Poverty, Prosperity and the World Economy

Upon retiring from the United Nations after close to forty years of service, Sidney Dell set out to write a history of the economic work of the Organization. All agreed that he was uniquely qualified for this formidable task. But was he? Dell’s account would surely have contained a flaw — namely, total silence on his own role. And a fatal one at that, since Dell was no less than the economic analyst and strategist of the most enduring importance in the UN. To do justice to his thought and action is therefore also a formidable undertaking — certainly well beyond the author’s reach. What follows will therefore be only a rough sketch of his professional life, drawn from the remembrances of those who knew him and from his writings.¹

Sidney Dell played many roles in the course of his long career in the United Nations. Many of these have been described in the introductory chapter of this volume. My wish here is to highlight his special contribution to the shaping of UNCTAD, to the substance of its agenda, and hence to the development dialogue in general. His contributions to these matters were in many ways those of an architect working closely with Rail Prebisch, the founding father of UNCTAD. My first acquaintance with Sidney Dell was in Geneva in the summer of 1963 when Prebisch convened a number of economists for a ‘brainstorming’ session preparatory to UNCTAD 1 in 1964. Already at that time, both Prebisch and Dell were reflecting deeply on the strategic themes of the Conference. I had the opportunity to learn more of these themes when Dell invited me to join them in New York in the autumn of 1963.

In the 1980s, Latin America experienced the worst economic crisis since the world-wide depression of the 1930s. A common link running through this crisis was external indebtedness with the international private banking system.

Sidney Dell was among the first to see the full implications, particularly for longer-run development prospects, of the developing countries’ balance of payments and debt crises of the early 1980s. He was also among the first to draw upon legal precedents to promote an efficient and equitable writedown of their unserviceable external debt (Dell, 1985). The international creditor community eventually came to recognize the case for reductions in the stock of developing countries’ external debt. When creditors finally acted, however, they did so primarily on the basis of short-term strategic and self-interested economic calculations. Their action has been effective in many respects. From the standpoint of the global financial system and many of the largest debtors, ‘the debt crisis is over’. In the case of low-income Sub-Saharan Africa, however, the creditor response still falls far short of what is required for an efficient and equitable long-term solution to the region’s debt problem. This chapter addresses the need for further external support and, in particular, expanded debt relief for low-income Sub-Saharan African countries, without which their development prospects, about which Sidney cared so deeply, will remain severely constrained.

Sidney Dell (1983) contributed a lively criticism of the Fund’s role in encouraging ‘overkill’ to the conference on IMF conditionality that I organized in 1982. He ranged over a number of themes: what he perceived to be an excessive emphasis on bringing inflation under control through single-minded deployment of demand deflation; a charge that the authorities in some countries welcomed the Fund’s insistence on tackling cost inflation by demand reduction because of a desire to curb union power; a failure to bring symmetrical pressures for adjustment action to bear on surplus countries; and instances (he cited Peru in 1978) of borrowing countries being forced to deflate despite the root cause of their problem (in Peru’s case a low copper price) being temporary, or being forced to adjust rapidly in response to problems not of their own making. I had far more sympathy with some of those complaints, notably the final pair, than with others, notably his demand for adjustment symmetry in a world where it seemed to me that the problem had been largely bypassed by the move to exchange-rate flexibility or what I felt was his excessive willingness to tolerate inflation (although after watching the Bundesbank and its ERM satellites in 1992–93 I am no longer so sure that an excessive preoccupation with inflation is an entirely hypothetical danger).

Interest rate deregulation has become the favourite target of orthodox economists and financial liberalization has become all the rage. Adjustment programmes undertaken in collaboration with the IMF and the World Bank now typically include reforms in the financial system designed to increase the role of markets in determining interest rates and in allocating finance and savings. Underlying this shift in thinking is the hypothesis, initially formulated by McKinnon (1973) and Shaw (1973), that higher real interest rates on domestic financial assets increase the willingness to save income and hence reduce the savings constraint on capital accumulation, and encourage savings to be shifted to financial assets, thereby increasing the availability of investment finance. It is thus argued that the increase in the ratio of financial assets to income (i.e. financial deepening) will be associated with greater savings and faster growth.

This chapter surveys selected international policy measures which might contribute to the sustainability of recent capital inflows to some middleincome developing countries. The policy recommendations are divided into four groups, addressing respectively the multilateral decision-making process, the industrial countries, international financial institutions, and the problems of the small and low-income developing countries without access to private capital flows.

The 1980s saw a victory of the market over planning. The intellectual battle was initiated earlier — for developed countries by von Hayek and then Milton Friedman, for developing countries by Little, Scott and Scitovsky in the early 1970s. At first, strong laissez-faire market views were regarded as an intellectual curiosum, but gradually they achieved dominance among governments of major industrialized countries, especially under Reagan and Thatcher, and in the World Bank in the Barber/Krueger/Stern era. (No change was recorded in the IMF, where such views had always held sway.) The intellectual change was translated into policy change in developing countries during the 1980s as the industrialized countries, largely operating through the IMF and the World Bank, gained unprecedented (for the post-colonial era) power over decision-making, following the debt-crunch and the subsequent prevalence of policy conditionality. A laissez-faire approach with an enhanced role for the market and a diminished role for the state lay at the heart of the policy conditionality of both Fund and Bank.

Within a period of less than a month, the United States twice took decisive steps in the fall of 1993 to bolster the advocates of trade liberalization. The Congressional approval of NAFTA in November was followed by agreement on completion of the Uruguay Round, more than seven years after its inauguration and three after its scheduled termination. This combination of new, but long-awaited, initiatives provides considerable reassurance to those afraid that the new Clinton Administration would deviate from long-standing United States commitment to expanded world trade as an essential element of global economic growth. And failure would have been ironic indeed, since even the countries of Africa and Latin America have finally, after decades, become adherents of a strategy of trade expansion as essential to their continuous economic development.

Although Sidney Dell was by training an economist, and by profession an international civil servant, he was also from experience a highly political person. Born into a Jewish family recently arrived in England from Eastern Europe, growing up under the shadow of fascism in the London of the 1930s; studying Philosophy, Politics and Economics at the Queen’s College, Oxford, on the eve of war; and serving as a navigator in the Royal Navy for the bulk of that conflict, he could hardly have been otherwise. Always a man whose sympathies lay on the left, and always very much his own man, his commitment to democracy and pluralist values was always linked to a concern for effective public policies to promote social equality and to overcome poverty and injustice.