AS THE NEWLY liberated countries of Eastern Europe seek to ignite their stagnant economies, they face a daunting reality: Outside of the industrial West, economic development has become an increasingly rare phenomenon.
Since the mid-1950s, when the idea of the "Third World" first surfaced, only four of its members have truly managed to escape it. Singapore, Hong Kong, South Korea and Taiwan have, in two short decades, gone from helpless paupers dependent on foreign handouts to industrial dynamos envied even in the West. Today, Singapore has a higher per-capita income than Israel, and South Korea earns more from exports than Spain.
These "newly industrializing countries" -- NICs, as they're called -- are widely regarded as models for the rest of the Third World, and for the newly liberated countries of the crumbled Soviet bloc. Development experts regularly trek to East Asia, seeking to extract the essence of NIC success, doctoral candidates churn out monographs analyzing NIC policy debates, Third World leaders send fact-finding missions to the region. From Guyana to Ghana, government ministers talk about turning their countries into another Singapore or South Korea.
Outside of East Asia, however, the NIC magic has proved almost impossible to duplicate. The very con-cept of development now seems a quaint anachronism in much of the Third World. The number of "least developed countries" (LDCs) -- 11 in the mid-1960s -- now surpasses 40. In the poor Southern Hemisphere, the 1980s are now widely regarded as a lost decade, a time of plummeting incomes, soaring unemployment and spreading hunger. Even such one-time powerhouses as Brazil, site of the 1970s "miracle," and Argentina, where the working class once supped on steak, have turned anemic. What has gone wrong?
The NICs' success can be summed up in one word: exports. Small in size, limited in population and poor in resources, these countries all had to look outward in order to grow. In doing so, they could draw on one great asset: disciplined labor forces willing to work for low wages. In the late 1960s, all four countries began luring foreign investors with special tax incentives and promises of cheap labor. Hundreds of manufacturers set up shop, and before long these nations were sending jeans, radios and baseball gloves around the world. Double-digit growth rates became common. The East Asian "tigers," they were called.
Here, it seemed, was a sure-fire formula for success. In the late 1970s, development experts began championing the East Asian model. Especially enthusiastic were the International Monetary Fund and the World Bank, which pushed exports at every turn. But not just any exports. Traditional products like corn, rice and bananas were frowned upon as dull, unmarketable, passe. Governments were urged to produce more exotic goods -- orchids and irises, macadamia nuts and kiwis, baseballs and brassieres -- that could find favor with consumers in New York and Paris.
To help Third World nations compete in the world market, the IMF and World Bank developed a handy package of "structural adjustment" guidelines joining the wisdom of the Orient to the austerity measures beloved by the IMF. Governments -- often as a condition for receiving loans -- were urged to: freeze wages; cut public spending; pare the government payroll; adopt investment incentives; sell publicly owned companies.; lift price controls; freeze the money supply; and eliminate red tape. Dozens of countries signed on -- all hoping soon to become NICs.
It didn't work out that way. Few of the countries undertaking structural adjustment have turned into tigers. Most have become turkeys. Take the case of Jamaica. In the early 1980s, this Caribbean island seemed an ideal candidate for achieving NIC status. Wages were low, the workforce fairly well trained and the world's most prosperous market only a short plane ride away. Michael Manley, the socialist prime minister, whose misconceived policies had set Jamaica back a decade, was replaced by Edward Seaga, a free-market enthusiast with proven administrative skills.
Seaga was convinced the East Asian model could work at home. Working closely with the IMF and the World Bank, he zestfully slashed tariffs, cut the government payroll and put dozens of state-owned companies up for sale. A special trade agency promoted the production of honey, flowers and other non-traditional exports. Glossy brochures touted "Investing in the New Jamaica," and no investor was too small to obtain a special audience with the prime minister. Seaga traveled frequently to the United States, meeting with businessmen and trade groups, lining up allies. David Rockefeller, among others, agreed to help.
It was for naught. During Seaga's eight years in office, the Jamaican economy grew a puny 0.6 percent a year, industrial production remained stagnant and exports actually fell 4.5 percent a year. All in all, structural adjustment proved a grand flop, and in 1989 disgruntled Jamaicans voted Seaga out of office and Manley back in.
Seaga's failure points up the problems that most Third World countries face in following the NIC model. First, Seaga's exertions in search of foreign investment produced few dividends. Some Americans did set up shop, but the amount of capital involved -- and the number of jobs generated -- fell far short of expectations. Many investors -- turned off by Jamaica's strong unions and volatile political climate -- bypassed the island for more tranquil spots like the Dominican Republic and Thailand.
Clearly, in the drive for foreign investment, the NICs had a unique advantage in being first. In the late 1960s, East Asia had few competitors as a source of cheap labor, and foreign manufacturers flocked there by the hundreds. Today, virtually every country -- even Cuba -- wants foreign capital, and investors commonly circle the globe in search of the most lucrative deals. Now, with Eastern Europe coming on the market, competition for capital will grow even fiercer.
The same is true for exports. In the late 1960s, conditions were ideal for nations seeking foreign markets. The world economy was booming, global trade was expanding. Today, of course, everyone wants to export. The world economy has slowed, and trade barriers are going up everywhere. Finding new markets is proving difficult for the United States, much less for small nations with limited experience abroad.
In other respects, too, the East Asian model has caused mischief in the Third World. To hear the IMF and World Bank tell it, the NIC miracle was a simple matter of unleashing the marketplace. Certainly the private sector's role was pivotal in these countries. But the public sector played an important part as well. In Singapore, for instance, the government of Lee Kuan Yew intervened forcefully in the economy, setting production priorities, allocating capital and building infrastructure. Even in a mature economy like Japan, the state actively assists the private sector.
The development experts prefer not to dwell on such fine distinctions. In their view, the state is inherently evil, the market inherently good. Overall, though, unbridled capitalism has fared little better than socialism in the Third World. In Asia, the Philippines, a welcome mat for Western capital, has not done much better than nearby Vietnam. In Africa, neither Zaire nor Liberia seems a good advertisement for Western-style economics. In this hemisphere, meanwhile, the sprawling shantytowns of Lima, Rio and Caracas bear squalid witness to the dark underside of capitalist development. Chile has done somewhat better than its neighbors, yet even its per-capita income barely exceeds $1,500 per year, and a large sector of the population has failed to share in the country's recent growth.
The truth is, nothing in the Third World -- socialism or capitalism, centralization or deregulation, Marxism or the marketplace -- seems to work. Still, development is possible in the Third World, but fostering it would require a radical change in attitude. Particularly essential is a new approach to the countryside.
In most Third World countries -- capitalist and socialist alike -- the rural sector invariably gets pushed aside. Compared to the glitter of new assembly plants and free trade zones, the countryside seems hopelessly backward. Yet it is here that most of the Third World's rapidly growing population resides. And it is here that the real potential for development lies.
The rice farmers, corn growers and chicken breeders of the Third World represent a vast labor force -- most of it uptapped. Throughout Asia, Africa and Latin America, land is being worked much as it was in the 17th century. Tools remain archaic and farm techniques prehistoric. Scarce credit has made even fertilizer a luxury, and bad roads keep all but the most determined farmers from getting to market. To aggravate matters, governments often keep crop prices artificially low to provide cheap food for the city.
Consequently, many Third World nations -- even fertile ones -- must import food at great cost. In Jamaica, for instance, 50 percent of the population lives in the countryside, yet agriculture contributes only 6 percent to GNP. In 1988, Jamaica imported more than 400,000 metric tons of grain -- a sin for so lush an island.
The marketplace can play a role in rectifying this. If farmers can get a fair price for their crops, they will invariably produce more. But the private sector alone is not enough. Exploiting the potential of the countryside would require Third World governments -- and the financial institutions that back them -- to channel far more resources into agriculture. Roads must be built, technical assistance provided, credit expanded. And, where peasants lack land, the government must try to provide some.
By boosting rural incomes, such policies would help alleviate the terrible rural poverty that afflicts so many Third World societies. They would also help increase food production, enabling governments to save valuable foreign reserves now squandered on imports. Prosperity in the countryside would help create an expanded domestic market for local industries -- putting them in a better position to exploit foreign markets.
This, in fact, is one of the lessons of the NIC experience. South Korea, for one, carried out extensive agrarian reform in the 1960s. Long before anyone began thinking about exports, the government redistributed land, raised crop prices and expanded rural credit. Farm production boomed, setting the stage for the country's subsequent takeoff.
Sadly, such realities are rarely mentioned in the NIC literature. Yet things may be changing. In July, the World Bank issued its first comprehensive report on world poverty in a decade. The document makes for grim reading. More than one billion people in the Third World live in absolute poverty, the report states, adding that "many developing countries have not merely failed to keep pace with the industrial countries; they have seen their incomes fall in absolute terms."
Of all the causes contributing to this deterioration, the bank asserts, none is more important than the abandonment of the countryside. "The expansion of agriculture is the driving force behind effective rural development, which in turn lays the foundation for broadly based, poverty-reducing growth," the study states.
What a welcome change from all the talk about NICs, exports and structural adjustment. The question is, will the bank follow through on its own analysis?
Michael Massing is a New York writer who reports frequently on the Third World.