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International Relations-PSC 201

LESSON 16

NEW INTERNATIONAL ECONOMIC ORDER

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.

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International Relations-PSC 201

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 board

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

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International Relations-PSC 201

Surplus: extra or in excess

Suggested Readings

Students are advised to read the following chapters to develop a better understanding of the various

principals highlighted in this hand-out:

Chapter 9 in `"A Study of International Relations" by Dr. Sultan Khan.

Internet Resources

In addition to reading from the textbook, please visit the following web-pages for this lecture, which

provide useful and interesting information:

The Struggle for the NIEO

http://www.unu.edu/unupress/unupbooks/uu32me/uu32me06.htm