Toward a Greater International Cooperation for Development

 

A presentation to the Independent (Brandt) Commission on International Development Issues, Kuala Lumpur, Malaysia, November 24, 1978.

 

               I feel very honored today to have this privilege of joining you in a discussion on the future course of world economic development. When I received the invitation from Chairman Brandt, I hastened to accept it, not so much because of confidence in my ability to deal with the issues on hand, but because of their importance to our common economic future.

There are indeed awesome problems before us that defy an easy solution. Yet our very presence here is testimony to our belief that something can be done. A crisis, as the two Chinese ideographs show, is not only a hazardous time, but also an opportunity. It is up to us what use we will make of it.

I do not wish to lead you to believe that I have any grandiose vision. What I wish to suggest is that we should approach the worldwide problems as we would tackle development problems in any given country. In my frame of reference, the key factors to which attention must be addressed in the development process are: indigenous absorptive capacity, external trade, and transfers of capital and technology. Under these headings I now wish to discuss my ideas concerning how to accelerate growth in the developing world today.

Absorptive Capacity

Based on the Korean experience, development appears to be primarily a function of a country's own capacity to absorb external resources. Capital, technology, and even certain managerial skills can be obtained from abroad; however, they can make a decisive contribution to development only if the domestic capacity to absorb them exists. The essential prerequisite for successful absorption is a leadership that is determined to modernize the nation and make it clear to all that development is indeed the nation's main business. Without this leadership and the social stability that it brings about, no planners can successfully implement their ideas-no matter how good they may be. Given social stability, people can set their own goals and pursue them in a consistent and orderly way, and the indigenous entrepreneurship so necessary for development will flourish. I may emphasize once again that a development-oriented leadership and basic social stability are crucial. In this area, however, a country cannot expect much help from outside.

Restrictive Trade Policies

I am most concerned with the recent proliferation of restrictive trade policies adopted by the industrialized countries. Indeed, this is the most fundamental threat to the prospect of growth in the developing countries. This unfortunate trend is ironic in that it is against the interests of the developed countries themselves, and it is also historically unjust to the developing countries.

The developing countries typically spend virtually all their foreign exchange earnings from exports on importing capital goods from the developed countries. A GATT report has shown that since the oil crisis of 1973, the value of manufactured exports from the developed countries to developing countries has been much greater than the value of manufactured exports from the developed countries to the developed countries, thus leading to a substantial improvement in the trade balances of the developed countries. If these developing countries are now denied access to markets in the developed countries, then we might well ask ourselves how in the world the developed countries can hope to maintain their manufactured exports to the developing countries.

Furthermore, throughout the two "development decades," the developing countries were helped, advised, and encouraged to build their industries, which they did because they believed that it was the way that they could escape poverty. Except for OPEC and a few newly industrializing countries, there are still, however, a large number of developing countries that are suffering from the same conditions that afflicted the newly industrializing countries 10 or 15 years ago. The current spread of restrictive trade practices in advanced countries, I am afraid, can dash the hopes of these countries forever, and the alternative for them is to remain at subsistence level as producers of primary commodities with no prospect for an improvement in their terms of trade. This clearly is no solution, and it merely perpetuates a division of labor that originated in the premodern era.

On the issue of access to the market in developed countries, I want to make one additional point. No significant progress will be made toward freer trade unless all industrial nations are prepared to make adjustments to their industrial structure in response to dynamic changes in their comparative advantage. Unfortunately, many economists and policy makers still tend to think of the industrial adjustment problems largely in terms of interindustry specialization; it is not at all necessary to do so. With the continuous rise in world income, there will be enough demand for each differentiated product for one country to specialize and produce in quantity. Also, the cost of intra-industry adjustments is small compared with that of interindustry adjustments. I therefore wish to ask your Commission to explore this idea further.

Monopolistic Powers in the Resources Market

On the question of trade in natural resources and other raw materials, many resource-producing countries have been dominated by the monopolistic powers of users in the industrially advanced nations. Lately, some resource-producing countries have tried to redress this situation by setting up their own monopolies. What the world must hope for is an evolution of international institutions in which both producers and consumers are equally represented, because excessive market powers either in the hands of the producers or users will always lead to gross misallocation of resources and inequity.

Trade among Developing Countries

There is much room for trade expansion among developing countries, which on the average import only 9 percent of their manufactured goods from other developing countries. In order to realize this potential, we should remove two major bottlenecks. One is the relative paucity of knowledge and experience in each other's market. To deal with this problem, developing countries might set up a network of trade promotion agencies linked directly with each other via a communication satellite. Such direct links between developing countries would encourage a greater flow of trade without going through the traditional intermediaries in Europe or North America.

The other fundamental problem in trade among developing countries is the lack of liquidity. Trade among these countries, however, does not necessarily have to be carried out in hard-to-earn currencies. The proposal to establish a fund that would allow payments in commodities and the feasibility of setting up a payments union among developing trading partners deserves study.

Transfer of Capital

On the critical question of transfer of capital, Korea's experience seems to indicate that the inflow of foreign capital could be facilitated to a far greater degree if there were some kind of international guarantee system. To this day, the greatest barrier in the flow of private capital to developing countries is the risk and uncertainties that face private lenders or investors from advanced countries. Over and above this program, there should be, of course, continuous efforts on the part of the advanced countries to provide a greater amount in concessional loans as well as a greater amount of Official Development Assistance than has been the case so far. It is time for the industrially developed countries to make good their past pledges, and for the newly industrializing countries including my own to join in such assistance.

Transfer of Technology

With regard to transfer of technology, there is a large amount of technology developed for, or adapted to, the conditions of developing countries, such as the institutional and technological requirements for implementing the Green Revolution. Also, developing countries have experience in small, labor-intensive industries, and in this area they have much to offer each other. Thus, the Commission might recommend ways of gathering information on technology developed by these countries and study its economic value and the feasibility of its transfer to others.

Regional Cooperation and the ADB

Let me now make two specific proposals with a view to accelerate economic development in our region.

To facilitate the exchange of information regarding trade, I propose the establishment of an Asian Trade Center, which will be linked with affiliated institutions in all individual countries in the region via a modern communications network.

To promote a greater flow of capital and technology, I propose that the Asian Development Bank be strengthened and upgraded from what is primarily a lending institution to a comprehensive development agency. To be more specific, the bank's authorized capital stock should be expanded substantially. The total capital stock of the Inter-American Development Bank is over $4 billion, or some 1.2 percent of the combined GNP of the regional members. The total capital stock of the Asian Development Bank is some $5.2 billion or only 0.3 percent of the combined GNP of the regional members. With this, the ADB is expected to serve close to one-half of humanity, living in conditions ranging from near the highest to the lowest living standards. If we are unable to reduce this kind of income gap in our own region, we should not be saying much about the global situation.

Instead of merely asking the developed countries in the region to fulfill their past pledges on Official Development Assistance, it would probably be more effective to ask them to contribute similar sums to the bank. The amount of ODA that Japan may be expected to give by 1985 will alone amount to some $15 billion. Besides, there are growing numbers of countries-including my own-that would be willing and able to contribute their share. Considering the excellent record the bank has already earned under the able leadership of successive presidents, I cannot think of any other existing organization that could better meet the development challenges for the whole region in a comprehensive and systematic manner.

With the expanded resources, the ADB would be expected to finance not only more trade- and employment-oriented investment programs in the developing member countries, but also greater transfer of technology-particularly in the fields of agriculture and energy. In addition, the bank would be expected to undertake research on a long-range development strategy that will exploit to the full the rich growth potential of the region.