Authors: Richard Nixon
But as the Cold War has ended, doors have been opened for diplomatic initiatives that had no chance of succeeding when the Soviet Union was opposing them. The most graphic example of this is the prospect of Mideast peace. There have been five wars between Israel and its Arab neighbors over the past forty-five years. One hundred thousand lost their lives in those wars. There have been four wars between India and Pakistan in that same forty-five year period. Over five million lost their lives in those wars. The Soviet Union played the spoiler's role in the five previous Arab-Israeli wars. Now Russia supports the peace process, giving it some chance for success.
Two of the poorest nations in the worldâIndia and Pakistanâspent more than $11 billion a year for the purpose of waging a future war. The conflict has its roots in profound religious differences, but it has been exacerbated by the fact that the Soviet Union supported India, and China supported Pakistan. Now a window of opportunity has opened for progress on negotiations between the two. In a process similar to the Middle East negotiations, the United States, Britain, Russia, and China could help broker the peace.
Poverty in the developing world will continue to produce millions of refugees. Throughout the world, people from underdeveloped countries are moving into developed countries. On our border with Mexico, an estimated sixty thousand Mexicans cross illegally into the United States every month, putting an enormous burden on federal and state budgets that are already struggling with welfare, crime, and unemployment problems. In Europe, this economic exodus is causing increased social tensions and xenophobia in the host countries. Unless the economies of the Southern Hemisphere grow, this flood of refugees from the developing world will become a deluge.
Both the developed and developing nations must change their policies. Foreign aid is not the answer. Since the end of World War II, the United States has provided $450 billion in foreign aid to the nations of the developing world. The results have been dismal. Too often, foreign aid only reinforced the inefficiencies of statist governments, encouraged corruption, and promoted protectionism. Foreign aid was supposed to produce prosperity. Too often, it subsidized poverty.
During the Cold War, most of our foreign aid was tied directly to our security interests. Foreign aid in the period beyond peace must stand on its own: Does it serve our interests and the interests of the people of the recipient nation? The United States should continue to be generous in providing humanitarian aid where we have the capacity to do so. But foreign aid should not be used to prop up and subsidize governments that refuse to adopt political policies that promote peace, freedom, and economic policies that have a chance to succeed. Successful growth in the twenty-first century cannot be achieved by relying on the failed statist policies of the nineteenth and twentieth centuries.
We should promote free trade with these countries rather than continuing to dole out unlimited amounts of foreign aid. As
The Economist
pointed out before the summit of the industrialized democracies in Tokyo in July 1993, “If rich countries abolished all their barriers to Third World goods, the increase in developing nations' exports would be worth twice what they receive in aid.” Lowering trade barriers is indispensable if the nations of the developing world are to have any chance of achieving economic growth. The United States should take the lead in implementing agreements like NAFTA and GATT because they open up our markets to developing countries as well as create markets for the capital and consumer goods and services of developed countries. A major reason for supporting free trade with the developing world is not economic but political. Some oppose free trade with Mexico and other countries because they believe U.S. industry would be put at a competitive
disadvantage. Others oppose trade with nations in the developing world that are not Western-style democracies. But free trade with these countries would do more to spark political reform than any unilateral action the U.S. government could devise.
The most important lesson the developing countries can learn is to ignore the advice of those in the United States and Western Europe who still believe that only the socialist road leads to economic paradise. The last refuge of Marxists is the economic development institutions that see state-dominated rather than market-based solutions as the key to growth. They supported high tariffs against Western goods, state subsidies to struggling industries, and a mercantilist trade policy. They thought that state-led economic development would lead to economic independence. Instead it leads to an economic dead end.
Forty years ago, as Vice President, I visited all of the countries of Asia except communist China. Political leaders, journalists, teachers, and students in newly independent nations were debating what policies would produce rapid progress. Some were enamored with the Soviet model; others with the communist Chinese model; still others favored the democratic socialist model then gaining popularity in Western Europe. Now it is no contest. The communist model has been rejected by the people of the former Soviet Union and Eastern Europe. The Chinese still have a communist government, but they have used free-market economic policies to create spectacular growth. Democratic socialism has been tried and found wanting in countries as diverse as Sweden, France, and India. Free-market economic policies are the wave of the future, but they do not produce instant or uninterrupted prosperity. Nations with free-market policies go through periods of recession, slow growth, and too rapid growth. A free-market economic policy will inevitably have its successes and its failures. But the free market is the only system that can unleash the productive potential of a nation.
If a people's only interest is stability, it should not choose a free-market economy. Free markets are by nature unstable. One
nineteenth-century philosopher likened capitalism to a gale of creative destruction. A command economy can produce stability, but at the cost of suppressing creativity. A free-market system encourages creativity at the cost of instability. The choice therefore is between economic progress at the cost of some instability or stability at the cost of no progress.
Supply-siders, Keynsians, monetarists, and proponents of other economic disciplines will continue to debate the merits of their various policies. The key is free debate about what does and does not work and the willingness to discard failed policies and to expand successful ones. As we advise leaders of the developing nations, we must disabuse ourselves of the notion that we have all the answers, for the simple reason that the essence of the free market is that there are no sure-fire answers. If there were, we would all be billionaires.
One of the most inspiring stories of the last fifty years has been that of countries who were mired in absolute poverty after World War II but adopted the right economic policies and triggered astonishing social and economic progress. China, Taiwan, South Korea, Singapore, Malaysia, Thailand, Chile, and others have succeeded because they stressed basic economic principles such as lower taxes, fewer government regulations, open markets, and competitive industries, and placed a high premium on education. These principles have opened up their economies and integrated them with those of the developed world. Such progress is within the reach of every nation. Within two or three decades, any country can extricate itself from poverty and join the ranks of the newly industrializing nations. By helping developing countries adopt growth-based policies, developed countries can make an enormous positive contribution to the welfare of their own people and the prosperity of all peoples.
The next generation's success stories will be written by the three towering giants of the developing world, India, Brazil, and Indonesia, all of which have turned the corner toward potential economic prosperity.
With a population of over 875 million, India is slowly shedding
its reputation as a socialist economy. It has increased trade with Western Europe and the United States, reduced subsidies to state-run industries, and strengthened the rupee in the international financial markets. The literacy rate has improved by 120 percent since 1960. Per capita GNP has risen from $110 to $310 over the last twenty years. Despite the fact that India suffers from religious conflicts and civil strife, it will become a great power by the next century if it continues down the road toward free-market economics.
Brazil, with over one half the people of South America, has made a remarkable economic turnaround in the 1990s. Racked by runaway inflation, a burgeoning foreign debt, a crumbling public infrastructure, and widespread political corruption, the government of President Itamar Franco opened the door to economic reform. Brazil's GDP grew 4 percent in 1993, and industrial production rose almost 10 percent. Exports to the United States have increased 80 percent over the last 10 years. Import tariffs on products such as automobiles have dropped from 80 percent to 25 percent. Brazil still has formidable problems, but with this improved economic outlook, it has the potential to become an economic showcase for the rest of Latin America.
Indonesia is a striking example of how a developing nation can move from poverty to progress through the adoption of free-market policies. Too often overlooked by foreign policy experts, Indonesia is the fourth-most-populous nation in the world, after China, India, and the United States. It is the largest Muslim nation, with more people than all the Arab nations combined. During the past twenty-five years, the proportion of Indonesians living in absolute poverty has declined from 60 percent to 15 percent. Annual per capita income has increased from $50 to $650. Family-planning policies have reduced the annual population growth from 2.4 percent to 1.8 percent. Indonesia suffers from corruption, nepotism, and an authoritarian government. But progress toward political freedom is beginning and will continue as economic freedom is expanded.
Vietnam could become an economic success story if it
breaks with the failed political and economic policies of its past. Because its leaders are ruthless players of power politics, they will soon understand that geopolitically they cannot afford to retard their economic growth with communist policies at a time when their mortal rival, China, has achieved high growth by capitalist means. Vietnam has begun to open its economy to foreign investors, particularly from Western Europe and Japan. But most of its economic reforms are nothing more than window dressing.
Egypt has remarkable potential, particularly as many of the statist practices that impeded economic growth in the 1970s and 1980s have been repealed. Under the courageous leadership of President Hosni Mubarak, it has opened the door to free trade with Western Europe and serves as an economic conduit between Europe and the rest of the Arab world. It has doubled its exports to the United States over the last ten years. With the ominous threat of radical Muslim fundamentalists, overpopulation, and inflation, Egypt faces grave problems. But as by far the most populous and influential Muslim regime in the Mideast, it deserves maximum attention and support from the West.
Turkey has transformed itself from an economic basket case into an economic breadbasket. Beginning in the 1980s, the late Turkish Prime Minister Turgut Ozal aggressively lifted trade restrictions, liberalized policies, and integrated Turkey economically with Western Europe. These policies boosted Turkey's per capita GNP from $1,400 in 1980 to $2,000 in 1993. The new government of Tansu Ciller has pledged to keep Turkey on this same track of economic reform.
Mexico has been the economic wunderkind of the 1990s. Under the leadership of President Salinas, Mexico has increased trade with the United States, liberalized state-run industries, restored world confidence in the peso, and eliminated costly government subsidies. Since Mexico began to reduce its trade barriers in 1986, U.S. exports have climbed from $12.4 billion to $40 billion in 1992. As a result, Mexico has become Latin
America's most progressive economy and has set an example for other nations.
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There have been three great wars in this centuryâWorld War I, World War II, and the Cold War. Before each there was widespread conflict. After each there was unbridled euphoria.
After World War I, many Americans hoped that the League of Nations could achieve our goal of making the world safe for democracy. But Woodrow Wilson's courageous and eloquent appeal to idealism fell victim to the tragedy of his physical breakdown and the opposition of isolationist forces in the United States. Wilson believed that under the League of Nations, countries would work together to resolve their conflicts peacefully. Twenty years later, the Axis dictatorships launched World War II.
After the defeat of Germany and Japan in World War II, America's Secretary of State, Cordell Hull, said in testimony to Congress: “There will no longer be a need for spheres of influence, for alliances, for balances of power, or any other of the separate alliances through which in the unhappy past the nations strove to safeguard their security or promote their interest.” The United Nations was heralded as the body that would make all of this possible. In 1946, less than a year after the end of World War II and the founding of the United Nations, the Soviet Union launched the Cold War.
After the collapse of Soviet communism in the Cold War and the defeat of aggression in the Persian Gulf War, the conventional wisdom for a time was that we were witnessing the beginning of a new world order. Many believed that man's ability to reason would replace his instinct for aggression. The death and destruction in Bosnia is only one example of the tragic fact that the end of the Cold War between the superpowers has not meant the end of conflict between smaller powers. Immanuel Kant's dream of a “perpetual peace” has collapsed into a nightmare. In addition, with the unity of the West fractured by the end of the
security threat, economics threatens to become, to paraphrase Clausewitz, a continuation of war by other means.