Year XXVIII, 1986, Number 2-3, Page 131

 

 

KEYNESIANISM AND WELFARE ON AN INTERNATIONAL SCALE: REMARKS ON A WORLDWIDE PLAN FOR EMPLOYMENT AND DEVELOPMENT
 
 
From the beginning of the seventies suggestions have been put forward in various quarters about launching a “Marshall Plan” for the Third World, designed to speed up the development of the South considerably and to provide new employment and income prospects for advanced countries.
Suggested initially by a few pioneers, this new aid plan, which is comparable in size and effect to the one the United States launched just after the Second World War, which enabled speedy reconstruction of Europe, has met with growing approval in our countries, as the recessions of the seventies and eighties threatened to shake the belief in industrialized countries’ capacity to bring about a new phase of development in the world economy to follow the “thirty glorious years” of postwar growth.
Between 1948 and 1952, the Marshall Plan, on which all the various and often very sketchy versions of the Third World development plan are based, invested a massive 13,800 million dollars (85 per cent in the shape of outright gifts and 15 per cent in the shape of long term loans at a rate of 2.5 per cent), and in a very short period of time put the European economies, prostrated by the war, back on their feet. A far from secondary effect of the Marshall Plan was to encourage European countries to collaborate with each other and this in due course led to the process of functionalist integration that in turn brought about the creation of the European Community.
There were beneficial effects even for the United States. A total outlay of 94 billion dollars of UNRRA (United Nations Relief and Rehabilitation Administration) and Marshall Plan aid produced considerable increases in employment and use of production capacity, while the yearly increase in GDP went up from 2.7 per cent in the period 1945-1949 to 6.1 per cent in the years between 1950 and 1953.
In other words, the Marshall Plan gave Europe new production capacity but used European growth to begin a new phase of growth in the American economy, the only economy able to supply the equipment and products needed to reconstruct Europe.
This historical precedent ought then to encourage the use of a worldwide aid plan for employment and development designed to stimulate the Third World’s enormous potential demand, rescue it from the doldrums of underdevelopment and relaunch employment and growth in industrialized countries as well.
Thus, because in the North the driving force of long-term growth associated with increased consumption by the working masses is no longer possible, a new driving force capable of producing income and employment for an even longer period is necessary.[1]
In addition to this general argument, the most lucid supporters of the new development plan intend to repropose Keynesian and welfare state policies in a way that will ensure their success on a world scale and will contribute to overcoming the limits of the current international power balance.
The crisis in Keynesianism is in fact in the first place a crisis both in thinking and a set of policies that have proved unable to go beyond the restricted horizons of individual national economies.
Keynes had in mind a world economy made up of a set of national sovereign states with trade reduced to the bare minimum and aiming exclusively at maximizing domestic growth and employment opportunities.[2]
His basic plan consisted in urging Great Britain to accept his policies designed to encourage full employment, but for this to succeed it was necessary for all economic ties with the rest of the world to be reduced to the minimum.[3]
Given the extension to the world sphere of the mode of production and the accompanying growth of international economic integration, it was inevitable that Keynesian policies would eventually prove ineffective. Apart from possible internal causes (changes in the labour market, greater competition between the social groups as regards income distribution, rational expectations of the intervention cycle, and so on), the balance of payments constraints, in particular, prevent full employment from being reached in each particular country.
Associated with the decline in the Keynesianism is then the crisis in the welfare state that has arisen with the break in the long period of postwar growth, that has removed the resources needed to make social services work.
In this situation, if the launching of Keynesian policies to stimulate effective demand in countries linked to each other by mutual trade is carried out in terms of North-South relationships, then these policies will act as an instrument stimulating growth of both North and South and tending to equalize its distribution internationally by means of appropriate welfare policies.
In this way, the foundations would be laid for ending the bipolarism that still rules the fate of the world and achieving increasingly advanced forms of integration between countries internationally, by proceeding down the road to democratic government of the world economy.
In conclusion, the effect of a plan for the employment and development of Third World countries would not only be improved economic conditions and general welfare in both North and South but also reduced international anarchy, thus facilitating the passage from the old to the new mode of production on a worldwide scale.[4]
We may now deal with the project presented by Angelopoulos in a recent book,[5] that tackles the various aspects of the question in some detail.
Angelopoulos starts with the hypothesis which is undoubtedly correct that a plan for special aid is of no value unless the problem of debt is solved first. If this problem is not tackled, new resources would end up by being absorbed by the voraciousness of the debt service.
For this reason, the proposed plan ought to be divided into two phases: a) to begin with, Third World external debt should be straightened out by consolidating existing private loans and making them payable over 15 years, after an initial suspension of capital repayment for 5 years. The interest rate on consolidated debts ought to be reduced to 5 per cent and the suspension of capital repayment would be subject to the use of the sums saved in investment projects and to the proviso that all equipment is bought in the creditor country; b) subsequently, new real growth would be stimulated in the Third World because industrialized countries who are members of the Development and Aid Committee would grant long-term credit at favourable conditions.
The loans granted for a 5 year period to the tune of approximately 200 billion dollars ought to envisage: a) a steady increase in credit from 35 to 50 billion dollars a year which is equal to 0.5 to 1.0 per cent of industrialized countries’ GDP; b) a 20 year loan period, with a 5 year period of grace for the repayment of the capital; c) no interest for the first 5 years followed by a 5 per cent true interest rate for the next 15 years; d) loans must be used to buy goods in the creditor countries.
Angelopoulos calculates the yearly cost of the plan at 11 billion dollars for the first 5 years and 26 billion dollars for the next 15.
The financial resources needed to cover the cost of the operation ought to be managed by an ad hoc International Development Fund and could be obtained both from finance already available for official aid, which is largely sufficient, and from new finance. In this respect one possibility is placing a tax on oil prices and income from Eurodeposits, or even on increases in the price of gold.
Moreover, all industrialized countries ought to set up a Third World Finance Fund in their Central Bank and transfer 0.5 per cent of yearly national income to the fund, while those countries wishing to draw on this new facility should agree to use the funds in concrete development projects and to acquire the goods needed to implement these projects from companies in the creditor country.
Angelopoulos’ plan ends by indicating the political reference point for the entire operation (the World Bank) and by suggesting that, should insurmountable difficulties arise preventing the implementation of a worldwide plan, then three regional plans headed by Western Europe, Eastern Europe and the United States should be drawn up.[6]
Angelopoulos’ proposal is correct as regards basic principles, given that it proposes the use of Keynesian policies on a world scale, but needs to be criticised in a number of respects.
Firstly, the reader gets the impression that Angelopoulos has not fully understood the profound differences between the problems facing the Third World today and those that Europe had to face after the Second World War. Europe had to reconstruct its production capacity but was able to rely on great scientific and organisational resources accumulated in the two previous centuries. The Third World either has no such resources or, at the very best, they are most inadequate. The time span cannot therefore be restricted to a few years, but must be in the order of 25 to 30 years.
Even the financial means envisaged are insufficient for the size of the task. Angelopoulos suggests 40 billion dollars per year should be granted over a period of five years. Yet between 1982 and 1984 interest payments alone on Third World debt amounted to between 45 and 50 billion dollars.
Beyond this, we may ask how far a plan which restricts the purchase of goods and equipment to creditor countries can really contribute to Third World industrialization and not just a rehash of the current centre-periphery division of the world.
If aid is to contribute to a more balanced international division of labour it is vital that aid be turned into real demand for Third World countries’ own industries, whose products ought, moreover, to have free access to the North’s markets.
More generally, Angelopoulos’ plan does not envisage the establishment of institutions to look after North-South relationships and guarantee collaboration between the two groups of countries on equal terms.
In this respect the European Community could play a vital role (but not the United States whose hegemony has contributed to strengthening the bipolar system). Historical ties and genuine interests make the European Community a leading contender in the process of emancipating the peoples of the South and developing an economic and power system based on the principle of multipolarism.
 
Franco Praussello


[1] A. Spinelli, PCI, che fare? Einaudi, Turin, 1978.
[2] In some of his articles written in 1933 Keynes openly defended autarky stating that: «I sympathise, therefore, with those who would minimise, rather than with those who would maximise, economic entanglement between nations». (R.F. Harrod, The life of John Maynard Keynes, MacMillan, London, 1951). On this subject see also the introduction by G. Montani to L. Robbins, Il federalismo e l’ordine economico internazionale, Il Mulino, Bologna, 1985.
[3] R.F. Harrod, op. cit.
[4] A. Majocchi, «Thurow and the Problem of Equity», in The Federalist, XXVI (1984), pp. 62-68.
[5] A. Angelopoulos, Un plan mondial pour l’emploi, PUP, Paris, 1984. Previous versions of the plan are to be found in A. Angelopoulos, The Third World and the Rich Countries, Praeger, New York, 1974 and A. Angelopoulos, Pour une nouvelle politique du développement international, PUF, Paris, 1976. Other analogous proposals are described in G. Montani, Il terzo mondo e l’unità europea, Guida, Naples, 1979.
[6] Angelopoulos merely illustrates this possibility, which would involve an annual cost of 8 billion dollars for the first 5 years and 5 billion dollars for the next 15 years.

 

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