It is not particularly surprising that at their Manila meeting last week the developing countries failed to agree on the commodities which the projected fund of three billion dollars should be used to back initially to ensure reasonable and stable prices for the producers. This is because while the list of commodities in need of support is long, the resources likely to be available for stockpiling them during periods of slack demand and low prices are limited. According to an UNCTAD estimate made last year, six billion dollars will be needed to support ten important commodities.
But while this failure cannot but be a matter of concern to countries which are critically dependent on the export of one or two commodities for their foreign exchange earnings, the more disturbing fact is that there are severe limitations to what the developing nations as a group can do by themselves to correct the imbalances in world trade and usher in the new economic order which they are demanding. For, even stockpiling may not help. It can in fact lead to embarrassing surpluses unless it is accompanied by cuts in production. And agreements on such cuts, as everyone knows, are not easy to reach and enforce.
Unpleasant
The developing countries have to face up to the unpleasant fact that their bargaining position vis-a-vis the rich industrialised nations has visibly weakened in recent years and that there is nothing to suggest that this trend is likely to be arrested. This harsh reality has been hidden from public view by the phenomenal rise in the foreign earnings and holdings of a few oil- rich countries like Saudi Arabia, Kuwait and Abu Dhabi in the last two years. But while they are members of the third world inasmuch as they are educationally and industrially backward, they belong to a special category which is different from anything the world has witnessed ever before. Their influence and power do not and cannot help to improve the bargaining position of the third world as a whole.
They have extended and will perhaps continue to extend some financial assistance to other developing countries. Indeed as a proportion of their gross national incomes this assistance is much higher than that of western aid at any time. But oil-rich countries are inevitably developing far more extensive and intimate ties with the West than with the third world or any member of it. They are placing almost all their surplus revenues in western banks, companies and real estate, and they are importing most of their military hardware, machinery, technical knowhow and highly qualified personnel from the West. They may or may not as a result become an extension of the western world. But the ties between the two are going to be extremely close.
It is pertinent to remember that the trade deficit of third world countries rose from nine billion dollars in 1973 to 28 billion dollars in 1974 and 35 billion dollars in 1975, that about 50 per cent of this increase in trade gap is accounted for by the five-fold rise in crude prices, and that the total aid from oil-exporting countries, however it is calculated, covers only a small part of this additional burden. This is not to criticise the members of the OPEC who are as entitled to protect and promote their interests as anyone else but to draw attention to the fact that the third world’s dependence and therefore vulnerability have increased rather than decreased in the past two years.
Spectacular
In the wake of the OPEC’s spectacular success in raising the prices of crude and bending the multinational oil companies to their will, the impression spread that the producers of other commodities could repeat this story if only they united. But this was a mirage. For, no other group of developing countries really holds a monopoly of a critical raw material for which there are no substitutes.
Eighty per cent of the known supplies of industrial raw materials now lies within the developed nations. Even where a few developing countries hold a near monopoly, as in the case of tin and natural rubber, they cannot push prices to the point where synthetic substitutes become cheaper. The same is true in respect of bauxite. In the case of copper, the United States is the biggest single producer and other major exporters – Zaire, Zambia, Peru and Chile – are too weak to be able to dictate the prices. That about exhausts the list.
Certain other figures are equally revealing. In 1973 the OECD countries, which include all industrialised western nations and Japan, imported industrial raw materials worth about 410 billion dollars. Of this commodities worth only about 103 billion dollars came from the developing countries. In the same year the former exported raw materials worth a little over 398 billion dollars, and of this the developing countries accounted for only about 98 billion dollars. Thus the third world’s trade surplus on commodity account amounted to only slightly more than five billion dollars. Since then commodity prices have dropped.
The raw materials in question included hides and skins, natural rubber, wood, pulp and paper, wool, cotton, jute, crude fertilisers, iron ore, non-ferrous ores, copper, nickel, aluminium, lead, zinc, tin and other crude materials. Coffee and tea did not figure in this list. But the demand for these is elastic and is likely to decline in case the prices rise too sharply.
Apart from the rise in the prices of crude, one major reason for the deterioration in the bargaining position of the non-oil producing third world countries is that their food production has steadily fallen behind their rising population.
According to the FAO, in almost one-half of the third world, the growth of population has outstripped that of food production since 1961 and in the ‘seventies this has become true of the developing countries as a group, the food growth rate having dropped to 1.6 per cent a year in the period 1970-74 against 2.6 per cent in 1961-64. Twenty-one of these nations have done well in that their food output has risen by an average of four per cent a year since 1961. But for the group as a whole cereal imports – commercial purchases plus food aid shipment – have trebled since the early ‘fifties. The figure was fairly impressive even then at 12 million tonnes; now it is staggering. Between 1970 and 1972, according to the World Bank, food imports accounted for 14 per cent of the total import bill of the developing countries or an average of nine billion dollars a year.
The rise in the cost of inputs, specially fertilisers, partly accounts for the decline in the growth rate in the ‘seventies. The third world has to import around 50 per cent of even the limited amount of fertilisers it uses and the price of urea, to name just one item, rose from 46 dollars a tonne in 1971 to 225 dollars a tonne in 1974. But that only further underscores the self-evident proposition that developing countries cannot beat this problem without substantial external assistance. They need free food imports – the FAO has set a target of ten million tonnes a year – to meet the immediate requirements and capital investment and technical know-how to raise the growth rate to 3.6 per cent a year which the FAO considers absolutely necessary by 1985.
Aggravated
The problem is aggravated by the fact that the third world, with notable exceptions, cannot expect significant assistance from the Soviet Union and its East European allies. This is so not only because they themselves are not too well placed – the Soviet food output last year fell short of the target of 215 million tonnes by over 80 million tonnes, its trade surplus of 200 million dollars in 1974 changed into a deficit of 5.5 billion dollars in 1975 and the deficit of the COMECON as a whole went up from five billion dollars in 1974 to an estimated 12 billion dollars in 1975 – but also because they have never really competed with the West in assistance to the third world as a whole.
The aid from the Soviet Union and its allies has seldom exceeded ten per cent of the West’s and it has been concentrated in a few countries which they have considered important and friendly and there too on some prestige projects. Even this outflow has been declining for some years for a variety of reasons, and it is difficult to recall a single Soviet statement in the past two years which suggests recognition by Moscow of the fact that developing countries have suffered grievously as a result of rise in the prices of oil and that they deserve larger assistance from it. The obvious inference is that the Soviet Union and other socialist countries are not likely to step in to meet the massive trade deficits of the third world, however deep their involvement in specific countries and areas.
The Times of India, 11 February 1976