11, 2000
Blue Bar

The Political and Social Foundations of an American Policy for Development

Thank you for inviting me for a discussion on development. The Center of Strategic and International Studies is a good place to explore foreign policy and national security aspects of international development policy.

Development will be a major focus of this year. The Development Committee meeting later this month in Washington will draw more attention than usual, in part because of demonstrations protesting the policies of the World Bank and International Monetary Fund (IMF). The Meltzer Commission recently launched its own challenge to the Bretton Woods institutions, albeit from a different ideological direction.

All this attention would be welcome if it led to an increased national focus on development and to a consensus on how to achieve it. I have my doubts.

To be a national priority, development must be grounded not only in our deepest humanitarian impulses but also in our most central national interests. During the 40 years immediately after the Marshall Plan, American development policy was integrally related to our Cold War strategy. We supported development abroad not only because we loved our neighbor but also because we feared he would join the Communist bloc.

To be sure, that marriage of love and fear created more than a few problems, but at least development policy mattered. As fear receded, development spending declined, and attention drifted away from development policy.

Development and Poverty Alleviation Are Still National Security Issues

One of history's most haunting questions is, "And who is my neighbor?" Living as we are in an era of globalization, we have six billion neighbors. Global economic integration -- the increased flow of goods, services, knowledge, and capital -- is changing the face of the American economy and drawing us into closer economic cooperation with persons throughout the world.

But global integration also brings us closer to our neighbor's problems: disease, narcotics, crime, corruption, and environmental degradation. Development is not an escalator that surely and smoothly pulls societies up. The path is uneven because reform and progress must contend with powerful forces of privilege and decay that drag societies down. And in today's world, there are more and more ways in which Americans can be dragged down with them.

Infectious diseases recognize no international borders. In many African countries, the HIV/AIDs pandemic no longer is simply a health issue; it also is a social, political, and economic crisis. Any effective development strategy will need to address this public health crisis. At the same time, any effective program to protect Americans at home against infectious diseases will have to tackle the breeding grounds of diseases throughout the world. In an age of increasing global trade and travel, the spread of disease could undo development abroad and threaten health and security at home. If you think I exaggerate, reread Barbara Tuchman's The Proud Tower, William H. McNeill's Plagues and Peoples or Jared Diamond's Guns, Germs, and Steel: The Fate of Human Societies. At the same time, it is also worth recalling that development cooperation had a lot to do with the elimination of smallpox and the imminent victory over polio. The challenge can be met.

Narcotics production, trafficking, and addiction is another problem that recognizes no borders. At home, it is a major contributor to crime and social decay. Abroad, narcotics production finds opportunity in poverty and then creates a web of crime and corruption that stifles both development and democracy. Should we fight demand at home or curtail supply from abroad? We all know that it is a false choice; we must do both. Plan Colombia is an example of how the right kind of development and security assistance can help to make our streets safer at home.

Surely what is true for disease and narcotics is equally true of international crime, corruption, and environmental degradation. Crime and corruption can be as contagious as diseases, and the growth of greenhouse gas emissions in Asia can affect rainfall in Montana. In each case, the protection of our interests at home requires an integrated strategy that includes the promotion of international development. It is time for Americans to get serious about development as a security issue. The entire international affairs budget -- including all bilateral assistance; contributions to the World Bank, the regional development banks, the IMF, and the United Nations; debt reduction for the poorest countries of the world; as well as for all of our diplomatic activities around the world -- amounts to just over one penny out of every federal dollar. As Secretary Albright has pointed out, "that single penny can spell the difference between hard times and good times for our people, war and peace for our country, less and more freedom for our world." At a time when international events are having an ever greater impact on the lives of American citizens, funds for U.S. bilateral and multilateral diplomatic initiatives, and our development assistance programs, represent prudent investments in our efforts to secure peace and prosperity.

An American policy on development must be grounded in the recognition that development is a matter of national security.

Security, Both External and Internal, is Essential for Development

There can be no lasting development without security. And so long as human nature does not change, being secure will require a capacity to deter external threats and to maintain public order at home.

"Public good" is the monkish name economists give to products that generally cannot be provided in the right volume by the market mechanism. The basic attribute of a public good is that, if it is to be effectively provided to anyone, it must be made available to everyone. Much of the current focus on combating infectious diseases is grounded in the common sense idea that none of us are safe from a highly contagious plague unless all of us are.

Security from crime and war, and a sound and predictable legal regime, are classic examples of public goods. Economic development cannot occur if property is subject to theft, if nations are vulnerable to war, or if contracts cannot be enforced.

The post-World War II security policies of the United States fostered development by creating a secure environment in Western Europe, Japan, Korea, and Southeast Asia. By allowing people in these regions to concentrate their energies on economic development, American security policies did much to advance living standards and, yes, alleviate poverty.

Conversely, some of the most appalling reversals of development have occurred in countries or regions where domestic or cross border conflict has rendered development impossible. It is no wonder that 18 of the 35 lowest ranking countries on UNDP's Human Development Report are countries that have experienced serious conflict in the last decade -- as have 20 of the lowest ranking countries on the OECD development indicators survey. A vital task in fostering development is to find better ways of preventing conflict and ensuring the speediest possible recovery when it occurs. Aid donors have developed guidelines toward this end. Last year in Berlin, G-8 Foreign Ministers met to discuss conflict prevention and identified specific areas for further exploration. The G-8 is now working to carry this process forward at the Okinawa Summit. Closely related to this are efforts to assist recovering societies to restore order. The President's Presidential Decision Directive for strengthening criminal justice systems in support of peace operations and other complex contingencies is designed to help meet this need. As Secretary Albright stated in announcing this initiative, "Such help can be essential in enabling people who are emerging from a conflict to feel that their rights will be protected, and that neither combatants nor criminals will be able to act with impunity." A strong and just legal regime, in turn creates the sense of security that permits societies to begin mending and to move forward with steps required for economic recovery and political progress.

An American policy on development must recognize that development cannot occur unless a country's citizens are free from the threat of violence, crime, and conflict.

Democracy and Good Governance are Core Contributors to Development

At the advent of a new millennium, it is important to take a historical perspective and recognize that sustained economic growth and poverty alleviation for the masses are essentially a modern phenomenon. The historian David Landes recently published a fascinating book entitled The Wealth and Poverty of Nations: Why Some are so Rich and Some are so Poor. Taking a historical view, Landes tries to explain why sustained growth and poverty alleviation started in Western Europe and, until recently was largely confined to Western Europe, North America, and Japan.

In discussing the politics and social institutions that favor growth, Landes cites the importance of (a) secure rights of private property and personal liberty, (b) enforceable contract rights and (c) governments that are stable, responsive, honest, moderate, efficient, and ungreedy. The institutions that provide these social and political foundations for economic growth obviously do not spring up overnight. They need to be cultivated and developed.

Development policy experts once spoke with an uncertain voice on governance issues, in part for fear of being criticized of cultural bias. That is changing, as indicated by recent comments of UNDP Administrator Mark Malloch-Brown. It is particularly welcome that so eminent an economist as Nobel prize laureate Amartya Sen published a set of essays entitled Development as Freedom.

Professor Sen describes development as the expansion of the freedom of individuals to lead the kind of lives they have reason to value. In Sen's view, freedom is both an end and a means to an end. In contrast, poverty is deprivation of the basic capability to lead the kind of life one would wish to lead. As such, poverty encompasses more than low incomes; it includes the lack of access to education, health facilities, and the political process.

During the recent financial crises, the democracies of Korea, Thailand, and Brazil were able to emerge surprisingly quickly from the deep problems they initially faced. Democratic processes helped governments understand their economic needs and identify effective policies. Democratic processes are an important check on bad policies: as Sen famously asserts, famines do not happen in democracies.

One common thread in the work of Landes and Sen is that social equality strongly supports development. In contrast, countries in which women or certain ethnic groups lack access to economic opportunity or political expression tend to be economic underachievers. Against this backdrop, we clearly need to give more attention in development policy to the promotion of democratic institutions. In this regard, the United States is working closely with other partners to organize a ministerial Conference of Democracies in Warsaw in June. In addition, the Secretary of State has directed that special attention be given to four critical countries that are seeking to strengthen their democracies and economies.

The "four emerging democracies" -- Nigeria, Indonesia, Colombia and Ukraine -- face daunting challenges. Nigeria is trying to overcome the legacy of two decades of corrupt military rule. Indonesia is attempting to grow democratic and market institutions to fill the vacuum left by more than three decades of autocracy. Ukraine is seeking to build a democracy and market economy tied to the West on top of the wreckage of a Communist system in which central planners in Moscow forced Ukraine's political, social, and economic integration into the Soviet Union. Colombia is seeking to suppress narcotics trafficking and political insurgency while strengthening its democratic institutions and extending legitimate economic activity into neglected regions.

Each country's challenge is unique. There is no single recipe to guide them on the path to stronger democracy and greater development. What is clear, however, is that each must seek democracy and development together, not as antagonistic goals but as two sides of the same coin.

No discussion of democracy and development would be complete without a mention of China. One can only praise the strides China has made in improving education and public health and reducing income poverty. These improvements have come about in large part by permitting greater freedom for Chinese people to choose where they want to work and to respond to market incentives.

The decision of China's leaders to enter the WTO will have profound consequences. By extending the scope of the rule of law, China's people will enjoy even more freedom in their economic lives. And in the age of the Information Economy, the decision to open China's economy to competing foreign products inevitably means that China's society will be opened to competing foreign ideas.

While congratulating China for these accomplishments, I want to make clear that China will continue to fall short of its potential so long as the Chinese people lack civil and political freedoms. China will remain poor not only because lack of freedom will limit growth of incomes but also because lack of freedom to express oneself politically, in and of itself, is a form of poverty. That is why Secretary Albright personally went to Geneva to lobby for a human rights resolution on China at the United Nations Commission on Human Rights, and that is why we will continue to speak out on the need to expand political and religious freedom in China.

What then of the debate on normal trade relations with China? As President Clinton has said, granting normal trade relations does not guarantee that China's leaders will make the right choice on political reform, but by broadening economic freedom and hastening the pace of economic change, it forces that choice to be made sooner. And if you accept the premise of "Development as Freedom", you understand that China's leaders will pay a profound economic penalty if they choose political repression.

An American policy on development must have the expansion of individual freedom as a fundamental goal and must actively seek to strengthen democratic institutions.

An American Development Policy Must Invest in People and Focus on Families

Treasury Secretary Summers has stressed that public investment in people is one of the most productive investments a society can make. The United States strongly supports the increased emphasis on public investment in health and education. These investments are one of the best means of fighting poverty because they give people the tools they need to shape their lives.

A sound development policy will also focus on empowering families. Households are the basic social unit through which development takes place. Families teach values, make substantial investments in education, health and housing, and in most societies they control more final spending than governments or business. In many societies, small family businesses are the entrepreneurial sparkplug of innovation.

Families can face serious shocks in the development process, and these sometimes can have profound effects. For example, during the Asian financial crisis, disruptions of family income raised the risk that interruptions in food supply, schooling or health care services would permanently stunt the potential of vulnerable children. The worst risks were avoided thanks to the urgent attention that governments and international institutions gave to emergency feeding programs, tuition subsidies and health clinics. Now is the time to put in place efficient, targeted social safety net programs appropriate to each country's cultural traditions and level of development.

One of the most effective ways of encouraging investment in people is through the global program to forgive the debts of the world's poorest, most indebted countries. Under this program, resources freed from debt service must be devoted to social investment and poverty alleviation programs.

An American strategy on development must stress investment in people and a focus on the family.

An American Development Strategy Must Recognize the Centrality of Economic Growth, Open Markets, and Foreign Investment.

No substantial alleviation of global poverty can be achieved without sustained economic growth. In fact, when it comes to growth, many developing countries are probably aiming too low. Secretary Summers startled some by suggesting that India needs 10% annual growth rates. In a similar vein, I suspect that Brazil, notwithstanding admirable economic progress under President Cardoso, needs to raise its sights from 4% annual growth to something closer to 7% if it is to make lasting progress in reducing poverty and inequality.

A coherent program to achieve development and alleviate poverty must be grounded in open markets. Developing countries need to sell their products in a global marketplace and align their economies to global price signals. Economic research has made clear that open economies grow much faster. Openness is not, of course, sufficient but it is nonetheless necessary. It is important that the world's principal purveyors of advice to the poor -- the World Bank, the regional development banks, and the UN system -- be crystal clear on this point, and that their programs to reduce poverty fully integrate the benefits of openness to trade and investment.

It has become fashionable in some quarters once again to demonize foreign investment and multinational corporations. Yet foreign direct investment is one of the most important mechanisms for stimulating development, as the United States can continue to attest. Foreign direct investment flows to developing countries now vastly exceed development assistance. In comparison to debt and portfolio investment, foreign direct investment flows are far less volatile. Countries that have put in place the appropriate policies have greatly increased their access to foreign direct investment.

The United States, of course, needs to do its part. We need to enact the Africa Growth and Opportunity Act and the Caribbean Basin Enhancement Act. We need to reassert our leadership on trade and redouble our efforts to launch a new trade round. If the world economy experiences sustained drift on global trade policy, developing countries will be among the greatest losers. And we need to contribute to a broad international effort to help poor countries learn how to participate in a global economy and to put in place the policies and institutions that will enable them to help themselves and become full partners.

We also must strike the right stance on trade, labor, the environment, and development. Developing countries must accept that a responsible development must aim to lift environment and labor standards and give workers in developing countries more freedom, including freedom to associate. Developed countries must recognize that no labor rights and environmental agenda can win the respect and support of developing countries unless it is cooperative in spirit and has as its starting point the goal of improving the lives of the world's poorest workers.

An American policy on development needs to support unambiguously open markets and the free flow of foreign direct investment as principle engines of economic growth.

Advancing American Interests in a Global Community

To be effective, an American policy on development must be pursued in cooperation with other countries and working through international organizations. The philosophy I have outlined today would suggest that the IMF, World Bank, and United Nations pay more attention to social investment and recognize more explicitly that development cannot be achieved without good governance. Like the governments they serve, these organizations must continue to become more transparent and open. Certainly their activities must continually be refocused: Secretary Summers recently has put forward the Administration's thinking on the best ways of shaping the role of the IMF, the World Bank, and the regional development banks.

There is no convincing case, however, that the interests of the world's poor would be advanced if these organizations were abolished or their roles radically circumscribed. Certainly that is not the prevailing view one hears from poor countries themselves.

In fact, there is evidence that current strategies are gaining some traction. According to the United Nations, the share of people experiencing what is known as medium human development rose from 55% in 1975 to 66% in 1997. At the same time, the share suffering from low human development dropped from 20% to 10%. To be sure, the status quo is not acceptable, but the path to progress does not involve throwing out the baby with the bath water.

Conclusion: Toward an American Policy on International Development

Thousands of years ago, prophets dreamed of a day when people would pound swords into plowshares. The world has not reached the point where America can give up its swords, but we have reached a point where our security demands a greater effort to assist other countries in their development.

An American policy on international development must be grounded in American values and American interests and must recognize more explicitly the political and social foundations of development. It must see development as a national security imperative and recognize the legitimate and necessary contribution of security to the achievement of development. It must be grounded in the conviction that development begins with freedom and that poverty is more than the mere absence of money. It must invest in people and focus on families. It must recognize the central contribution of growth, open markets and foreign investment. It must work to strengthen and reform - not to abolish -- institutions like the IMF, World Bank, the regional development banks ,and the United Nations. And finally, and most importantly, it must support that policy with the energies and dollars necessary to achieve success.

[end of document]

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