Evolution of the International Economic System - 2 | PSIR Optional for UPSC (Notes) PDF Download

Historical Background

• After the 1930s economic depression and World War I, the global economy faced a significant setback.
• There was a steep decline in trade and industry, leading to reduced employment opportunities, a negative balance of trade, and an unstable monetary situation worldwide.
• The period saw the weakening of international bodies like the League of Nations and a constant state of war or conflict, contributing to the economic breakdown in various countries, especially in the underdeveloped nations often referred to as Third World countries.
• The military ambitions of major powers led to a global economic slowdown and a collapse of the fiscal and economic order. Many underdeveloped countries were still under colonial rule, lacking independent economic structures.
• After World War I, the USA had adopted a policy of isolation, which contributed to the collapse of the international monetary and economic system. However, by the end of World War II, the USA recognized the necessity of being an active player in the global economy to address the worsening trade situation.
• There was an urgent need to realign the global economic infrastructure to tackle the deepening economic crisis and restore the crumbling fiscal regime.
• The world economy was heavily reliant on major powers like the USA, UK, USSR, France, and China. To address the escalating economic challenges, a meeting was convened in 1944 at Bretton Woods, New Hampshire, organized by these superpowers.
• The conference aimed to realign the global economy but had a significant drawback: it lacked proper representation from the Afro-Asian colonies that were still under colonial rule. It was more a summit of wealthy nations and did not adequately address the interests of underdeveloped countries.
• The United Nations, through the Special United Nations Fund for Economic Development (SUNFED), tried to help underdeveloped nations but faced resistance from the major powers.
• The idea of establishing an International Trade Organization under the UN was rejected by the USA, leading to the formation of the General Agreement on Tariffs and Trade (GATT), and later the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) around 1958.
• Despite its flaws, the system established at Bretton Woods lasted for about 25 years. By 1971, it collapsed and was replaced by a new economic order.

Understanding the New International Economic Order

• The New International Economic Order (NIEO) emerged after the 1973 Oil Crisis as a plan proposed by some developing countries through the United Nations Conference on Trade and Development (UNCTAD).
• The NIEO aimed to improve the economic interests of third-world countries by:
  • Refining terms of trade
  • Enhancing development assistance
  • Reducing heavy tariffs imposed by developed countries
• It sought to revise the international economic system in favor of third-world countries and move away from the Bretton Woods system, which primarily benefited the developed nations that created it.
• The term NIEO was formalized in a Declaration adopted by the UN General Assembly in 1974, addressing various trade and debt-related issues.
• This led to discussions between industrial and developing countries about restructuring the world economy and encouraging greater participation from underdeveloped nations, a process known as the "North-South Dialogue."
• Alongside the NIEO, a Programme of Action and a Charter of Economic Rights and Duties of States were also established.
• The emergence of the NIEO was linked to the creation of the Organisation of Petroleum Exporting Countries (OPEC) but was influenced by various factors, including the 1972 Food Crisis caused by crop failures in Russia, India, and Saharan Africa.

Considerations and Objectives for the New International Economic Order (NIEO)

• The establishment of any socio-political-economic order, such as the NIEO, is fundamentally based on the validated need for such an order. The circumstances at the time must warrant the creation of a new order to address the specific challenges and peculiarities of the situation.
• In the case of the NIEO, there was a pressing requirement felt by the USA and other superpowers to establish a new economic order to address the worsening international economic situation post-World War II and the crumbling existing economic order.
• The need for the NIEO was driven by the necessity to review and replace the existing order with an improved one, keeping pace with changing times and ensuring societal progress in sync with new experiments and norms.
• The USA and other superpowers recognized the need to shift from dependency to self-reliance. This shift was seen as crucial for the recovery and stability of their economies in the post-war era.
• The USA, as a leading superpower, understood that its isolationist approach would lead to economic decline. Hence, it advocated for a collaborative effort among major powers to address the emerging economic crisis and present a stable solution.
• The objectives of the NIEO were centered around balanced economic cooperation between developed and developing countries. Some of the broad objectives included:
• Establishing organizations to protect the rights of primary producers.
• Assuring equitable trade relationships between export and import prices in developing countries.
• Adjusting economic policies of developed countries to support the exports of developing countries.
• Improving trade relations between countries with different socio-economic systems.
• Strengthening economic and technical cooperation among developing countries.
• Ensuring participation of developing nations in decision-making by institutions like the World Bank and IMF.
• Increasing resource transfers through the World Bank and IMF.
• Establishing mechanisms for technology transfer from developed to developing nations.
• Improving competitiveness of natural resources and reducing wastage.
• Providing equitable access to resources from the seabed and ocean floor.
• Restructuring the social and economic structures of the United Nations.

Driving Principles of the NIEO

• According to Jerzy Makarczyk in "Principles of a New International Economic Order," the driving principles of the NIEO emphasize the need to evaluate the completeness, hierarchical order, and interrelationship of economic, political, and other relations between states.
• The charter of the NIEO prioritizes the principle of Equity. Other important principles highlighted include legal autonomy,sovereignty,territorial integrity,peaceful co-existence,political independence,sovereign equality,non-aggression, and non-interference.

How far was NIEO successful in achieving its cherished objectives?

• The New International Economic Order (NIEO) was an initiative aimed at improving the economic conditions of developing nations.
• Experts gathered in Vienna in April 1979 to discuss the economic aspects of the NIEO.
• They emphasized the need for developing countries to industrialize and increase non-traditional exports to overcome economic disadvantages.
• Industrialization required support from advanced countries, including reduction of labor-intensive industries and protectionist policies.
• Both developed and developing nations were encouraged to work towards a managed economic solution for productive investment.
• The aim was for developing countries to achieve greater economic independence through increased domestic savings and export potential.
• Consolidation of external debt and a shift away from private banking systems were also crucial.
• Despite the initial goals, the NIEO faced challenges due to conflicting interests among developing nations and external pressures.
• By the early 1980s, it was widely believed that the NIEO was doomed to failure.
• Military power from Northern countries also played a role in undermining the NIEO.
• However, some argue that the NIEO's objectives were not entirely misguided.
• The resistance from developing nations prompted a need for the North to reassess its strategies.
• Developing economies made significant gains, increasing their share of global GDP.
• While the NIEO's specific aims were not fully realized, its influence can still be seen in modern socio-political movements and multilateral negotiations.
• For instance, climate change discussions reflect the NIEO's principles, with the G-77 advocating for the North's responsibility in environmental protection and technology transfer.
• The NIEO's legacy persists in the ongoing quest for a more balanced global economic order.

Socio-Cultural Relevance Of 1970s Vintage Nieo In The 21st Century India

• 1970s NIEO aimed to protect developing nations from exploitation by powerful countries and to stabilize the global economy post-World War II and Oil Crisis.

21st Century Adaptation

• The NIEO has evolved into a comprehensive socio-political-economic-cultural order, addressing broader contemporary challenges and opportunities.
• It now influences global activities and significantly impacts Indian policy-making.

Current Focus Areas in India

• Trans-border trade cooperation: Enhancing trade relations beyond national borders.
• Renewable energy development: Focusing on sustainable energy sources.
• Consumer rights protection: Safeguarding consumers' interests.
• Labour/worker interests: Prioritizing the needs of workers.
• Globalization, Liberalization, and Privatization: Increasing integration into the global economy, reducing regulations, and promoting private enterprise.
• Self-reliance initiatives: Programs like Make in India and promoting foreign direct investment (FDI).
• Grassroots industrialization: Initiatives like Skill India and Start-up India to boost local industries.
• Banking and credit reforms: Improving financial systems and access to credit.
• Quality and cost competitiveness: Emphasizing high-quality products at competitive prices.
• Protection of weaker sections: Economic safeguards for vulnerable groups.
• Internet and e-commerce expansion: Increasing digital commerce and online services.
• Government transparency: Enhanced public access to government actions, especially via social media.
• Focus on business studies: Emphasizing education in business and strategic management.

Negative Aspects of the New Order

• Media independence decline: Rising costs and ownership by large corporations affecting media freedom.
• Political corruption: Ongoing corruption in high political offices.
• Moral values erosion: Declining ethical standards due to increased commercialization.

Conclusion

• The NIEO has successfully adapted to modern needs, promoting national economic progress and global economic growth.
• India has emerged as a regional and international leader, using the NIEO to aid economic development and support weaker nations.
• The concept of globalization has evolved from the NIEO, impacting Indian society and the global community.