Economic development to human development

Chapter 5

Economic development to human development

The UN Charter drew a link between international security and global poverty. The founders believed that World War II was in large measure an outcome of the Great Depression of the 1930s; in other words, that economic turmoil had been transformed into political instability, which in turn was a precondition to the Nazi takeover in Germany. One of the UN’s central goals was to prevent similar economic upheaval and the political consequences that derived from it. The founders—at least some of them—hoped to head off economic collapse, war, and revolution by a dose of social engineering and intergovernmental policy coordination.

But while the UN Charter speaks of promoting “higher standards of living” and creating “conditions of economic and social progress and development,” there has never been an agreement on how these goals should be advanced. In the early postwar years the major issue on the agenda was the recovery of Western Europe and Japan. In the 1950s and 1960s the process of decolonization and the emergence of the so-called Third World shifted the focus toward questions of global inequality. Although international relations may have been guided by the East-West conflict, the persistent North-South divide overshadowed the UN’s efforts to reshape the global economy.

And so it remained when, in September 2000, the General Assembly adopted the Millennium Development Goals (MDGs). The UN’s major task was to make the world a better place by, among other things, eradicating poverty and hunger, achieving universal education, empowering women, and fighting infant mortality. None of these extremely worthy goals was new. All remain “goals” today.

Yet, as Miguel A. Albornoz, the Ecuadorian ambassador to the UN, succinctly put it in a speech at the UN General Assembly in 1985: “In the developing countries the United Nations doesn’t mean frustration, confrontation or condemnation. It means environmental sanitation, agricultural production, tele- communications, the fight against illiteracy, the great struggle against poverty, ignorance and disease.”1 In spite of its problems and in the minds of many at the receiving end, the UN has done more than any other organization or single nation to alleviate the economic and social problems of the less developed countries. It is a story that—however imperfect the end results—cannot be ignored when placing the UN’s economic activities in perspective.

Reconstruction after World War II

In 1945 Europe was in ruins. Most ancient capitals were physically crumbling, unemployment was at record high levels, millions of people were displaced, and famine loomed. In Asia, Japan and China were both reeling from the physical destruction caused by a war that had, for all intents and purposes, begun in 1937. In China a civil war continued until the formation of the People’s Republic of China on October 1, 1949.

The only major exception in the bleak picture was the United States, a country that produced half of the world’s industrial goods in 1945. Thus it was no accident that the Americans shaped the postwar world. Yet, because of the simultaneous descent into the Cold War, the economic reconstruction of most of the globe became excessively politicized. From 1948 to 1952 the Marshall Plan—or the European Recovery Program (ERP)—benefited only Western Europe, the Soviet Union having pressured the eastern half to stay out of such schemes. The fear of losing control over its new satellite countries in East-Central Europe made the Kremlin particularly antagonistic to any economic or political scheme that might have helped vest the region from Soviet control.

In the Far East, especially after 1947, the United States gave generous reconstruction assistance to Japan. In both Europe and Asia the major rationale behind U.S. policy was to prevent a potential left-wing drift of the countries that became its major Cold War allies. Meanwhile, the Soviet Union tied Eastern European countries closely to its economic and political orbit. The end result was, in effect, the creation of what would later be referred to as the “first world” (North America, Western Europe, and Japan) and the “second world” (the Soviet Union and its satellites in Europe).

Postwar reconstruction aid was significant in the creation of this new economic world order. But it was a fleeting phase, deriving mainly from immediate political and security concerns. Much like NATO in the security field, the Marshall Plan served to tie the major European countries to the United States economically. The side effect—and an intended one—of these efforts was to erect a barrier between what would soon be called propagandistically the “free world” and the parts of the world that lived under the influence of Soviet communism.

This also meant, however, that one of the charter’s main ideas, the world body’s commitment to “economic and social progress and development,” was essentially a casualty of the political division of the world after 1945. Of course, no one openly disputed the need for economic progress. But the instruments by which it could be promoted were controversial. Specifically, the first and second worlds had their own ideas about how to promote economic and social progress. The Americans emphasized free trade and the role of the private sector; the Soviets heralded the salutary effects of government control and refused to join in the global trade network. Although in 1944–45 many Americans thought that governments and businesses should cooperate closely in postwar reconstruction efforts, they saw this as at best a temporary phenomenon. During the Cold War this Soviet-American, socialist-capitalist dichotomy laid a shadow over the UN’s role in promoting development and reducing poverty.

Trade and growth

The UN’s economic agenda was originally controlled by the so-called Bretton Woods institutions, named after the city in New Hampshire where, in July 1944, representatives of forty-three countries met to contemplate the postwar international economic order. The three key institutions of this system are still operational and influential today: the International Monetary Fund (IMF), the World Bank (originally called the International Bank for Reconstruction and Development, or IBRD), and the World Trade Organization (WTO, known as the General Agreement on Tariffs and Trade, or GATT, between 1947 and 1995). All three reflected a certain ideological view on how the international economy should function: while the GATT/WTO developed into an institution upholding the principle of ever-freer trading rules (if not always successfully), the IMF was set up to increase stability in the world’s currency market, and the IBRD/World Bank was to provide financial assistance to countries willing but otherwise unable to join the world market.

These were institutions conceived to prop up, expand, and regulate the global marketplace. They were, by and large, Anglo-American in their design. The World Bank, for example, received approximately 35 percent of its original $9.1 billion capitalization from the United States. Moreover, it is important to note that the World Bank and the IMF in particular were founded as organizations in which the power lay with those who paid. In other words, the voting power in these organizations was skewed to the rich and powerful countries (the major contributors), with the United States at the top. While the United States and other rich Western nations were undoubtedly concerned over economic stability and security, their agenda was dominated by the belief that the promotion of free trade through international treaties and mechanisms was the best guarantee against future international economic collapse and offered the best hope of future prosperity around the globe.

It is a mantra that has had its success. Since 1945 international trade has grown rapidly in volume and contributed greatly to the growth of global gross and per capita income. Between 1960 and 1993, for example, global income grew from $4 trillion to $23 trillion. Even when adjusted to global population growth, this still meant a threefold increase of per capita income.

This apparent success story had its critics and opponents. The U.S.-funded Marshall Plan was rejected by the USSR in 1947 and followed by the creation of a socialist economic system within the Soviet bloc. Equally adamantly, after 1949 the People’s Republic of China rejected capitalism as a way of promoting “economic and social advancement.” In the decades that followed, the IMF, World Bank, and GATT remained “Western” institutions promoting one side’s vision in the global confrontation. In the late 1980s and early 1990s, the end of the Cold War seemingly proved that the Western vision had been correct and the socialist way erroneous. The disintegration of the USSR underlined this point.

The second challenge came from decolonization. The explosive growth in membership transformed the balance of power within the UN General Assembly: during the early 1960s the Nonaligned Movement (NAM) emerged as the largest—if a very loosely coordinated—group of countries. This shift resulted in a growing emphasis on social and economic questions, particularly on the unequal distribution of wealth between the countries of the global North and South. The first UN Conference on Trade and Development (UNCTAD) held in 1964 highlighted this by the formation of the Group of 77 (G-77), an organization of developing countries in Latin America, Asia, and Africa that continues to promote the importance of development aid.

By 2015 the G-77 comprised more than 130 countries in the so-called global South. Most of them are poor and underdeveloped compared to Europe and North America. But their sheer numbers, both countries and people within them, and the persistent fact of global economic inequality have presented a continuous challenge to the UN system.

Development tops the agenda

The World Bank and IDA

In the 1960s the UN’s economic agenda shifted from reconstruction to development. The World Bank rapidly became an institution focusing on development aid. In 1960 it founded a subsidiary, the International Development Association (IDA). While the original World Bank lending agency, the IBRD, had shifted its focus to so-called middle-income countries, the IDA’s task was to provide interest-free loans and grants to the least developed ones, countries that already in the 1950s were called the “third world.”

The first IDA loans, to Chile, Honduras, India, and Sudan, were approved in 1961. Over the subsequent fifty-three years the IDA gave roughly $293 billion in loans (usually called credits) to 112 countries. Most of them have gone to Africa; in 2014 half were in sub-Saharan Africa.

Despite such apparent good intentions, the IDA was often resented by those in the receiving end. The World Bank is an institution controlled by those who fund its operations. Thus, the United States as the primary “shareholder” has dominant influence over the bank’s priorities. This fact is further underlined by the agreement to have an American president of the World Bank and to station the headquarters of the organization, as well as the IMF, in Washington. Controversial choices for this post—such as former U.S. secretary of defense Robert McNamara (1968–81) or Assistant Secretary of Defense Paul Wolfowitz (2005–07)—have not helped the World Bank’s overall reputation. Indeed, many southern countries have seen the World Bank as a renewed form of Western (or Northern) imperialism. Thus, since the 1960s there has been a push for alternative ways of promoting development within the UN system.


One significant expression of this desire was the first meeting of UNCTAD, held in 1964 in Geneva. It had two significant long-term results. First, it led to the creation of the Group of 77 as a powerful lobby for the interests of developing countries. Second, over the past four decades, UNCTAD has taken the integration of developing countries into the world economy as its key mission.

In the 1960s and 1970s UNCTAD emerged as a key forum for the dialogue between North and South (or developed and developing countries) and as the major global think tank on development issues. It was instrumental in pushing through international agreements that gave developing countries improved market access through lower tariffs in developed countries. UNCTAD further contributed to defining how much developed countries should devote to development aid (in 1970, UNGA approved 0.7 percent of gross domestic product as a target figure) and identified a group of nations defined as Least Developed Countries (LDCs, sometimes called the “fourth world”).

UNCTAD is important in setting the course of the UN’s development policy. But even by UN standards it remains a small operation. After five decades in operation, UNCTAD has a permanent staff of about four hundred (mostly in Geneva) and an annual regular budget of $68 million. It gives advice, prepares data, offers technical assistance, and organizes a major conference every four years (and a conference focusing on the needs of the LDCs every ten years). UNCTAD lobbies and coordinates, but it does not make policy.


The creation of the UN Development Program (UNDP) in 1965 was a milestone in global development policy. Its initial purpose was to coordinate the Expanded Programme of Technical Assistance (EPTA) and the United Nations Special Fund (UNSF), operational since 1949 and 1959 respectively, in order to respond better to the needs of a growing number of newly independent countries.

In subsequent decades the UNDP, which depends on voluntary contributions from member countries, has become an increasingly important part of the UN. One indication of this is the fact that the UNDP’s administrator, or chief executive officer, formally ranks as number three in the UN structure after the Secretary-General and the Deputy Secretary-General. In this regard, however, the UNDP hardly became symbolic of the third world’s hope of circumventing the rich nations’ dominance of development aid: much like the World Bank, the UNDP has been mostly governed by an American. The appointment of the Briton Mark Malloch Brown in 1999 finally broke this pattern; he was succeeded in 2005 by Kemal Dervis, former Minister for Economic Affairs of Turkey and in 2009 by Helen Clark, former PM of New Zealand.

UNDP and its predecessors began as institutions offering technical aid (training) and global think tanks producing feasibility studies. But over the decades, UN development aid has become a multi-billion-dollar global enterprise. By 1989 contributions to the UNDP totaled $1.1 billion. It had a staff of 4,700, more than 130 field offices, and worked in 152 countries and territories. Twenty-five years later the budget had more than quadrupled to roughly $5 billion (2013 figure). Impressive, yet it leaves UNDP far behind the World Bank, which loaned close to $30 billion and boasted a staff of more than eight thousand in the same year.

These are large figures. And it is clear that by 1990 there had already been a great deal of progress. Some of the highlights were summarized by the UNDP as follows:

from 1960 to 1987, life expectancy in the global South had increased by a third (although it still remained only 80 percent when compared to the developed countries)
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