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Developmental Realism

  • and John Hulsman, visiting fellow, German Council on Foreign Relations
January 17, 2007 |
In distributing foreign aid, the United States should focus on governance rather than democracy, a formula that yielded successes for the Truman and Eisenhower administrations.
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Sixteen years after the Cold War supposedly ended, its beginnings are big political business today. Both U.S. political parties are competing with each other for the mantle of Churchill and Truman. The Bush administration has pilfered from the neo-conservatives (and liberal hawks like Paul Berman) the propagandistic invocation of "Islamic totalitarianism" to draw parallels between its conduct of the "war on terror" and the previous experience of resistance to the ambitions of Hitler and Stalin. Democrat intellectuals housed at the Progressive Policy Institute (PPI) have even institutionalized the appeal to Truman’s image, in the form of the "Truman National Security Project", intended, in the words of its slogan, to make the Democrats of today "Truman Democrats: Strong. Smart. Principled."

What is so depressing about this is not just that the identification of the enemy in the "war on terror" as akin to Nazis and Communists is intellectually fatuous and strategically disastrous. Equally dangerous is the fact that even where parallels to the Cold War are appropriate, the Bush administration has chosen to ignore that struggle’s most useful lessons.

This is especially true in the field of trade and development. It is universally recognized that the Marshall Plan was critical to preventing the expansion of Communism to Western and Southern Europe. What has been generally ignored is that massive U.S. economic aid and general trade openness were equally critical to resisting Communism in East and Southeast Asia -- and to the long-term development of several countries in the region first as successful economies, and then in the long run as successful democracies.

The reason why the Asian variant of the Marshall Plan has been so completely ignored is that it accords very badly with contemporary domestic political rhetoric, which in turn exploits deep American civic nationalist myths shared to a greater or lesser degree by the majority of Americans. Thus in the American mind, the Cold War was about "defending freedom and democracy." The Bush administration has declared "democratization" to be the cornerstone of its strategy in the Middle East. The Democratic establishment has echoed this line, and the representatives of the PPI and the Truman Project have declared that Truman’s own strategy was based on creating alliances with fellow democracies.

The problem is of course that none of this held true for Asia. In the long run, U.S. opposition to the spread of Communism was both necessary and immensely valuable -- witness the rather stark difference between North Korea and South Korea today. But with the partial exception of Japan, not one of the Asian states with whom Truman formed alliances was a democracy, and even in Japan, the beginnings of the Cold War led to U.S. agreement to the extensive restoration of the prewar administrative and economic elites, under the virtually one-party rule of the Liberal Democrats. By contrast, India, the only true democracy in Asia for most of the Cold War, was treated by the U.S. as nearly an enemy for most of this period.

The other reason why the example of East and Southeast Asia is ignored is that both U.S. strategy in this region, and its long-term success in promoting economic and political development, was founded largely on a conscious geopolitical decision to keep U.S. markets open to exports from allied anti-Communist states, even at the price of extensive swathes of U.S. industry. Today, despite efforts by U.S. Trade Representatives (USTR), there is of course overwhelming opposition from both parties in Congress to commensurate efforts in this regard, even when those efforts are absolutely essential to help the economies of key Muslim allies like Pakistan.

The Bush administration has proposed a Middle East free trade zone to include the U.S., but only by 2013, far too late to make an impact on immediate extremist threats. In 2004, the administration opposed legislation to open U.S. markets to Muslim allies in the war on terror. Immediately after 9/11, then-USTR Robert Zoellick urged that trade liberalization be made a core part of the war on terror. This never happened, at least not on anything like the scale necessary. There have been helpful bilateral trade deals with some smaller Muslim countries, but even these lack the generosity and vision of trade policies towards East and Southeast Asia in the first two decades of the Cold War.

Instead, a new variant of the American protectionist strain has emerged: nationalist protectionism, or to put it more kindly, security protectionism. In 2005, Congress thwarted the bid by CNOOC (a government-owned Chinese oil company) for the American energy company Unocal despite the fact that the great majority of Unocal’s oil and gas reserves are located outside America. Early 2006 bore witness to the World Ports hysteria. DP World, a ports operator owned by the pro-American government of Dubai and a globally respected corporation, was prevented from taking on the operation of six American ports, although U.S. Coast Guard, customs, and immigration personnel would have remained wholly responsible for security. It is hard not to draw the conclusion that the only strike against DP World is that it is an Arab company. Such xenophobia is hardly likely to lead to the public diplomacy turnaround that America so desperately needs.

This is not to say that America does not have a far more open economy than most of the rest of the world. Indeed, of the Big Three established economic poles of power (Europe, Japan, and the U.S.), and the new pole represented by China, it is consistently the United States that has the least protectionist trade policies. But that is what makes America’s turn toward protectionism so disturbing and so counter-productive. Effective leadership requires that America set an example if it wants its advice to be followed. For there is little doubt that others, rightly or (mostly) wrongly, will use America’s turn away from free trade to proclaim, "we are all sinners," in an effort to protect their own industries. For example, it is hopeless to ask Russia to throw its strategic industries open to foreign ownership, or China to drop its de facto import barriers, if the U.S. Congress is going to insist that the slightest hint of a threat to U.S. national interests and national security trumps the workings of the global market.

The situation as regards strategically-directed development aid (as opposed to humanitarian aid to deal with the consequences of famine, epidemics, and natural disasters) is no better. Under the Bush administration’s Millennium Challenge Account (MCA) program, recipients are eligible for aid by meeting minimum criteria based on performance indicators -- including rule of law, control of corruption, and trade policy -- that contribute to prosperity. The hope is that other developing countries, tempted by the carrot of American aid, will make the economic and social reforms necessary to qualify for that aid, thus helping themselves before they receive a penny. At its most ambitious, the MCA aims to stimulate a virtuous economic circle.

All of this is very sensible in theory. The problems with the MCA and with the somewhat related Middle East Partnership Initiative (MEPI) arise in practice. In the first place, both programs are hopelessly under-funded. As of 2006, only $1.5 billion in new aid has been approved under the MCA -- not sufficient to make a serious difference to even one large Muslim country. As for the MEPI, its funding verges on the comical. In 2005, Congress appropriated just $75 million (half of what President Bush requested) under this program for political reform, economic reform, educational reform, and women’s empowerment efforts across the entire greater Middle East.

These funding problems were due not only to dreadfully short-sighted and mean-spirited congressional budget cuts, but also to the difficulty nations have had in qualifying for the aid. As an essential part of the war on terror, the U.S. must develop country-specific knowledge that will enable officials to make discriminating judgments about a country’s governance and reform efforts. While the U.S. needs to avoid throwing money away on failing regimes, the rules being enforced under the MCA and the MEPI are so strict as to be counterproductive. In the 1950s and early '60s they would have prevented even South Korea and Taiwan from receiving aid, a ridiculous approach given the economic success those countries achieved with the help of U.S. aid.

The approach of the Truman and Eisenhower Administrations, by contrast, proceeded from the assumption that democracies and markets will never be stable if majorities of their citizens are unable to afford the basic necessities of life. Unlike their crudely triumphalist successors after the end of the Cold War, these men also had a deep sense of the fragility of democracies and market economies, for they had seen both fall like ninepins in the face of the Great Depression.

As a result of this insight, the Truman and Eisenhower administrations were committed to levels of U.S. aid that would have shocked U.S. politicians at the start of the 21st century. The Marshall Plan cost roughly $120 billion in 2006 dollars. Total U.S. aid to Europe (including separate programs for Greece and Turkey) in the late 1940s and early 1950s came to almost $267 billion. During the 35 years from the start of the Korean War to the end of the Vietnam War, a total sum comparable to the Marshall Plan went to U.S. allies in East and Southeast Asia.

Too many Americans have become convinced that the overwhelming majority of U.S. aid during the Cold War was wasted. This is not the case. In East and Southeast Asia, U.S. aid and the development it stimulated were crucial to saving several countries from Communism. Though undoubtedly there was waste, the U.S. was also largely responsible for some magnificent economic successes. And in two Muslim states, Malaysia and Indonesia, the beneficial effects of past U.S. aid continue to this day in helping these populations to resist the appeals of radical Islamism.

The Truman-Eisenhower generation was also rightly convinced that to be effective in the struggle against Communism, this development had to be reasonably equitable: it had to embody real elements of social justice, and visibly spread the benefits of economic growth to the mass of the population. In consequence, the U.S. military government of Japan implemented radical land reforms; the U.S. also insisted on land reform in South Korea and Taiwan as a condition of its aid to those countries.

Unfortunately, since the end of the Cold War this aspect of development has been crowded out by the radical free market orthodoxies of the "Washington Consensus," with disastrous results for the establishment of stable democracy in Russia, Latin America, and elsewhere. We urgently need to revive this older and wiser approach as part of our struggle with revolutionary Islamist extremism, for like the Communists, these forces gain much of their strength from appeals to feelings of economic injustice and deprivation.

The identification of the U.S. with blatantly unjust and unequal economic policies has had a terrible effect on perceptions of the U.S. in many countries, from Latin America through Russia to the Muslim world. This is especially damaging to the war on terror because of the special place of ideas of justice and dignity among Muslim cultural values. As the Mufti (senior Muslim cleric) of Egypt has stated, "in authentic Muslim perceptions, justice structures all vital spheres of human existence. Justice is an absolute concept in Islamic teachings and precedes other central notions such as freedom and solidarity."

The need for visibly equitable development -- what Benjamin Friedman has called "moral growth" -- is not merely necessary for the war on terror and the wider projection of U.S. influence. Nor is thinking along these lines only the product of left-wing traditions. Drawing on a tradition stretching back to Aristotle, who declared that "where the middle class is large, there is least likely to be faction and dissention," both Burke and Jefferson understood that if a constitutional state is to flourish, the active participants in it must possess sufficient necessities of life to guarantee their attachment to the state and to basic political stability.

We cannot recreate Burke’s English gentry or Jefferson’s American yeoman farmers in Latin America or the Arab world. But if, like Burke and Jefferson, we want to lay the foundation for stable and long-lasting constitutional states, then what we can and must help to do is ensure that the actual or prospective voters in these countries enjoy a reasonably dignified life for themselves and their children.

This strategy needs to be implemented in two parts. The first is the promotion of policies and projects that will visibly benefit the majority of the population. The second, related part is support for the growth of middle classes, which for a considerable time will form a minority of the population in the countries concerned, but also remain essential to the creation and, even more importantly, the stabilization of democracy.

The creation of middle classes of course requires overall economic growth, but more particularly it depends on reasonably easy access to loans for small businesses and for home ownership. This in turn requires the right kind of regional, national, and local banking systems, funded to a sufficient level. The lead international player in helping to develop such banks is the International Monetary Fund, but it will be able to do little without strong political and financial support from the U.S. and the other wealthy democracies. A valuable model for how to promote middle-class development has been provided by E.U. strategies towards the former Communist states of Eastern Europe.

It is essential that such strategies be pursued consistently over decades, and not be subject to short-term changes as a result of Western domestic politics. For while stable and successful middle classes are an essential foundation of democracy, a range of disastrous historical experiences (worst of all, that of Weimar Germany) shows that middle classes who achieve a certain prosperity and status only to lose it again can be the most dangerous political group of all.

For at its core, our trade and aid strategy is designed to help accomplish two seemingly contradictory foreign policy objectives, one conservative and one revolutionary. On the one hand, increased global economic prosperity led by America is an essential ingredient in what is called the Great Capitalist Peace. If an increasing number of states are notably more prosperous, they are far more likely to want to protect the present global system, and will be increasingly immune to the siren songs of organizations like al-Qaeda, who wish to destroy the present order.

On the other hand, capitalism, over time, has proven to be one of the most effective means of wearing down authoritarian governments. A few successful economies such as Singapore have yet to evolve into democracies, but in the great majority of cases, from Taiwan to Spain, countries which have developed a successful free market economy have democratized as a result. The decentralization of economic decision-making supports the growth of civil society by creating a non-governmental space, thus leading inevitably to the loss of full political control over the citizenry. In such a case authoritarian governments are eventually put at risk regardless of how they respond to economic liberalization. And thanks to the emergence of successful middle classes possessing the culture, the experience, and the will to make democracy work, the resulting democracies have thereafter remained stable.

It should be clearly understood that we are definitely not advocating pouring massive amounts of U.S. aid into a wide range of countries around the world, irrespective of the nature of their governments. That would simply be a recipe for the kind of useless, scandalous waste that was U.S. aid to Mobutu’s Zaire. Our approach must be ethical, but also be toughly realist.

As during the Cold War, truly substantial amounts of development aid should be made available, but they should be directed not at the neediest countries, but rather at ones that meet two basic tests. The first is that these countries should be truly important to vital U.S. national interests. This obviously includes Muslim countries that are critical in the struggle against Islamist terrorism and radicalism, but it also includes those Central American countries whose poverty threatens the U.S. with harmful drugs and illegal immigration, and which have been shamefully neglected by the Bush administration in recent years. However -- and let us be brutally frank about this -- this test excludes most of non-Muslim sub-Saharan Africa, however great the human need of the region. This region is also unfortunately excluded as a result of the second test, which is that the states concerned should be sufficiently honest and effective to absorb this aid efficiently. We don’t mean perfectly honest and effective, for if such a test had been applied during the Cold War, great U.S. assistance success stories like South Korea and Taiwan, and lesser ones like Thailand and Malaysia, could never have occurred. But a reasonable proportion of U.S. aid must go to the purposes for which it has been given.

This second test would exclude a number of other states which would pass the strategic test for importance in the war on terror. Thus Nigeria, with its deep poverty, its vitally important role as a supplier of oil to the U.S., and its huge population of increasingly radicalized Muslims, may well seem an obvious target for massive U.S. assistance. But there’s no point. Under both military and democratic regimes, the Nigerian state elites have proved again and again that they are simply incapable of governing their country with even minimal honesty and efficiency, or of administering foreign aid without graft or theft. The same goes for countries like Mali, and already-failed states like Somalia. Such countries should of course continue to receive humanitarian aid to mitigate suffering, but not aid for development, except in small and highly controlled amounts.

The number of Muslim states that pass both these tests is actually rather small. The North African ones are clearly Europe’s responsibility. The remainder include Jordan, a Syria which demonstrates some commitment to reform and international responsibility, Bangladesh, a few of the Muslim states of West Africa and the Sahel, and Pakistan. Pakistan is in fact a perfect case for ethical and developmental realism. As repeated democratic failures have shown, this country’s dreadful problems are not amenable to solution by the shallow, short-term, and inexpensive nostrums of Democratism; they require profound, and very expensive, long-term commitments on the part of the U.S.

However, as recent growth figures (in 2005 Pakistan had the second-highest growth rates in all Asia) and infrastructural developments have shown, the Pakistani state, though deeply flawed, is nonetheless reasonably effective -- at least as effective, for example, as was South Korea in the 1950s. Despite considerable barriers to Pakistani exports to the U.S., these have grown over the past three years by between 10 and 15 per cent a year. As to Pakistan’s own protectionist measures, the U.S. government in early 2006 criticized these, but also praised Pakistan for having "progressively and substantially reduced tariffs and liberalized imports" since 1998. As a result, U.S. exports to Pakistan have also increased steeply. In other words, this is a troubled country with a corrupt bureaucracy, but by no means a basket case.

So far, however, U.S. assistance to this vital ally has once again been frankly inadequate. By the end of 2006, Pakistan will have received about $3.4 billion in U.S. aid since 9/11. This sounds like a lot but is, in fact, very small in comparison to Pakistan’s needs and the size of its population. Moreover, almost half of this aid is not for economic development, but is security-related.

The biggest single focus of new U.S. aid should be the improvement of Pakistan’s water infrastructure, especially in the area of conservation and reducing the appalling degree of waste. As documented by the International Water Management Institute in August 2006, water shortages present the greatest future threat to the viability of Pakistan and other key Muslim countries as states and societies.

The second focus of U.S. aid to Pakistan should be helping to provide jobs. Improving Pakistan’s educational system, especially for women, is important, but if this only produces unemployed and embittered graduates, the effect will be only to increase Islamist radicalism. Because the ultimate motivation for U.S. aid to Pakistan is not charitable but political, it must bring visible benefits to ordinary Pakistanis.

Developmental Realism as a philosophy and a strategy is open to two main criticisms. The first is that it is impossible to ask Congress and the American people to pay for greatly increased development aid, especially given the present level of the budget deficit. We don’t agree. In the first place, if the U.S. had only kept out of the unnecessary disaster of Iraq, it would have had sums well in excess of the Marshall Plan to spend in the Muslim world on generally vital aspects of the struggle against al-Qaeda and its allies. A tiny proportion of the funds poured into the bottomless pit of Iraq would be enough to radically transform several important Muslim societies.

Secondly, we do not think so poorly of the American people as this view suggests. Opinion surveys are often cited to show that most American citizens think that the U.S. gives a vastly larger amount of international aid than is actually the case. Actually, the argument of these polls is quite the reverse. They show that the American people have been misled by their media and elites, and that in fact they would be prepared to give much more generously if the government appealed to them to do so.

All Americans insist -- and they are absolutely right to do so -- is that American aid should also be in America’s interest, and that it should stand a decent chance of achieving a reasonable proportion of the goals for which it is given. When reassured on these points, the American people gave very generously during the Cold War; if the threat from Islamist extremism and terrorism to U.S. interests and U.S. lives is not comparable to that of Communism, then what has all the fuss been about these past five years?

The second objection is that this approach to aid is somehow contrary to democratization. This is equally false. The ultimate goal of this and all economic development should be the creation of stable democracies. However, the two do not accompany each other in the short-to-medium term, and should not be expected to. It is obvious from history that while economic progress is essential to stable democracy, democracy as we now understand it is not essential to economic progress. Only a tiny minority of the fully economically developed states of the world were democracies when they achieved their critical economic breakthroughs.

In fact, we have very little idea of what might be a universal rule for the best and most successful relationship between political and economic progress, most probably because there isn’t one. The search for such a rule is the present day academic and bureaucratic equivalent of the medieval search for the Philosopher’s Stone, with the difference that medieval alchemists did not expect to be supported by taxpayers’ money. The truth is that the paths of nations to progress are varied and complicated. Over the past two hundred years, the countries that have vaulted to developed status have had an amazingly wide range of political systems, from democracy in America, oligarchy in Britain, and military dictatorship in South Korea. China in recent years has made immense capitalist progress under an ostensibly Communist one-party state that has adopted most of the previous economic program of its bitter enemies in Taiwan.

With a strategically important country, the test for U.S. development aid should therefore be not democracy as such, but governance. However great their human needs, there is no point in shoveling U.S. aid into corrupt states like Nigeria. This test should not be seen as anti-democratic, but as pro-democratic; most of the key criteria of good governance further visibly equitable development and the creation of a middle class. In turn, the effects of economic liberalization expand real human freedom in a given society, and form the foundation for future real democracy.