National Security, Human Rights, and Free Markets
During the 1980 presidential campaign, Ronald Reagan and the Republicans characterized Jimmy Carter as a naïve do-gooder, handing out foreign aid to unfriendly left-wing governments while punishing reliable anticommunist allies in Latin America and elsewhere. According to the 1980 Republican Party platform, Carter’s blind faith in détente had led him to dangerously underestimate the “scope and magnitude of the growth of Soviet military power [that] threatens American interest at every level.” Instead, Reagan and the Republicans promised “peace through strength” by rearming the United States and its Third World allies while instituting a “bold program of tax rate reductions, spending restraints, and regulatory reforms that will inject new life into the economic bloodstream of this country.”1
The elevation of the Soviet threat instantly transformed the South’s position in US foreign policy. In a May 1981 commencement speech at Connecticut’s Fairfield University, secretary of state Al Haig condemned the “recent American policy [under Carter]” that considered “economic and humanitarian assistance” enough to promote Third World development. Instead, “peaceful development” there required “security” against the constant threat of “illegal Soviet intervention”; in this way, US interventionism and support for authoritarian governments were both “task[s] of humanitarian concern” and preconditions for economic growth.2 To that end, the administration immediately began lobbying Congress to turn back Carter-era restrictions on military assistance to regimes in Argentina, Chile, Guatemala, and Uruguay and instructed US representatives to multilateral development banks to approve new loans to right-wing governments in Latin America, South Korea, and the Philippines.3
Linking human rights and economic development in the South with hard-line anticommunism was representative of a larger co-option of human rights language by the administration, particularly after the appointment of Elliott Abrams as assistant secretary of state for human rights in December 1981. Americans disapproved of Carter’s handling of the Iran crisis and its economic fallout, but concern for human rights remained high. According to one poll, 79 percent of respondents rated human rights somewhat or very important in 1978; in 1982, that number had climbed to 85 percent.4 Abrams was well aware of these attitudes: before coming to the Reagan administration, he had served as chief of staff to neoconservative senator Daniel Patrick Moynihan.
Like Moynihan, Abrams had deep ties to anti-Carter neoconservatives. He had worked on senator Henry “Scoop” Jackson’s unsuccessful campaign for the 1976 Democratic presidential nomination, and four years later he married Rachel Decter, daughter of neoconservative writer Midge Decter and stepdaughter of Commentary editor Norman Podhoretz.5 Moynihan’s bombastic, moralizing attacks on the human rights records of the United States’ Third World critics at the height of North-South conflict over the New International Economic Order (NIEO) proved enormously popular with Americans across the political spectrum. Reagan officials too recognized human rights’ political utility for broader foreign policy goals. “We will never maintain wide public support for our foreign policy unless we can relate it to American ideals and to the defense of freedom,” read a State Department memo on human rights written one week before Abrams’s appointment.6
What was essentially a return to Eisenhower-era rollback in the Third World was therefore presented as a human rights campaign in support of prodemocracy forces opposed to the establishment of totalitarian Marxist regimes. As Abrams explained to the Council on Foreign Relations, “To prevent any country from being taken over by a communist regime is in our view a very real victory for the cause of human rights.”7 In practice, the administration’s approach would continue to follow the blueprint laid out by its chief neoconservative intellectual: Reagan’s 1980 campaign foreign policy adviser and subsequent UN ambassador Jeane Kirkpatrick. Her influential 1979 Commentary article “Dictatorships and Double Standards” justified support for right-wing authoritarian governments on the grounds that they could be reformed, while Marxist or totalitarian ones could not.
Kirkpatrick’s was not a popular view. In fact, Abrams had been nominated for his post because the administration’s first choice, the ultraconservative Ernest Lefever, had repeated Kirkpatrick’s argument verbatim to the Senate Foreign Affairs Committee, resulting in his rejection.8 Abrams, in contrast, was confirmed unanimously after a generous statement of support from Moynihan and Abrams’s promise that “our foreign policy in general has human rights at its core.”9 Although the administration won some converts owing to its protests of political repression in Cuba, the Soviet Union, and the Eastern Bloc, its policies in the Third World were vehemently opposed by human rights groups in the United States and Europe. Ultimately, Abrams spent his tenure fighting off criticism from Freedom House (a longtime Moynihan ally) and other organizations about the administration’s actions in Latin America. Abrams avoided prosecution during the Iran-Contra scandal by cooperating with federal prosecutors and eventually pleaded guilty to two charges of withholding information. He would later play a starring role in the 2003 Iraq war as a special assistant to president George W. Bush and senior director for democracy, human rights, and international operations in the National Security Council (NSC).10
The Reagan administration’s economic policies toward the South were informed less by foreign policy concerns and more by a deep faith in the virtues of its domestic economic program. That program’s goals—cutting taxes and spending, attacking inflation, and removing government regulations—were clearly, publicly, and often stated by the president, and they were epitomized in memorable quips such as, “The nine most terrifying words in the English language: ‘I’m from the government, and I’m here to help’ ” and “Government is not the solution, government is the problem.” David Stockman, in charge of the Office of Management and Budget (OMB) from 1981 to 1985, was a charismatic if controversial media figure who made “supply-side economics” a household term during debates over the signature 1981 Kemp-Roth tax cuts and Gramm-Latta spending bill.11 Important work was also done by Nobel Prize–winning economist Milton Friedman, whose 1980 best seller Free to Choose was turned into a popular television series with Friedman and his wife Rose, as well as conservative “policy entrepreneurs” such as Arthur Laffer (author of the supply-side theory), Wall Street Journal columnist Jude Wanninski, and various individuals employed by the Heritage Foundation and other well-funded conservative think tanks.12
The administration’s campaign against Keynesian economics at home led some critics to allege that, in one Reagan official’s words, “it has no international economic policy save for carrying out its domestic program.” The Reagan administration had “relegated international economics to a lower priority than any administration in the postwar period,” determined political scientist Benjamin Cohen in 1983.13 According to Paul Krugman, who served on Reagan’s Council of Economic Advisers, top Reagan Treasury officials were notorious for their lack of expertise on international economic issues and were looked down on by their better-informed colleagues in the Federal Reserve.14 These impressions were strengthened by Reagan’s controversial—and to some, hypocritical—endorsement of import quotas on sugar, steel, and cars, as well as a reliance on foreign borrowing to pay for new military expenditures.
This criticism misses the point. Reagan’s team may have had less experience and fewer academic credentials—the relative lack of PhDs was a striking contrast to the ultrabrainy Carter administration—but their philosophy toward international economic relations possessed a clear logic. Henry R. Nau, in charge of international economic affairs in the National Security Council from 1981 to 1983 and professor of political science at George Washington University, defended that philosophy as “domesticism,” or “the simple proposition that the world economy is only as good as the national economies that compose it.”15
According to Nau, the domesticists stood in contrast to the globalists of both parties who, in the 1970s, traced “global economic problems … largely to the malfunctioning of the international economic system itself.” Globalists believed that external and inevitable structural factors—namely, other nations’ rise in prosperity and assertiveness in the 1950s and 1960s—were to blame for declining US hegemony, leading the Nixon, Ford, and (especially) Carter administrations to look for solutions in new international economic arrangements from the G-7 summits to the North-South dialogue. For the domesticists, however, the culprit was unsound US fiscal and monetary policies in the late 1960s, which led to inflation that was first exported by increased borrowing and then compounded by the 1973 and 1979 oil shocks. In this sense, the United States was only as globally weak as it wanted to be: “Re-establishing sound U.S. domestic policies was the fulcrum for restoring the proper emphasis on price stability and market incentives in the world economy as a whole. Rather than ignoring the effects of U.S. policy changes in the world economy, domesticism stressed their global importance.”16
For Reagan’s economic officials, that importance extended to the developing world—and back. As Nau explained it, “Progress toward domestic stability and freer trade” in the South would “rejuvenate international financial flows” and give Northern investors “more predictable access to foreign markets.” The expected result was the beginning of a virtuous circle of private investment and trade based on “real transfers of goods and services to be redeemed.” Equally important, as direct investment in and commercial bank lending to poor countries increased, concessional lending from multilateral development banks “could then supplement these commercial flows rather than substitute for them.” In this way, market reforms in the South would achieve two related goals: strengthen the legitimacy of international capital markets by making poor countries safe for foreign investment, and reduce US government funding of globalist mechanisms of North-South wealth transfer that encouraged fiscal irresponsibility and rent seeking, not unlike welfare payments to individuals.17
This is precisely the message Reagan delivered to the boards of governors of the World Bank and International Monetary Fund (IMF) in September 1981. The speech is mostly remembered for Reagan’s insistence that what “[unites] societies which have achieved the most spectacular broad based economic progress … is their willingness to believe in the magic of the marketplace.” The “magic” line is a trademark Reaganism, but the president also discussed several other policies with specific implications for North-South relations.18
First, Reagan asserted that both development and “political freedoms”—or human rights—were impossible without first establishing “economic freedom”: “Those [societies] which put [economic] freedom as the first priority find they have also provided security and economic progress.” This was a complete reversal of the Carter administration’s formulation of basic human needs as economic rights: here, economic rights were reconfigured negatively as the ability to make business decisions free from government involvement, rather than the positive Carter formulation of the right to adequate housing, education, health care, and food. Poverty was no longer an offense to human rights if it occurred in the context of a free economy, nor was political repression if it guaranteed security against those who might impose restrictions on economic activity.
Second, Reagan argued that “the most important contribution any country can make to world development is to pursue sound economic policies at home.”19 This was a responsibility toward developing countries that the United States—“overspent, overtaxed, and overregulated, with the result being slow growth and soaring inflation”—had abnegated. The idea that a healthy North meant a healthy South was not new, having been endorsed by the developed countries since the first G-7 summit in 1975. Both the Ford and Carter administrations had advocated for some mixture of fiscal stimulus in strong economies, such as the United States and Germany, and reform in weak or underperforming ones, such as Italy and Britain. But rapid adjustment across the North—led by the United States—prepared the way for disaster in the South. From 1979 to 1981 the Federal Reserve issued several interest rate increases (dubbed the “Volcker shocks,” after Fed chief Paul Volcker) that added, in one estimate, $41 billion to the debts of already indebted developing countries.20 In 1981 the governments of Britain and Germany followed up with their own anti-inflation drives, further damaging the South’s terms of trade. Starting in 1980, developing countries’ exports as a share of world trade entered a steep decline (after a decade-long relative rise), while commodity prices—a core NIEO concern throughout the 1970s—fell “ ‘to a level not experienced since at least the 1930s.’ ”21
Third, Reagan dismissed the value of concessional aid to all but the poorest countries, holding that, “unless a nation puts its own financial and economic house in order, no amount of aid will produce progress.” Reagan recognized that the United States had a responsibility for development through the implementation of sound macroeconomic policies, but he viewed foreign aid in the same way he viewed welfare programs at home: they only encouraged dependency and stagnation. Again, the best “American contribution” to development was to ensure a “growing, prosperous United States economy” that could buy, sell, and invest overseas. To further de-emphasize aid’s importance relative to private capital, Reagan added that “the financial flows generated by trade investment and growth capital flows far exceed official development assistance funds provided to developing countries.”
Fourth, Reagan reversed his administration’s initial hostility toward (some) multilateral institutions, specifically the World Bank and IMF. This was not out of a newfound sympathy for their missions. Rather, the idea was to use US influence in those institutions to turn them into vehicles for market reform. Thus, Reagan declared a “special responsibility to provide constructive suggestions to make [them] more effective,” such as “enhancing” the role of private capital in World Bank projects and encouraging “deficit countries” to reach agreements with the IMF on “sound, comprehensive stabilization program[s]” that would “signal private markets of [their] intent to solve [their] own economic problems.”
In another sign of things to come, Reagan avoided direct mention of the North-South dialogue in the United Nations, which had been suspended one year earlier due to both sides’ inability to agree on an agenda. Instead, Reagan concluded his speech by calling for an “end to the divisive rhetoric of ‘us versus them,’ ‘North versus South.’ Instead, let us decide what all of us, both developed and developing countries, can accomplish together.”22
Foreign Aid and Human Rights: Successes and Setbacks
The administration undertook several efforts in its first year to realign US development policy with its procorporate, domesticist agenda. Some activities were expanded. The Overseas Private Investment Corporation (OPIC), a US government–owned corporation with the goal of facilitating foreign investment in the Third World, was granted the authority to issue insurance to private corporations against “foreign strife,” and it was instructed to reject projects that would “substantially reduce the positive trade benefits likely to accrue to the United States from the investment.”23 At the US Agency for International Development (USAID), Reagan officials created a Bureau for Private Enterprise to promote lending to small and medium-sized Third World businesses; Elise Dupont, wife of the governor of Delaware, was selected to lead the new agency, despite having no foreign affairs experience.24 A more consequential Reagan program was the Caribbean Basin Initiative, which offered economic and military assistance to countries of Central America and the Caribbean that did not “expropriate without compensation”; it also took into account those countries’ “attitude towards foreign investment and policies employed to promote their own development.”25
Major cuts were proposed to traditional development aid, with Stockman’s OMB leading the charge. Stockman truly wanted to reduce the size of government in all sectors, and he attacked the foreign aid budget with the same zeal he directed toward domestic outlays. He later stated: “I believed that the organs of international aid and so-called Third World development—the UN, the multilateral banks, and the U.S. Agency for International Development—were infested with socialist error. The international aid bureaucracy was turning Third World countries into quagmires of self-imposed inefficiency and burying them beneath mountainous external debts they would never be able to repay.” To address that situation, in early 1981 Stockman worked out a budget plan with Republican senator Phil Gramm that would have cut US multilateral and bilateral aid by 45 percent, canceled Carter’s $3.2 billion pledge to the World Bank’s International Development Association (IDA), frozen all US contributions to other regional multilateral banks and UN agencies, and phased out Public Law 480 or the Food for Peace program.26
Stockman’s campaign against foreign aid quickly ran up against the administration’s national security strategy, exposing the limits of Reaganism’s commitment to reduce spending. According to Stockman, Secretary Haig leaked the Gramm-Stockman budget to the press, sparking angry phone calls from Capitol Hill and formal protests from the European Economic Community, OECD, and Australia.27 While the OMB held that “every major program should take some reduction,” it too had to accept a hierarchy: “bilateral aid has priority over multilateral aid programs, [and] security assistance has priority over development assistance.” The result was a compromise budget that pledged to reduce overall aid by 20 percent, cut but did not cancel US contributions to the IDA, and deferred new aid obligations.28
In practice, aid was not so much reduced as redirected toward nations that fit into the administration’s national security strategy. In fact, from 1981 to 1986, bilateral development aid rose by 22 percent, from $4.9 billion to $6 billion, while security assistance rose by more than 100 percent.29 Aid distribution also changed, as USAID redirected funds toward those governments deemed friendly or under threat, such as El Salvador, Honduras, Sudan, and Pakistan, and away from unfriendly governments such as Nicaragua and Tanzania.30 The jettisoning of human rights as a factor in determining aid was a foregone conclusion, but even the administration’s promarket requirements could be put aside to further other foreign policy goals. According to a 1985 report by the Overseas Development Council, aid recipients were rejecting USAID conditionalities, “with the knowledge that their bureaucratic and congressional allies in Washington would block a cutoff of funds.”31
From Ottawa to Cancún
While the Reagan administration struggled in its first year to balance commitments to reforming Third World markets and supporting anticommunist allies, it still had no explicit policy toward North-South negotiations, which had been stalled in the United Nations since the end of the Carter administration. At the June 1980 G-7 summit in Venice, the developed countries agreed “to approach in a positive spirit the prospect of global negotiations in the framework of the United Nations,” scheduled for January 1981, but did not elaborate. In effect, G-7 leaders kicked the can down the road until the outcome of the US presidential election in November.32
Reagan officials opposed global negotiations in both form and spirit. “Ultimately, the South wants our money,” complained a Treasury official. “It’s a scam. Our problem is that the whole mindset of the dialogue is objectionable. It’s unreal.”33 The president agreed. “The talkfests, at the UN and so on, and like Global Negotiations—no, he [Reagan] never saw any value in that,” Nau recalled. One dissenting voice was Kirkpatrick, “who said, ‘Mr. President, why can’t we go to New York and just dance the dance of seven veils? Just take off one veil at the time—just tantalize them, but we won’t give away anything. We won’t arouse their anger, we won’t around their opposition.’ And Reagan smiled and laughed, as he usually did.”34 Reagan faced more serious pressure to show up at the dialogue from foreign leaders. Canada’s Pierre Trudeau, for instance had been trying to push the United States’ North-South policy in a more progressive direction for several years. In fact, when Carter first met Trudeau, Zbigniew Brzezinski advised the president to “recognize Canada’s special access and credibility among third world countries, especially the poorest, and bear in mind that Canada’s policy toward China and Cuba has evolved more rapidly than ours.”35 Canada was hosting the June 1981 G-7 summit in Ottawa, and Trudeau was one of the few Western leaders who was still committed to large resource transfers and institutional change. According to Trudeau’s foreign minister Mark MacGuigan, the prime minister was “totally consumed by the issue” and “filled with youthful vigor and idealism.” “Power sharing is at the heart of the North-South dialogue,” Trudeau explained to MacGuigan and Larry Smith, assistant undersecretary for North-South affairs, “and [Western] politicians should be able to understand this readily and recognize that it is better to share power now than in the future, even though it may be easier the other way round.”36
Trudeau also supported the activities of the Independent Commission on International Development Issues. The commission was the initiative of World Bank president Robert McNamara, who announced the idea in a speech to the bank’s board of governors in September 1977.37 McNamara had been inspired by a 1976 joint report from the Club of Rome and the Dutch Ministry for Development Cooperation, which, among other things, supported the South’s calls for democratizing international institutions and criticized World Bank policies for ignoring poverty. While the Dutch report garnered little attention in the North, it was well received in the South and made a strong impression on McNamara. In early 1977 he proposed to Willy Brandt, leader of the German Social Democratic Party and former chancellor, that they convene their own commission, consisting of former heads of state from both North and South, to “determine the necessary volume of aid, especially for the poorest countries, and the required changes in the policies of developed countries, as well as [to] discuss the structural modification of the international economy.”38 McNamara had launched a similar initiative at the outset of the 1970s development crisis—a 1969 World Bank–funded project headed by former Canadian prime minister Lester Pearson—that had been criticized for its lack of new ideas and quickly forgotten. This time, the commission would not be funded by the World Bank, and a majority of its twenty-one members would hail from developing countries.39
The commission published its first report in February 1980. Subtitled A Programme for Survival, the Brandt Report, as it became known, cited global inequality as the leading threat to world peace and explored development’s relationship to the global arms trade, nuclear disarmament, and the environment.40 For Northern politicians, the report’s specific policy recommendations were bold—among other things, it endorsed the Common Fund, called for larger and automatic transfers of wealth from North to South, and proposed a World Development Fund with a fully international membership. The report was popular among developing countries at the United Nations, where delegates gave supportive speeches in the General Assembly, and it was well received in Europe. In Britain alone, sixty-eight thousand copies were sold, and ten thousand people showed up when Parliament was scheduled to discuss it.41
Looking back, little in the Brandt Report was new. The South had been calling for most of the policies for years, and all agreed that a highly unequal world was an unstable one. Unfortunately, its main pitch to the developed countries—to fund a Marshall Plan for the South that would also stimulate the economies of the North—could not have come at a worse time. Western governments were terrified of inflation following the 1979 oil crisis and were mired in recession; one after another, they hiked interest rates and cut spending. One leader particularly opposed to the report’s brand of global Keynesianism was Margaret Thatcher, who was even more determined than Reagan to reverse the macroeconomic consensus in her country. Nevertheless, given the report’s popularity in Europe and the South, even the Thatcher government took a conciliatory stance. “Nowhere can the Brandt report be read with greater interest than in Britain,” foreign secretary Lord Carrington insisted during a visit to Caracas. “It has been the publishing success of the year, and at the last count has sold ten times as many copies as in the United States.… We also know that, as a leading British newspaper put it yesterday, soft words are not enough.… Above all, we believe it is not rhetoric which is required, but action.”42
That action would take the form of a high-profile North-South summit in October 1981 at the Mexican resort of Cancún. Brandt had discussed the idea of a summit with UN secretary-general Kurt Waldheim in 1979, before the report’s publication, but Brandt and Austrian chancellor Bruno Kreisky wanted a smaller group of leaders modeled on the 1975–77 Conference on International Economic Cooperation (CIEC) instead of a large international gathering. The G-77 preferred an open forum, but Mexican president José López-Portillo agreed to host the summit, with Austria as a cosponsor, as a way to restart North-South negotiations.43
According to her memoirs, Thatcher persuaded Reagan to attend the Cancún summit during her visit to Washington in February. Although Thatcher dismissed “the whole concept of ‘North-South’ dialogue, which the Brandt Commission had made the fashionable talk of the international community,” she “felt that, whatever our misgivings about the occasion, we should be present, both to argue for our positions and to forestall criticism that we were uninterested in the developing world.”44 This may have been true, but it was not the only reason for Reagan’s attendance. At the Ottawa summit in July, Trudeau and French president François Mitterrand “were laying in wait to attack the United States for its inaction on Third World issues,” particularly Reagan’s promise earlier that year to cut US contributions to the IDA.45 To Reagan’s frustration, they refused to even discuss East-West issues until the United States agreed to a more forthcoming position on global negotiations, and North-South relations became the longest section of the customary joint communiqué.46 In the words of one American participant, the differences between Reagan and his counterparts on North-South relations were “enormous,” and the United States was “the skunk at the party.”47 Yet the Reagan administration had to choose between alienating its allies and leaving the door open to global negotiations, and in the end, it chose the latter. “There is now a disposition on the part of all summit countries to pursue any opportunity for meaningful progress [in the North-South dialogue], including what are known as global negotiations,” Trudeau declared at the summit’s end. “That openness to the process of global negotiations represents a consensus which did not exist before our summit and seemed very remote not too many months ago.”48
The Cancún summit on October 23, 1981, was attended by twenty-two heads of state “representing two-thirds of the world’s population and controlling three-fourths of the world’s wealth.”49 Despite the hype and international visibility, the summit was yet another North-South anticlimax. As in his speech to the World Bank a month before, Reagan preached the virtues of market reforms and projected a shower of private investment in the South once the United States put its own house in order. The United States was alone in opposing the creation of an energy affiliate for least developed countries inside the World Bank, although Britain joined the United States in rejecting the Brandt Report’s proposal for an independent World Development Fund.50 Thatcher recalled telling her European and Third World counterparts, “There was no way in which I was going to put British deposits into a bank which was totally run by those on overdraft.”51 The participants had agreed not to produce a joint statement, in the interests of a “free exchange of ideas,” so it was left to López-Portillo and Trudeau to put a positive spin on this grim nonconclusion. One reporter described the scene: “[Few] among the approximately 3,000 journalists and staff present failed to note the decidedly opposite mood of the two men. López Portillo was cautiously optimistic; Trudeau was dejected. Cynics in attendance claimed López Portillo had no option but to act in this fashion, as the host of the conference. It was Trudeau … who accurately reflected the results of the conference.”52
The 1982 Debt Crisis and the Triumph of Reaganism
Despite a follow-up attempt by the Brandt Commission in 1983, the Cancún summit marked the effective end of the North-South dialogue. This appears obvious in retrospect. As Thatcher recalled in her memoirs:
The summit was a success—though not really for any of the reasons publicly given. At its conclusion there was, of course, the expected general—and largely meaningless—talk about global negotiations on North-South issues.… But what mattered to me was that the independence of the IMF and World Bank were maintained. Equally valuable, this was the last of such gatherings. The intractable problems of Third World poverty, hunger, and debt would not be solved by misdirected international intervention, but rather by liberating enterprise, promoting trade—and defeating socialism in all its forms.53
In its own preparations for the summit, the US State Department also believed the dialogue’s days were numbered: “The October summit could mark the end, for the foreseeable future, of serious attempts to negotiate global economic bargains between North and South. It may be the last gasp of a decade-long effort at multilateral diplomacy.”54
The State Department was correct, but such optimism had been proved wrong before. In fact, US officials had been predicting the dialogue’s end since late 1974, when Henry Kissinger began his strategy of splitting the unholy alliance of OPEC and the oil-importing developing countries by making strategic concessions to the NIEO program. Promarket ideologues like treasury secretary William Simon and Alan Greenspan had charged Kissinger with abandoning the US commitment to free markets abroad and endangering their own reform efforts at home, but this “economic theology,” as Kissinger put it, was overruled by the pragmatic Gerald Ford. At the same time, a growing number of neoconservatives, who were then outside of government and in between parties, organized around their opposition to what Moynihan called, in a lengthy essay in Commentary, Kissinger’s “appeasement” of the G-77’s economic and moral claims. Instead, Moynihan argued, the United States must “go into opposition” at the UN by using the Third World’s human rights record to delegitimize its criticisms of the US-led liberal world order.55 This was also tried for a time—eight months—until Moynihan too found himself isolated from both the Europeans and the consensus-driven Ford and was forced to resign.
The Carter administration placed the North-South dialogue at the top of its international agenda, and for the first time since Kissinger’s 1975 speech at the UN Seventh Special Session, the outlook was genuinely hopeful. Carter was serious about responding to the South’s problems and sought to turn his signature foreign policy initiative—human rights—into a global campaign to meet basic human needs in poor countries. This was an important distinction: whereas Kissinger wanted to water down the NIEO, and Simon and Moynihan wanted to reject it in form and spirit, Carter and secretary of state Cyrus Vance wanted to transform it. This too failed, for reasons made plain to Carter in conversations with G-77 leaders such as Venezuelan president Carlos Andrés Pérez. The Third World suspected (correctly) that Carter’s focus on attacking poverty within countries was intended to end the discussion of global structural reform, however sincere Carter was about achieving the former goal.
Between 1974 and 1982 the North-South dialogue transformed US foreign policy, but US foreign policy did not transform the North-South dialogue. The G-77’s solidarity and power had been diminished by many things—OPEC’s halfhearted aid efforts in the wake of the first oil crisis, the North’s coming together in the G-7 summits, the return to recession and austerity in the North, the abrupt end to détente caused by the Soviet Union’s invasion of Afghanistan—but its agenda remained the same: the redistribution of both resources and power from North to South through comprehensive global negotiations. Kissinger had entertained the possibility of some redistribution of resources and power; Carter had been willing to commit more resources, but only to US-dominated institutions. Neoconservatives and neoliberals had rejected both throughout the 1970s, and with Reagan’s election, they were in a position to put those beliefs into practice. It was a testament to the remarkable impact the NIEO and the North-South dialogue had on international politics in the 1970s that, long after the threat of serious economic retaliation had passed, the Reagan administration was still unable to kill, or even opt out of, global negotiations. Diplomatic norms, European concerns, and Southern solidarity all continued to mandate US participation. As a pre-Cancún Treasury Department analysis explained, there was no way Reagan could just say no to global negotiations. Even if Reagan announced his opposition after Cancún, he would “still have to come up with alternative ideas which would involve showing how all the topics to be discussed in GN [global negotiations] could more properly be discussed in other fora.”56 Shortly after the summit, the administration announced its support for a new round of global negotiations, on the condition that they “deal with specific, identifiable obstacles to development,” “focus on international growth and development,” and “[do] not create new institutions or weaken the power of … the IMF and World Bank.”57 Minus Carter’s basic needs proposals—which, though significant, had come to naught through the dialogue—this had been the US position four years back.
Those global negotiations would not take place. On the evening of August 12, 1982, Mexico’s finance minister flew to Washington to deliver grim news: his country was no longer able to service its debts.58 Shortly thereafter, Mexico announced a unilateral debt moratorium of ninety days and requested a renegotiated payment schedule and additional loans to meet past obligations. Washington and London arranged a temporary loan as well as consultations between the banks and Mexican officials, but President López-Portillo balked at the banks’ insistence that he accept an IMF-designed austerity program in exchange for new loans. Instead, López-Portillo nationalized the banks, imposed import controls, and condemned the IMF as “witch doctors” whose treatment plan was to “deprive the patient of food and subject him to compulsory rest.”59
Within three months, López-Portillo was out of power. In November a new government accepted the IMF’s package, but by then, the crisis had spread to Argentina and Brazil. Reagan’s and Thatcher’s cuts to official development aid compounded the problem, as did Reagan’s own borrowing, which drove up interest rates, and Thatcher’s austerity, which decreased demand.60 The South’s “lost decade of development” had begun. Even though the largest debtors were located in Latin America, the Caribbean, Asia (the Philippines), and North Africa (Morocco), the crisis hit smaller debtors in sub-Saharan Africa especially hard due to their relative impoverishment.61 By the end of 1984, at least thirty “structural adjustment” loans had been negotiated in Latin America and other developing countries, with the banks providing the capital and the IMF enforcing the terms.62 This “new diplomatic constellation, with the IMF and the U.S. taking on key brokerage roles between banks and debtor states,” virtually ensured that the burden of adjustment would fall overwhelmingly on the citizens of indebted countries and hardly at all on foreign investors.63 “The principal—although largely undeclared—objective of the Western world’s debt strategy, ably coordinated by the IMF, was to buy time,” explained Nigel Lawson, Britain’s chancellor of the exchequer during the crisis. “Time was needed not only to enable debtor countries to put sensible economic policies in place but also for the Western banks to rebuild their shattered balance sheets.”64
Those “sensible economic policies”—including privatization of government services and industry, deregulation of labor and capital markets, removal of price controls, and spending cuts—became part of a one-size-fits-all reform prescription known as the Washington Consensus.65 Early in the crisis, there was some fear in the North about debtors forming a “debtpec” to argue collectively for better terms, but the South as a diplomatic unit had vanished: “Debtor states abandoned the mores of North-South negotiations, preferring more efficacious bilateral ties with creditors and altering global communications channels as a result. LDC interests were badly divided. Some were unaffected; others held mostly official debt, were meeting payments and wanted the issue depoliticized, or preferred continuing radical demands. This reduced coalitional opportunities. Nor was the issue suitable to bloc politics. Even the large debtors, because of the continuing need for credit and their different positions in the business cycle, have been unable to create a unified position.”66 The eight-year effort to achieve the NIEO was over, and the new neoliberal order had arrived.
The developed countries were stunned by the “historic” and “unprecedented” debt crisis.67 US officials initially argued that it was a “temporary problem of liquidity” brought about by unsound domestic policies that could be contained by a bit of cash and structural reforms.68 Debt relief was dismissed as encouraging moral hazard. As treasury secretary Donald Regan told Congress: “I don’t think we should just let a nation off the hook because we are sympathetic to the fact that they are having difficulties.… You just can’t let your heart rule your head in these situations.”69
Instead, the expectation was that, once reforms were in place, private capital would have the confidence to return. The World Bank too was caught off guard; as late as 1981, researchers were “optimistic … about the future availability of private capital flows to already-indebted developing countries” and believed the debt problem was “manageable and would not obstruct economic growth.” There was a reason for this optimism: “From the late 1960s onward, the industrial countries made substantial investments in economic research on developing countries through organizations that they controlled, such as the OECD and the World Bank.”70
As the North-South dialogue dragged on, the self-serving conclusion in the North was that the biggest obstacle to development was not a lack of money, rich-country protectionism, or global rules but the developing countries themselves. The World Bank issued its first structural adjustment loan in 1980, one year after McNamara introduced the concept in a high-profile speech at UNCTAD V. Under McNamara’s successor A. W. Clausen, a former Bank of America CEO, by the mid-1980s, structural adjustment loans accounted for one-third of the World Bank’s new lending. Dissenters within the bank and other international financial institutions were either silent or ignored, as Stanley Fischer, the bank’s chief economist, explained:
It was clear … at the beginning of 1989, as it had been clear to many much earlier, that growth in the debtor countries would not return without debt relief. But the official agencies operate on the basis of an agreed upon strategy, and none of them could openly confront the existing strategy without having an alternative to put in place. And to propose such an alternative would have required agreement among the major shareholders of the institutions. So long as the United States was not willing to move, the IFI’s [international financial institutions] were not free to speak.71
Fischer’s explanation reveals the most damaging legacy of US policy toward the NIEO and the North-South dialogue. US officials’ focus on defeating the South’s proposals for global reform left them blind to the global crisis brewing right in front of them. At UNCTAD IV in 1976, secretary-general Gamani Corea warned of an impending debt problem in the South; a year later, CIEC cochairman Manuel Pérez-Guerrero insisted on behalf of the Group of 19 developing countries that the participants discuss the debt problem and reach agreement on a new framework for debt renegotiation and rescheduling.72 The Carter administration agreed to some debt relief for least developed countries on a case-by-case basis, but as late as 1979, when the issue of debt resurfaced at UNCTAD V, US officials believed that “official debt … [is] of political importance to LDCs frequently out of proportion to [its] economic significance.”73 By the time the debt crisis hit, the consensus on markets, the state, and development in the United States, the IMF, and the World Bank had moved decisively in favor of the NIEO’s greatest critics: the neoliberals and neoconservatives who began the 1970s on the fringes of the foreign policy establishment and came to dominate it in the 1980s and beyond.