New International Economic Order | CSS International Relations Notes

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New International Economic Order

Changing Economic Circumstances

Since WWII, the world economy has undergone drastic changes brought about by changing political circumstances, industrial and technological changes, and changing trade patterns. The dominant economic order which prevailed for four decades after WWII is referred to as IEO.

IEO Subsystems

North-West System: referred to financial and trade linkages between developed nations of Western Europe, Japan and North America.

North-East System: referred to centrally controlled economies of the Soviet Union and Eastern Europe

South System: referred to developing countries of Africa, Asia and Latin America

Criticism of IEO

Economics based on nationalistic grounds has received a lot of criticism. It failed to function in the case of the North-east, leading to the collapse of the USSR.

The control of capital and use of neo-colonial and imperialistic tendencies in terms of trade resulted in large disparities around the world. The North-West system donated money to the South System, but it was not enough to remove widespread poverty. Many developing countries and segments of the population within the developed world called for a revision of the prevailing IEO.

New International Economic Order

Reacting to the inequitable economic situation, countries of the South articulated a strategy to alter the structure of international economic systems. The NIEO called for economic justice and balanced economic growth which could be sustainable in the future.

One of the most significant and potentially far-reaching events of the 1970s took place in 1974. On that day the Sixth Special Session of the United Nations General Assembly made its Declaration on the Establishment of a New International Economic Order. The ground for the Declaration was prepared by a series of international meetings covering various issues of trade and development, culminating in the Fourth Conference of Heads of States or Governments of Non-Aligned Countries, held at Algiers, in September 1973.

The Sixth Special Session of the United Nations was summoned as a strategic follow-up of the Algiers Conference. The Algiers Conference and the Sixth Special Session of the UN was a long overdue Third World response to the blatant injustice and unjust partiality of the existing World Order.

It was under heavy pressure from the numerical preponderance of the Third World countries that the Sixth Special Session of the United Nations Organization set itself two tasks. The first was to declare unequivocally its determination to overthrow the Old International Economic Order – which was of course the World Order prevailing at the time – and establish in its place the New International Economic Order. To quote the Declaration, the NIEO was to be “based on equity, sovereign equality, interdependence and cooperation among all States … which shall correct inequalities and redress existing injustices, make it possible to eliminate the widening gap between the developed and the developing countries.”

The second objective and task was “to delineate a series of measures that should be taken without delay in certain areas of international relations in order to make the New Order a reality.”

The Sixth Special Session of the UN fulfilled its first task by adopting the Declaration on the NIEO and by proposing on the same day the Program of Action for the establishment of the NIEO. The Sixth Special Session was therefore not merely a statement of principle but a statement of actions that had to be taken if the principle was to be translated into actual reality.

Predictably, the rich industrialized countries pretended as a first reaction to be open to the idea of a New International Economic Order but in reality felt seriously threatened. The then US Secretary of State, Henry Kissinger, as indeed befitted the then leading protagonist of the hegemony of the Northern Hemisphere in the Existing World Order, realized the threat to this hegemony if the NIEO ever became a reality. He therefore took it upon himself to lead the campaign at the Seventh Special Session of the United Nations held in September 1975 to strangle the NIEO in its cradle.

With the scarcely-concealed superciliousness that has come to be part and policy of the leaders of Western countries, chiefly the United States and Britain, in their dealings with Third World leaders, Kissinger appeared in the beginning of his speech to show sympathetic understanding of the aspirations of the developing countries. He gave evidence of understanding their determination to work for the eradication of the injustices of the World Order and the establishment of a New Order of justice and equality for all. Justice and equality were especially the demands of those parts of the World that had so consistently been denied them during the long night of colonialism and the first decades of neo-colonialism. The NIEO called for a transfer of technology and interest free investment-capital instead of charity. NIEO also challenged the structure of the international financial institutions like the IMF and World Bank, in which two thirds of the world population has less than a third of the voting power. There have also been summits held to specifically discuss the NIEO.

NIEO Activities

Cancun Summit: was held in 1981 but the US insisted that the Western states should participate in the summits as well if developing countries wanted to use the UN mechanism.

Melbourne Summit: was arranged by the Commonwealth to review issues of the South as articulated by the NIEO.

New Delhi Summit: North-South moot in reaction to demands from the South to reduce tariff liberalization, increase international commodity prices and make available more concessionary aid for development.

Subsequent UN events like the WSSD have also seen calls for NIEO.

How NIEO Could Be Achieved?

A NIEO would require revised terms of trade and removal of agricultural subsidies and technology transfer from the developed to the developing world. Development aid, which is not „tied‟ or motivated by political interests, could also help achieve economic development in poor countries.

Greater decision-making power in International Financial Institutions (World Bank, Asian Development Bank and the International Monetary Fund) and the World Trade Organization could also help promote more equitable development.

NIEO & the Islamic World

The Muslim world comprising of over a billion people and with impressive energy reserves like oil supplies, still faces crippling levels of poverty and increasing disparities. It could thus have much to gain from the NIEO.

The population, resources and institutions (SAARC, ECO and OIC) of the Muslim world could also make it an effective advocate for the egalitarian approach espoused by NIEO.

NIEO Constraints and Challenges

NIEO does not pay sufficient attention to environmental concerns. This focus on the environment is vital since growth that ignores environmental costs is not sustainable.

Achieving NIEO requires real shifts of power and privileges in the world order, which will have serious political implications. It must be kept in mind however, that economic development does not necessarily guarantee for human development.

What the Third World, or at least the driving element among the nonaligned, meant by a new international order was very different. Revision of the international division of labor along the lines described was intended to accompany and implement the establishment of a self-reliant industrial national economy.

The strengthening of the national state and the active role of state policy were, in this strategy, to ensure that industry was not made up of discrete fragments, but of every stage of the production process. The resort to importation of the ingredients of these production lines (the purchase of turnkey factories) entailed a high level of exports, whether of ‘traditional’ raw materials or new industrial products. Hence the success of the strategies was largely dependent on the capacity to win concessions, which was in turn the program for the new international economic order.

The conflict of these two ‘interpretations’ of the new order has appeared in all the negotiations on the industrial international division of labor and relocation. The points of discussion were the character and options of establishment, the degree of decentralized decision-making, and the methods of financing the transfers, issues of personnel training and management, and access to external markets. The Third World states generally pressed for: the establishment of as complete industries as possible, with upstream and downstream links, agreed rules subjecting the management of industrial units to the state’s industrial policy, an option for management of units by local staff, access to international distribution networks for manufactured goods to localized firms (as the lowering of protectionist barriers by the developed countries was not regarded as a sufficient guarantee of access to these markets), support for national technological research, regulated financing (to avoid, for example, a subsidiary of a multinational financing its investment by calling on local banking sources without bringing in new capital), regulation of transfers (a sharing of risks, ceilings on exportable profits, obligations to invest part of the profit in the national economy) and so on.

These demands were regarded as unacceptable by the multinationals whose sole interest was in partial relocation through subsidiaries under their virtual control.

Gradually, most of the Third World states have had to come to terms with the redeployment strategy. The only states in a position to negotiate are those that refuse the direct establishment of subsidiaries and seek an alternative in the purchase of turnkey factories within the framework of their overall industrialization policy.

The strategy of these states counted on the possibility of successful change of the international order through unilateral joint action, and through further action from North-South collective negotiations. The idea, it should be remembered, was to organize cartels of Third World producers who could insist on price revisions for raw materials. National control over natural resources should allow scope for negotiation not only on supply, but also and above all on exploitation of the resources that took into account long -term national interests and halted the rates of exploitation governed entirely by the needs of the developed world. With this new-found strength, the Third World countries hoped to enjoy a genuine negotiating power that would oblige the North to make concessions: for instance, access to its markets, a code of conduct for transfers of technology. Co-operation between Third World countries (‘collective self-reliance’) was part of this bid for strength.

This is the essential context for discussing the use of oil surpluses. On some views the NIEO was to be no more than the rise in oil prices alone and the relocation of export industry a minor operation. On this view the oil revenue surpluses should be made available to the developed financial markets to supply their own policies of intervention in relations between developed countries, and marginal support for the ‘survival’ of the old international division of labor in the developing countries. This rescued the attitude of ‘aid’ as a permanent safety-valve ensuring the perpetuation of a system that was increasingly unjust day by day. The actual use of oil surpluses has in fact served this purpose.

In the mid-1970s there was still the hope that the Third World would reject this narrow view. The non – aligned movement and the group of 77 were seeking a strategy for collective battle for across the bo ard increases in raw materials prices, as the resolution on the solidarity fund and producers associations taken at Dakar in February 1977 showed. This strong and valid approach was not sustained. Under the pressure of the developed countries and the bias of UNCTAD and endless ‘negotiation’ and ‘dialogue’, the ‘stabilization’ fund strategy replaced that of producers associations for collective unilateral intervention where such was required.

Economic Possibilities for the Future

The divide between the rich and the poor will continue to increase given the current patterns of economic growth seen around the world. The limits of growth will also catch up to spread more impoverishment around the world.

There needs to a basic change of values and corresponding structural changes, which can ensure that growth proves more beneficial for all, not those who are already rich.

Prerequisites for the NIEO

Political Development: need for good governance is imperative for economic growth, efficiency and redistribution

Equitable Economic Development: growth without increasing internal disparities is much harder to achieve

Social Development: meet basic human needs and provide opportunity to all to realize latent potential

Environmental Sustainability: growth in a manner rate and at a pace which does not harm the natural environment

Relevant Vocabulary

Latent: hidden, undeveloped or dormant
Disparities: differences
Egalitarian: equal, open, democratic
Surplus: extra or in excess

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