READINGS NATIONAL SECURITY MANAGEMENT UNIT I THE INTERNATIONAL ENVIRONMENT NATIONALDEFENSE UNIVERSITY NATIONAL SECURITY MANAGEMENT UNIT I THE INTERNATIONAL ENVIRONMENT READINGS ESTON T. WHITE DONALD D. ZURAWSKI Associate Professor of Colonel, United States Air Force Social Science Director Unit Director Extension Programs Directorate National Defense University Washington, D.C. 1980 National Security Management Series NATIONAL DEFENSE UNIVERSITY Washington, D.C. ROBERT G. GARD, .TR., LIEUTENANT GI':NERAL, USA President, National Defense University JAMES E. DALTON, MAJOR GENERAL, USAF Commandant, Industrial College of the Armed Forces LEE E. SURUT, MAJOR GENERAL~ USA Commandant, National War College Parts of this volume are protected by copyright and may not be reproduced, quoted, or extracted without specific permission of the copyright proprietor. This material is furnished for instructional purposes only. The views or opinions expressed or implied are not to be construed as representing official policies of the Department of Defense. CONTENTS Page READINGS I-1 THE MoDERNIZATION PRocEss, PARTS 1 AND 2 1I-2 BACKGROUND ON ARMS CoNTROL NEGOTIATIONS 41I-3 THE UNITED STATES AND RATIONALIZATION, STANDARDI-61ZATION, AND INTEROPERABILITY (RSI) IN NATOI-4 THE WoRLD EcoNOMY 107 LIST OF ABBREVIATIONS NOTE: These readings supplement texts in Unit I of the NationalSecurity Management Course. See the Unit I Study Guide for theUnit Outline and Required Readings. iii READING I-l THE MODERNIZATION PROCESS PART l COMPARATIVE MODERNIZATION Cyril' E. Black A number of conceptions have dominated the interpretation of human development since the Enlightenment, when an essentially theological view of history gave way to a more critical mode of thinking. The idea of progress was an early result of this change in the eighteenth century, but its proponents tended to overestimate the power of reason in human affairs, and hence to depreciate all earlier periods of history. A new appreciaton of the past accompanied the formatio!n of national states in the early nineteenth century, and this trend resulted in the study and publication of vast resources of literary and political documents that served to bolster the traditional heritage of the national states that arose from the ashes of the dynastic empires. This essentially -romantic approach tended to set one national tradition against another, however, and failed to provide a basis for a gejneral interpretation of world history. At the same time, efforts to provide a unity to world history were made by philosophers who sought to interpret human development as the working out of abstract concepts. Hegel's view of history as the realization of the principle of freedom, through a dialectical process in which restraints on freedom were overcome in a series of phases, exerted a wide influence on subsequent thinkers. Marx used this dialectical method in his interpretation of history, which looked toward the $iversal victory of the proletariat after a long struggle between ex~ ploited and exploiters in the course of which systems of slavery, feudalism, and capitalism succeeded one another. This view forms the basis of the Marxist-Leninist interpretation of history, which is dominant in one form or another in the USSR and in ·other Communist countries today. This reading Is divided Into two parts. This selection Is reprinted with permission of Macmillan Publishing Company, Inc., from the Introduction of Oomparatlve Modernization, A Reader, edited with an Introduction by Cyril E. Black. Copyright © 1976 by The Free Press, A Division of Macmll~an Publlshing Company, Inc. Cyril E. Black Is with the Department of History, Princeton Unlverelty. Underlying all contemporary historical writing is a common tradition of the study and criticism of historical sources on the basis of foundations laid in the nineteenth century. These critical principles have been significantly refined as a result of the application of methods borrowed from the other behavioral and social sciences. Anthropology has contributed a deeper understanding of the use of oral and archeological sources, and of the value of holistic frames of reference that take into account the entire culture and world view of a society. Economics has contributed not only a much more accurate view than was hitherto possible of the relationship of agricultural and industrial pursuits to other aspects of society, but a sophisticated measurement of the dimensions .and structure of growth. Political scientists have analyzed the organization of power and of policy-making institutions, and have elaborated an appreciation of the nature of political participation that is useful in the study of societies. Philosophers, psychologists, and natural scientists have studied the relation of the biological nature of human beings to their social life, the development of an understanding of the natural and human environment, and the ways in which this understanding affects behavior. Sociologists and social psychologists, for their part, have made great progress in analyzing the social structures that form the basis for all human action, and the ways in which the wide variety of structures created by the different people of the world perform the functions essential to social cohesion and. development. All of these trends have contributed to the view of history that is taught in the American educational systems, but the general interpretation within which historical material is presented has been limited to a rather ethnocentric perspective based essentially on the assumed dominance of the way of life developed by West European and English-speaking peoples. This view, which may be referred to briefly as Western or Westernizing, tends to predominate in both higher and secondary education in the United States. A typical colleage freshman survey course in "Western Civilization," for instance, will start by tracing the roots of European culture from Mesopotamia through Egypt, Greece, and Rome. The story then moves on to the interaction of the Roman and numerous barbarian institutions that formed what is traditionally known as the European "Middle Ages," and a rather sophisticated description has been developed of the complex of institutions known as "feudalism." The relatively static character of this group of societies is terminated first by the Crusades and later and more decisively by the Renaissance and Reformation, which form the background of the modern and contemporary eras. In such a conception, the history of other societies is normally introduced as they come under Western influence. Thus, Russia becomes .a part of "Western Civilization" at the beginning of the eighteenth century with the reign of Peter the Great, Turkey with the beginning of the reform movement in 1839, and Japan with the Meiji Restoration in 1868. The Asian and African societies do not form part of such a course until the twentieth century, when they gain independence and are described as adopting Western political institutions. Various alternative interpretations of "Western Civilization" tend to conform to the same general outlook. Whether the West is seen as a source of freedom and democracy, or as the leading center of industrialization, or even as an evil force of capitalist domination, it is still considered, from the Western standpoint, as decisively displacing the traditional cultures of other parts of the world. The essence of this Western interpretation of history is that in the course of the modern era, the West European and .English-speaking peoples have developed the political, economic, and social institutions that are the best adapted to the modern way of life, and that are of universal validity. The strength of this argument lies in the fact that it was in Western Europe that the rapid growth of knowledge characteristic of the modern era got its start, and that the societies of Western Europe and their offshoots in the new world (the United States, Canada, Australia, and New Zealand) have in general been the most successful in making use of this knowledge for human betterment. The comparatively high standards achieved by these societies in health, education, and welfare are widely recognized, and as a group they represent the models by which other societies are measured. They are in this sense the most "modern" societies, and it is not surprising that they should regard their institutions as appropriate for other societies to follow. The interpretation of history associated with this Westernizing view, which is still the dominant one in American scholarship, is particularly concerned with the freedom of the individual from undue restraints on the part of the state, with the development of a representative political system, with institutions providing for the accumulation and investment of capital with a minimum of regulation by the state, and in general with the promotion of as much freedom for the individual as is consistent with changing standards of public order and equity. This emphasis on the freedom of the individual is reflected in the Latin root of the term "liberal" and lies at the heart of this conviction. Realities in theWest European and English-speaking countries have of course not always matched the ideals held up 'by the liberal doctrine. In general, however, the average man enjoys greater freedom for development and self-expression in these societies than elsewhere, and in times of crisis, when threatened by the real menace of Hitlerism or a perceived threat of Stalinism, the peoples of these societies have sought with courage and determination to defend their legacy of freedom. Relative to the potentialities of modern knowledge this freedom is often remarkably limited, but relative to the state of affairs in other parts of the world it is very rea.l indeed. To question the universa.l applicability of the doctrinaire liberalism chara.cteristic of the Western tra.dition is not to question the a.chievements of the West Europea.n and English-speaking countries in enhancing human welfa.re within their societies and in comparison with other societies. The issue in question is not the extent of these achievements, but the conclusions tha.t have been drawn from them in the interpretation of world history. Those fa.voring the Westernizing approach are inclined to maintain tha.t the institutions as well as the levels of aohieve'I'Ttent of the West European and English-speaking societies-the way in which things are done .as well as w·hat is done-are of universal validity. It would follow from this opinion that not only the political institutions but also the social, economic, and religious institutions of the West should be adopted by other societies if they wish to match the West. An extreme instance of the Westernizing view is reflected in a debate among Chinese intellectuals in the nineteenth century as to whether China could have railroads without Christianity-inasmuch as the countries that had developed railroads were all Christian. The answer, RS we now know, is that railroads can be built and operated without Christianity (or democracy), but not without certain other characteristics that are essential to modern industry: knowledge of science and technology, the ability to mobilize extensive resources for specific ends, and habits of work markedly different from those that normally prevail in agrarian societies. There are certain characteristics that must be present if a. society is to ta.ke adva.ntage of the a.dvancement of knowledge for huma.n welfa.re, but these chara.cteristics do not necessarily embra.ce all of the institutional means employed by Western societies. Criticism of the Westernizing a.pproach to history has focused on this distinction between the cha.racteristics of modern societies that a.re truly universal and those that a.re simply contempora.ry ve·rsions of the different institutional herita.ges of individual advanced societies. This criticism has emanated both from within Western societies and from other societies that have come under Western influence. In these other societies the question has been asked whether they must abandon their cultural heritage in order to gain the advantages of modern knowledge, or whether they can ada.pt their institutional heritage to the requirements of modernization. The initial impa.ct of the advanced Western societies has been so profound that other societies have frequently been inclined to borrow their institutions wholesale, and to abandon their own. More often than not, such borrowings have not been successful, and thoughtful observers have come to the conclusion that the adaption of native traditional institutions to new functions is more effective in the long run than the borrowing of Western institutions in a more or less unaltered form. The concept of "modernization" embraces a considerable range of interpretations of human development, but these views share certain common assumptions that give the term distinctive meaning and at the same time distinguish it from other conceptions. Four assumptions in particular deserve mention regarding the concept of modernization: the importance attributed to the capacities relevant to modernization developed by a society before the modern era; the role of the advancement of knowledge, as reflected mainly in the scientific and technological revolution, as the primary source of change that distinguishes the modern era from earlier eras; the capacity of a society in politJical, economic, and social terms to take advantage of the possibilities for development offered by the advancement of knowledge; and the utility of various policies that the political leaders of a society may follow in seeking both to convert its heritage of values and institutions to modern requirements and to borrow selectively from more modern societies. These assumptions will be more fully discussed in the next two sections . . . but it should be noted here that most interpretations of the process of modemization stress the differences in the institutional heritage of the Western and other societies, and assume that the latter are likely to retain many distinctive characteristics long after they have undergone modernizing transformations. It would follow from this view that not just Western institutions but those of other societies as well can be adapted in varying degrees to the requirements of modernity. The problem of the later developing societies is not to discard their institutions in favor of those borrowed from the West, but rather to evaluate their institutional heritage and decide to what extent it can be converted to the requirements of the modern era. The diverse societies of the world should be studied for their own interest, and not simply in terms of their relationship to Western influence. To say this is not to say that Western influence is not a significant force, but rather that it is secondary to the conversion that the native institutional heritage of these societies must undergo. One ·important contribution of the concept of modernization to the interpretation of human development-as compared with its interpretation in terms of liberalism, Marxism, or Marxism-Leninism-is t.hat modernization places more emphasis on the behavioral and social sciences and less on Western or other models; it is more concerned with process than with goals. Along with the common assumptions that set the interpretation of social change in terms of modemization sommvhat apart from other views, there is also. considerable disagreement among those advocating this interpretation. Perhaps the most common approach is that which regards economic growth as the principal source of change and relates E-verything else to it. One problem with this approach is that it does not explain what causes economic growth. Italso devotes inadequate attention to the differing heritages of values and institutions, and is inclined to see all societies as converging as they modernize. Another approach takes economic growth for granted, and focuses primarily on political and social change. Research on certain aspects of change written from this standpoint may advance our knowledge of special topics, but usually it fails to take into account the larger context of change. More ambitious but also more hazardous are the approaches that. seek to encompass the entire process of the impact of the scientific and technological revolution on all aspects of human activity. Such holistic interpretations, typical of anthropologists, seek a very broad approach to societies and are especially concerned with the interrelationships of the various aspects of social change. To the extent that such relationships can be quantified, it is possible to visualize the activities of societies and peoples in terms of a single "system." The differences separating the concept of modernization from the liberal and socialist approaches have been noted, yet these differences deal with the same subject matter and therefore inevitably have much in common. Studies of specific topics by scholars writing from the point of view of liberalism, socialism, or modernization may differ very little. The important differences have to do with the trends and patterns of which such topics form a part. COMPARATIVE MODERNIZATION DEFINED Narrowly defined aspects of societal development can often best be studied in terms of the experience of individual countries, but the broader question of the commonalities and variations among societies in the course of modernization can only be examined comparatively. The comparative study of modernization seeks to contribute to an understanding of how the advancement of knowledge-the scientific and technological revolution-affects societal development. Such an understanding naturally has implications for the inherent opportunities and dangers that public policy should take into account. An analysis of this kind may sound like a large order, but any study of the process of change in the modern era must be set in a framework that is both global and multidisciplinary. The comparative study of modernization starts with the observation that unprecedented changes have taken place in the modern era in the advancement of knowledge, political development, economic growth, social mobilization, and psychological adaptation. It seeks to understand these changes, to evaluate the results of different policies of change in the various societies of the world, to study the capacities and obstacles brought to the process of change by the differing institutional heritages. It is an approach that seeks to reduce ethnocentric bias through the application of the comparative method, and does not assume that any of the patterns of policy currently predominant in the advanced societies are necessarily applicable to other societies or are themselves immune to drastic change. As regards the advancement of knowledge, for example, the comparative study of modernization is concerned with the world views of premodern and modernizing leaders; the modes and structures of intellectual controversy; the share of a society's resources that is devoted to basic and applied research; the proportion of the population that is engaged in primary, secondary, and higher education; and the extent and nature of its communications network. In the case of the less developed societies, crucial considerations include their capacity for borrowing from the more advanced societies, their employment of foreign specialists, and their interest in sending students abroad for specialized training. All these concerns are to some degree measurable, and all change over time. In the political realm, the comparative study of modernization focuses on the relations between the central structures of coordination nnd control and the individuals and groups that make up a society. Size and specialization are one indication of the level of development of a state bureaucracy; this level may also be measured by how much money the central bureaucracy spends in relation to the regional and local bureaucracies. A political system may be gauged too by the effectiveness of its performance, that is, by its capacity to maintain order, to endure without violent change, and to command the loyalty of citizens. The participation of individuals in governmental decisionmaking may be judged both in terms of a society's formal institutions, such as elected local, regional, and national representative bodies, and in terms of its informal institutions, such as political parties and special interest groups-and the means by which political, economic, ethnic, and other social interest groups influence political decisionmaking. Societies may also be compared with regard to their prevailing political ideologies, especially as they relate to the role of the public and private sectors. In the economic realm, both the changing structure of economic activity and rate of growth may be compared. It is customary to think of economic activity as divided into three main sectors: agriculture, industry, and the services. It is also customary to consider each of these sectors in relation to the proportion of the labor force they employ, the proportion of investments they absorb, their contribution to the gross national product, and their rates of growth. Growth is usually calculated in terms of gross national product. Though such estimates are not very accurate, they reflect adequately the main distinctions among societies at different stages of development. The relationship of a society's economy to that of other societies may also be assessed by the rate of growth of foreign trade, the composition of the foreign trade in terms of raw materials and manufactured goods, and the ratio of foreign trade to gross national product. In many ways the most visible aspect of change as it affects human welfare is what may be ca1led social mobilization-those changes that transform a society from many small and relatively isolated communities to one that is tightly knit by bonds of education, communications, transportation, urbanization, and common interests. The improvem$t of health from the advancement of knowledge leads to an abrupt increase in births over deaths, resulting in a population explosion that does not regain stability for several generations. This factor alone is a barrier to human welfare, as production must rise not only absolutely but also relative to population growth if people are to benefit. The relationship of strata within a society is also drastically altered. A modern society of managers, specialists of many kinds, industrial workers, office workers, and farmers with technical skills must be created out of a population that is normally four-fifths peasants, and such a transformation influences the life of every individual. In some degree the sense of community and mutual self-help characteristic of premodern villages is created at a national level in the urba'n way of life, in the common education and socialization of children in national school systems, and in the expanding communication system of newspapers, radio, television, and rapid transportation. Yet even in the most advanced societies human relationships remai!n less personal and cohesive than in agricultural communities, and individuals have a sense of isolation that is difficult to measure and evaluate. Further, with the drastic changes in stratification in the course of economic growth, the distributidn of income tends to lag. Though the income of all strata of a population grows markedly in the long run, distribution of income has thus far remained decidely unequal even in the most advanced societies. The personality of an individual results from the interaction of biological characteristics with social environment-the immediate family, the community, and the larger society with which the individual comes into contact. Personalities vary as these biological attributes and environments differ, and the general process of change in the modern era has substantially transformed the envirdnment within which individual personalities are formed. To attempt an understanding of personality adaptation, what needs to be measured, or at least evaluated, is the ability oi an individual to empathize with others beyond his immediate circle of acquaintances; the individual's acceptance of both the desirability of change and the recognition of a need for delayed gratification in the interest of future. benefits; and the capacity of the individual to judge peers according to their performance rather than their status. As compared with individuals in earlier times, a modern personality may be described as more open, more tolerant of ambiguity, and more concerned with controlljpg the environment-and by the same token perhaps less self-assured and stable. The psychological aspect of modernization has not been the subject of extensive research, but it has been demonstrated that modern characteristics can be measured and compared. MODERNIZATION AS A PROCESS Most writing on modernization deals with specific political, economic, and social problems in individual societies and limited periods of time, but it is also important to visualize how these problems interrelate within and among societies. The modern era may be seen as havi1:1g its roots in the renaissance in the twelfth century and more immediately in the scientific revolution in the seventeenth. Knowledge of the human enviroillilent has expanded rapidly since that time an<;l seems likely to continue into the indefinite future. This growth of knowledge has had a multiple impact on all aspects of human activity, taking effect in myriad small actions that together have caused sweeping transformations in the way people live. All efforts to divide this process into periods are by definition artificial, but they are no less necessary if one is to make the subject manageable. For our purposes here, the simplest possible periodization of the modernization process is: preconditions, transformation, advanced modernization, and international integration. Periodizations of this process vary, depending on an author's purpose and point of view, but all descriptions of it rely on a common body of data. . . . Itshould be kept in mind that the interpretation of societal transformation in terms of the concept of modernization has evolved only in the past decade or two, and is still characterized more by questions than by answers. This is a limitation and also a challenge. PART 2 THE CHANGE TO CHANGE Samuel P. Huntington POLITICAL SCIENCE AND POLITICAL CHANGE Change is a problem for social science. Sociologists, for instance, have regularly bemoaned their lack of knowledge conceming social change. In 1951 Talcott Parsons flatly stated, in italics, that "a general S·amuel P. Huntington Is Professor and Chairman of the Department ot Government, Harvard University. This reading originally was published In Comparative Politics, April 1971. Copyright © 1971 by The City University of New York. Reproduced with permission. theory of the processes of change in social systems is not possible in the present state of knowledge." Thirteen years later Don Martindale could see little improvement. Sociology, he argued, could account for structure but not for change: "its theory of social change," said he, also in italics ( l), "is the weakest branch of sociological theory." Other sociologists have expressed similar views.1 Yet, as opposed to political scientists, the sociologists are relatively well off. Compared with past neglect of the theory of political change in political science, sociology is rich with works on the theory of social change. These more generalized treatments are supplemented by the extensive literature on group dynamics, planned change, organizational change, and the nature of innovation. Until very recently, in contrast, political theory in general has not attempted to deal directly with the problems of change. "Over the last seventy-five years," David Easton wrote in 1953, "political research has confined itself largely to the study of given conditions to the neglect of political change." 2 Why did this happen? Several factors would seem to play a role. While the roots of political science go back to Aristotle (whose central concern was "to consider things in the process of their growth"), modern political science is a product of the late nineteenth and early twentieth centuries. Itcame into being in the stable political systems of ·western Europe and North America, where radical change could be viewed as a temporary deviation in, or extraordinary malfunctioning of, the political system. In Parson's terminology, political scientists might study change in a system (such as the fluctuations in power of political parties•or of Congress and president), but they did not concern themselves with change of the system.3 Political sc-ientists neglected change because they focused their primary attention on states where change did not seem to be much of a problem. Reinforcing this tendency was the antihistorical temper of the more avant garde movements in political science. Born of history out of law, political science could establish itself as a discipline only by establishing its independence from its parents. Consequently, political scientists de-emphasized their ties with history and emphasized the similarities between their discipline and other social sciences. Political science evolved with the aid of periodic infusion of ideas, concepts, and 1 Talcott Parsons, The Social System (Glencoe, 1951), p. 486 ; Don Martindale, "Introduction," in George K. Zollschan and Walter Hirsch, eds.• Explorations in Social Change (Boston, 1964), p. xii: Alvin Boskoft', "Functional Analysis as a Source of a Theoretical Repertory and Research Tasks in the Study of Social Change," ibid., p, 2l3; Robin Williams. American Society (New York, 1960), p, 568. By 1969, however, Williams felt a little more optimistic about the prospects for a breakthrough in the sociological study of change. See Robin Williams, Sociology ana Social Change in the United States (-St. Louis, Washington University Social Science Institute, Studies In Comparative International Development, vol. 4, no. 7, 1968-1969). • David Easton, The Political System (New York, 1953), p, 42. • Talcott Parsons, The Social System, pp. 480 ft'. methods from psychology (Harold Lasswell in the 1930s), social psychology (David Truman and the groups approach of the late 1940s), sociology (structural-functionalism of the 1950s), and economics (equilibrium, input-output, game theory, in the 1960s). The behavioral stress on survey data, interviewing, and participant-observation reinforced the rejection of history. Political scientists attempt to explain political phenomena. They view politics as a dependent variable, and they naturally look for the explanations of politics in other social processes and institutions. This tendency was reinforced by the Marxian and Freudian intellectual atmosphere of the 1930s and 1940s. Political scientists were themselves concerned with the social, psychological, and economic roots of political behavior. Consequently, social change, personality change, and economic change were, in their view, more fundamental than political change. Ifone could understand and explain the former, one could easily account for the latter. Finally, political change tended to be ignored because comparative politics tended to be ignored. With rare exceptions, such as the work of Carl Friedrich and a few others, political scientists did not attempt systematic comparative analyses of similar processes or functions in different political systems or general comparisons of political systems as systems. In book titles and course titles, compara,tive government meant foreign government. The study of political change is, however, intimately linked to the study of comparative politics. The study of change involves the c~mparison of similarities and differences through time; comparative politics involves the analysis of similarities and differences through space. In addi'tion, the comparison of two political Rystems which exist simultaneously but which differ significantly in their major characteristics inevitably raises the questions: Is one system likely to evolve into a pattern similar to that of the other? Are the two systems related to each other in an evolutionary sense? Thus, the analysis of politica-l change is rrot likely to progress unless the study of comparative politics is also booming. Not until the mid-1950s did a renaissance in the study of comparative politics get under way. That renaissance began with a concern with modernization and the comparison of modern and traditional political systems. It evolved in the early 1960s into a preoccupation with the concept of political development, approached by way of systems theory, statistical analysis, and comparative history. In the late 1960s, the focus on political development in turn yielded to broader efforts to generate more general theories of political change. THE CONTEXT OF MODERNIZATION The new developments in comparative politics in the 1950s involved extension of the geographical scope of concern from Western Europe and related areas to the non-Western "developing" countries. It was no longer true that political scientists ignored change. Indeed, they seemed almost overwhelmed with the immensity o£ the changes taking place in the modernizing societies o£ Asia, Africa, and Latin America. The theory of modernization was embraced by political scientists, and comparative politics was looked at in the context of modernization. The concepts o£ modernity and tradition bid fair to replace many of the other typologies which had been dear to the hearts of political analysts: democracy, oligarchy, and dictatorship; liberalism and conservatiSIIn; totalitarianism and constitutionalism; socialism, communism, and capitalism; nationalism and internationalism. Obviously, these categories were still used. But by the late 1960s, for every discussion among political scientists in which the categories "constitutional" and "totalitarian" were employed, there must have been ten others in which the categories "modern" and "traditional" were used. These categories were, of course, the latest manifestation of a Great Dichotomy between more primitive and more advanced societies which has been a common feature of Western social thought for the past one hundred years. Their post-World War II incarnation dates from the elaboration by Parsons and Edward Shils of their pattern variables in the early 1950s and the subsequent extension of these from "choices" confronting an "actor" to characteristics of social systems, undertaken by Frank Sutton in his 1955 paper on "Social Theory and Comparative Politics." 4 Sutton's summary of modern and traditional societies (or, in his terms, "industrial" and "agricultural" societies) encompasses most of the generally accepted distinguishing characteristics of these two types: Agricultural Society Modern Industrial Society 1. Predominance of ascriptive, 1. Predominance of universalparticularistic, diffuse patterns istic, specific, and achievement 2. Stable local groups and limited norms. spatial mobility 2. High degree of social mobility 3. Relatively simple and stable (in a general-not necessarily "occupational" differentiation "vertical"-sense) 4. A "deferential" stratification 3. Well-developed occupational system of diffuse impact. system, insulated from other social structures 4. "Egalitarian" class system based on generalized patterns of occupational achievement 5. Prevalence of "associations," i.e., functionally specific, nonascriptive structures. • Frank X. Sutton, "Social Theory and Comparative Polltlcs." in Harry Eckstein and David Apter, eds., Comparative Politics: A. Reader (New York, 1963), pp. 67 ff. The essential diffei'ence between modern and traditional society, most theorists of modernization contend, lies in the greater control which modern man has over his natural and social environment. This control, in turn, is based on the expansion of scientific and technological knowledge. To a sooiologist such as Marion Levy, for instance, a society is "more or less modernized to the extent that its members use inanimate sources of power and/or use tools to multiply the effects of their efforts." 5 Cyril Black, an historian, argues that modern society results from adaptation of "historically evolved institutions . . . to the rapidly changing functions that reflect the unprecedented increase in man's knowledge, permitting control over his environment, that accompanied the scientific revolution." 6 Among political scientists, Dankwart A. Rustow holds that modernization involved a "rapidly widening control over nature through closer cooperation among men." 7 To virtually all theorists, these differences in the extent of man's control over his environment reflect differences in his :fundamental attitudes toward and expectations from his environment. The contrast between modern man and traditional man is the source of the contrast beween modern society and traditional society. Traditional man is passive and acquiescent; he expects continuity in nature and society and does not believe in the capacity of man to change or to control either. Modern man, in contrast, believes in both the possibility and the desirability of change, and has confidence in the ability of man to control change so as to accomplish his purposes. At the intellectual level, modern society is characterized by the tremendous accumulation of knowledge about man's environment and by the diffusion of this knowledge through society by means of literacy, mass communications, and education. In contrast to traditional society, modern society also involves much better health, longer life expectancy, and higher rates of occupational and geographical mobility. It is predominantly urban rather than rural. Socially, the family and other primary groups having diffuse roles are supplanted or supplemented in modern society by consciously organized secondary associations having more specific functions. Economically, there is a diversification of activity as a few simple occupations give way to many complex ones; the level of occupational skill and the ratio of capital to labor are much higher than in traditional society. Agriculture declines in importance compared to commercial, industrial, and other nonagricultural activities, and commercial agriculture replaces subsistence agriculture. The geographical scope of economic activity is far greater in modern society than in traditional society, and there is a centralization of such activity at the national level, with the emergence of a • Marlon Levy, Modernization and the Structure of Societies (Princeton, 1966), I :11. •Cyril E. Black, The Dynamics of Modernization (New York, 1966), p, 7. 7 Dankwart A. Rustow, A World of Nations (Washington, 1967), p, 3. 328-687 0 -80 -2 national market, national sources of capital, and other national economic institutions. The differences between a modern polity and a traditional one flow from these more general characteristics of modern and traditional societies. Political scientists have attempted various formulations of these differences. Perhaps the most succinct yet complete checklist is that furnished by Robert E. Ward and Rustow.8 A modern polity, they argue, has the following characteristics which a traditional polity presumably lacks: 1. A highly differentiated and functionally specific system of governmental organization; 2. A high degree of integration within this governmental structure; 3. The prevalence of rational and secular procedures for the making of political decisions; 4. The large volume, wide ra~ge, and high efficacy of its political and administrative decisions; 5. A widespread and effective sense of popular identification with the history, territory, and national identity of the state ; 6. Widespread popular interest and involvement in the political system, though not necessarily in the decision-making aspects thereof; 7. The allocation of political roles by achievement rather than ascription; and 8. Judicial and regulatory techniques based upon a predominantly secular and impersonal system of law. More generally, a modern polity, in contrast to a traditional polity, is characterized by rationalized authority, differentiated structure, mass participation, and a consequent capability to accomplish a broad range of goals.9 The bridge across the Great Dichotomy between modern and traditional societies is the Grand Process of Modernization. The broad outlines and characteristics of this process are also generally agreed upon by scholars. Most writers on modernization implicitly or explicitly assign nine characteristics to the modernization process. 1. Modernization is a revolutionary process. This follows directly from the contrasts between modern and traditional society. The one differs fundamentally from the other, and the change from tradition to modernity consequently involves a radical and total change in patterns of human life. The shift from tradition to modernity, as Cyril Black says, is comparable to the changes from prehuman to human existence and from primitive to civilized societies. The changes in the s Dankwart A. Rustow and Rubert E. ·ward, "Introduction," in Ward and Rustow, eds., Political Modernization in Japan and Turkey (Princeton, 19·64). pp. 6-7. • See Samuel P. Huntington, Political Order in Changing Societies (New Haven, 1968), pp. 32-37. eighteenth century, Reinhard Bendix echoes, were "comparable in magnitude only to the transformation of nomadic peoples into settled agriculturalists some 10,000 years earlier." 10 2. Modernization is a complex process. It cannot he easily reduced to a single factor or to a single dimension. It involves changes in virtually all areas of human thought and behavior. At a minimum, its components include: industrialization, urbanization, social mobilization, differentiation, secularization, media expansion, increasing literacy and education, expansion of political participation. 3. Modernization is a systemic process. Changes in one factor are related to and affect changes in the other factors. Modernization, as Daniel Lerner has expressed it in an oft-quoted phrase, is "a process with some distinctive quality of its own, which would explain why modernity is felt as a consistent whole among people who live by its rules." The various elements of modernization have been highly associated together "because, in some historic sense, they had to go together." 11 4. Modernization is a global process. Modernization originated in fifteenth and sixteenth century Europe, but it has now become a worldwide phenomenon. This is brought about primarily through the diffusion of modern ideas and techniques from the European center, but also in part through the endogenous development of non Western societies. In any event, all societies were at one time traditional; all societies are now either modern or in the process of becoming modern. 5. Modernization is a lengthy process. The totality of the changes which modernization involves can only be worked out through time. Consequently, while modernization is revolutionary in the extent of the changes it brings about in traditional society, it is evolutionary in the amount of time required to bring about those changes. Western societies required several centuries to modernize. The contemporary modernizing societies will do it in less time. Rates of modernization are, in this sense, accelerating, but the time required to move from tradition to modernity will still be measured in generations. 6. Modernization is a phased process. It is possible to distinguish different levels or phases of modernization through which all societies will move. Societies obviously begin in the traditional stage and end in the modern stage. The intervening transitional phase, however, can also be broken down into subphases. Societies consequently can be compared and ranked in terms of the extent to which they have moved down the road from tradition to modernity. While the leadership in the process and the more detailed patterns of modernization will differ 10 Black, Modern(zation, pp. 1-5; Reinhard Bendix, "Tradition and Modernity Reconsidered," Comparative Studies in Society and History 9 (April 1967) : 292-293. 11 Daniel Lerner, The Passing of Traditional Society (Glencoe, 1958), p. 438. from one society to another, all societies will move through essentially the same stages. 7. Modernization is a homogenizing process. Many different types of traditional societies exist ; indeed, traditional societies, some argue, have little in common except their lack of modernity. Modern societies, on the other hand, share basic similarities. Modernization produces tendencies toward convergence among societies. Modernization involves movement "toward an interdependence among politically organized societies and toward an ultimate integration of societies." The "universal imperatives of modern ideas and institutions" may lead to a stage "at which the various societies are so homogeneous as to be capable of forming a world state...." 12 8. Modernization is an irreversible process. While there may be temporary breakdowns and occasional reversals in elements of the modernizing process, modernization as a whole is an essentially secular trend. A society which has reached certain levels of urbanization, literacy, industrialization in one decade will not decline to substantially lower levels in the next decade. The rates of change will vary ·significantly from one society to another, but the direction of change will not. 9. Modernization is a progressive process. The traumas of modern ization are many and profound, but in the long run moderniza;tion is not only inevitable, it is also desirable. The costs and the pains of the period of transition, particularly its early phases, are great, but the achievement of a modern social, political, and economic order is worth them. Modernization in the long run enhances human well-being, culturally and materially.... THE CONCEPT OF POLITICAL DEVELOPMENT Definitions of the Concept" Sharing the concern of other social scientists with the Great Dichotomy of modernity and tradition and the Grand Process of Modernization, political scientists in the 1960s began to pursue more actively their interests in what was variously called political modernization or political development. Their starting point was the concepts of tradition and modernity; eventually this essentially comparative and static focus gave way to a more dynamic and developmentally oriented set of concerns. This shift can be clearly seen in the work of the Social Science Research Council (SSRC) Committee on Comparative Politics and particularly of Gabriel Almond, its chairman and intellectual leader during the 1950s and early 1960s. The volume which undoubtedly played the major role in first focusing the attention of political scientists on developmental problems was 12 Black, Dynamics of Modernization, pp. 155, 174. The Politics of the Develop·t"ng Areas, edited by Almond and James S. Coleman and published in 1960 under the sponsorship of the Comparative Politics Committee and the Princeton Center for International Studies. The bulk of the book consisted of descriptions and llnalyses in terms of a common format of politics in five developing areas. The principal intellectual impact of the book, however, came from the introduction by Almond and, to a lesser degree, the concluswn by Coleman. This impact was very largely the result of their ,application to the politics of non-Western countries of a general concept or the political system. Almond used this framework to distinguish between "developed" and "underdeveloped" or "developing" political systems. Developed political systems are characteristic of modern societies and underdeveloped ones of traditional societies. Almond's concepts of "traditionality" and of "modernity" or, as he seemed to prefer, "rationality," are described in Parsonian terms derived from the central stream of sociological analysis. Almond's distinctive contribution in this respect, however, was the insistence that all political systems are culturally mixed, combining elements of modernity and tradition. "All political systems-the developed Western ones as well as the lessdeveloped non-Western ones-are transitional systems.... "He was appropriately critical of some sociological theorists for promoting "an unfortunate theoretical polarization" in not recognizing this "dualistic" quality of political systems.13 The Politics of the Developing Areas is a work in comparative polities, not one in political development. This volume presents a behavioral and systems approach for the analysis of comparative politics; it does not present a concept or theory of political development. The phrase "political development" is, indeed, notably absent from its vocabulary. It is concerned with the analysis of the political systems of societies which are presumed to be developing (or modernizing) and the comparison of those systems with the political systems presumed to exist in modern societies. Its key categories are system, role, culture, structure, function, socialization. With the possible exception of socialization, no one of these refers to a dynamic process. They are categories essential to the comparative analysis of political systems; they are not oriented to the change and development of political systems. Almond posited a number of functions which must be performed in any political system and then compared systems in terms of the structures which perform those functions. "What we have done," he said, "is to separate political function from political structure." Almond also argued that, "We need dualistic models rather than monistic ones, and developmental as well as equilibrium models if we ,. Gabriel Almond, "Introduction: A Functional Approach to Comparative Politics," In Almond and James S. Coleman, eds., The Politics of the Developing Areas (Princeton, 1960), pp. 23-24. are to understand differences precisely and grapple effectively with the processes of political change." 14 In this book, Almond and his associates presented the elements of a dualistic model of the political system, but they did not attempt to present a "developmental model" which would contribute to the understanding of "the processes of political change." For Almond that task came six years later with another major theoretical work coauthored with C. Bingham Powell, Jr. Unlike the earlier volume, this book was concerned with political dynamics and focused explicitly on political development as a subject and as a con-· cept. Almond recognized the limitations of his earlier work in relation to the problems of political change. That earlier framework, he said, "was suitable mainly for the analysis of political systems in a given cross section of time. It did not permit us to explore developmental patterns, to explain how political systems change and why they change." 15 The earlier set of political functions (now called "conversion functions") was now supplemented by categories which described more fully the demands and supports which operate on the "input" side of the political system and by categories which described the "output" capabilities of the political system in relation to its environments (extractive, regulative, distributive, symbolic, and responsive). Political development, Almond and Powell argued, is the response of the political system to changes in its societal or international environments and, in particular, the response of the system to the challenges of state building, nation building, participation, and distribution. Political developm~'nt itsel:f was thought of primarily in terms of political modernization. The three criteria of political development were held to be: structural differentiation, subsystem autonomy, and cultural secularization. Almond thus came face to face with the problem which was gripping many other political scientists at that time: What is political development~ The answers to this question were more numerous than the answerers. Almost every scholar or group of scholars concerlned with the politics of the developing areas had to come up with at l~ast one formulation. Even to attempt to itemize them all here would be a tiresome and not particularly useful task. Fortunately, however, in 1965 Lucian W. Pye compiled a fairly comprehensive listing of ten meanings which had been attributed to the concept of political development: 1. the political prerequisite of economic development; 2. the politics typical of industrial societies; 3. political modernization;' 4. the operation of a nation-state; u Ibid., p. 25. "'Gabriel A. Almond and G. Bingham Powell, Jr., Comparative Politics: A Developmental Approach (Boston, 1966), p. 13. 5. administrative and legal development; 6. mass mobilization and participation; 7. the building of democracy; 8. stability and orderly change; 9. mobilization and power; 10. one aspect of a multidimelnsional process of social change. In a noble effort at synthesis, Pye attempted to summarize the mostprevalent common themes on political development as involving movement toward: increasing equality among individuals in relation to thepolitical system; increasing capacity of the political system in relationto its environments; and increasing differentiation of institutions andstructures within the political system. These three dimensions, heargued, are to be found "lying at the heart of the developmentprocess." 16 In a similar vein, another effort to generalize aboutdefinitions of political development found four oft-recurring concepts:rationalization, national integration, democratization, and mobilization or participationY This "quest for political development," in John Montgomery'sphrase,'8 necessarily led political scientists to grapple with three moregeneral issues. First, what was the relationship between politicaldevelopment and political modernization? The tendency was to thinkof political development as virtually identical with political modernization. Political development was one element of the modernizationsyndrome. Political scientists might disagree as to what types ofchange constituted political development, but whatever they did choosewas almost invariably thought of as a part of the more general processof modernization. The principal dissent from this point of view camein 1965 from Samuel P. Huntington, who argued that it was highlydesirable to distinguish between political development and modernization. The identification of the two, he said, limited too drastically theapplicability of the concept of political development "in both time andspace." It became restricted to a particular phase of historical evolution, and hence it was impossible to talk about the "political development" of the Greek city-state or of the Roman Empire. Inaddition, political development as political modernization made theformer a rather confusing complex concept, tended to reduce itsempirical relevance, and made it difficult if not impossible to conceiveof its reversibility, i.e., to talk about political decay.'9 '"Lucian W. Pye, Aspects of PoliticaZ.DeveZopment (Boston, 1966), pp, 31-48.''Samuel P. Huntington, "Political Development and Political Deooy," World Politics,17 (April 1965): 387-388.'"John D. Montgomery, "The Quest for Political Development," Comparative Politics1 (January 1969) : 285-2&5. ,. Huntington, "Political Development and Political Decay," pp, 389-393. 19 A second issue which political scientists had to deal with in their definitional efforts was whether political development was a unitary or a complex concept. Since so many people had so many ideas as to what constituted political development, the prevalent tendency was to think of it as a complex concept. This tendency was explained or, perhaps, rationalized by Pye on the grounds that the "multi-function character of politics . . . means that no single scale can be used for measuring t:he degree of political development." 20 Hence, most scholars used several dimensions: Pye himself, as indicated above, suggested three; Almond also had three; Ward and Rustow, eight; Emerson, five; Eisenstadt, four.21 This all seems very reasonable, since political development clearly would appear to be a complex process. Yet, obviously also, this approach can lead to difficulties. What are the relationships among the component elements of political development~ Thus, although Pye argued that equality, capacity, and differentiation constitute the development syndrome, he also had to admit that these do not "necessarily fit easily together." On the contrary, "historically the tendency has usually been that there are acute tensions between the demands for equality, the requirements for capacity, and the processes of greater differentiation." In a similar vein, Almond argued that "there is a tendency" for role differentiation, subsystem autonomy, and secularization "to vary together," but that the relation between each pair of these variables "is not a necessary and invariant one." 22 Almond, indeed, presented a two-way matrix with secularization and differentiation on one axis and subsystem autonomy on the other. He found some type of political system to occupy each of the nine boxes in his matrix. The question thus necessarily arises: What does political development mean if it can mean everything? On the other hand, if political development is defined as a unitary concept, the tendency is either to define it narrowly-as Huntington, for instance, did in identifying it exclusively with institutionalization-and thus to rob it of many of the connota tions and the richness usua;lly associated with it, or to define it very generally as for instance Alfred Diamant did, which in effect masks a complex concept under a unitary labeJ.23 A third problem in the definitional quest concerned the extent to which political development was a descriptive concept or a teleological 20 Lucian w. Pye, "Introduction," in Pye, ed., Communications an~ PoUtical Development (Princeton, 1963), p. 16. 21 See Pye, Aspects, pp. 45-48 ; Almond and Powell, Comparative Politics, pp, 299 ff. ; ward and Rustow, Japan and Turkey, pp. 6-7; Rupert Emerson, Political Modernization: The Single-Party System (Denver, 1963), pp. 7-8; S. N, Eisenstadt, "Bureaucracy and Political Development," in Joseph LaPalombara, ed., Bureaucracy an~ Political Development (Princeton, 1963), p. 99. 22 Pye, Aspects, p. 47; Almond and Powell, Comparative Politics. p. 306. For an intriguing analysis of some of these problems, see Fred W. Riggs, "The Di·alectics of Developmental Conflict," Comparative Political Studies 1 (July 1968) : 197 ff. 2a Alfred Diamant, "The Nature of Political Development," in Jason L. Finkle and Richard W. Gable, eds., PolHical Development and Social Change (New York, 1966), p. 92. one. If it was the former, it presumably referred either to a single process or to a group of processes which could be defined in terms of their inherent characteristics, as processes. Ifit was a teleological concept, on the other hand, it was conceived as movement toward a particular goal. It was defined not in terms of its content but in terms of its direction. As in the more general case of modernization the goals of political development were, of course, valued positively. The definition of political development in terms of goals would not have created difficulties if there were clear-cut criteria and reasonably accurate indices (e.g., the political equivalent of per capita gross national product) to measure progress toward those goals. In the absence of these, however, there was a strong tendency to assume that, because both scholarly analyst and, presumably, the political actors he was analyzing, wanted political development, it was therefore occurring. The result was that "Almost anything that happens in the 'developing' countries-coups, ethnic struggles, revolutionary wars-becomes part of the process of development, however contradictory or retrogressive this may appear on the surface" 2~ These definitional problems raised very real questions about the usefulness of political development as a concept. Referring to Pye's list of ten definitions, Rustow argued that this "is obviously at least nine too many." 25 In truth, however, one should go one step further. Ifthere are ten definitions of political development, there are ten too many, and the concept is, in all likelihood, superfluous and dysfunctional. In the social sciences, concepts are useful if they perform an aggregating function, that is, if they provide an umbrella for a number of subconcepts which do share something in common. Modernization is, in this sense, an umbrella concept. Or, concepts are useful because they perform a distinguishing function, that is, because they help to separate out two or more forms of something which would otherwise be thought of as undifferentiated. In this sense, manifest functions and latent functions are distinguishing concepts. Political development in general is of dubious usefulness in either of these ways. To the extent that political development is thought of as an umbrella concept encompassing a multiplicity of different processes, as in the Almond and Pye cases discussed earlier, these processes often turn out to have little in common except the label which is attached to them. No one has yet been able to say of the various elements subsumed under the label political development what Lerner, at a different level, was able to say about the broader processes subsumed under the label modernization: that they went together because "in some historical sense, they had to go together." Instead, it is clear that •• Huntington, "Political Development and Political Decay," p. 390. 25 Dankwart A. Rustow, "Change as the Theme of Political Science" (Paper dellvered at International Polltical Science Association Round Table, Torino, September 1969), pp. 1-2. the elements included in most complex definitions of political develop ment do not have to go together and, iii fact; often do not. In addition, if political development involves differentiation, subsystem autonomy, and secularization, as Almond suggests, do not the really interesting and important questions concern the relati~'ris among these three, as Almond himself implies in his conclusion? The use of the term political development may thus foster a misleading sense of coherence and compatibility among other processes and obscure crucial questions from discussion. To the extent, on the other h~nd, that political development is identified with a single, specific process, e.g., political institutionalization, its redundancy is all the more obvious. What is to be gained analytically by calling something which has a good name by a second name? As either an aggregating concept or a distinguishing concept, in short, political development is superfluous. The principal function that political development has in fact performed for political scientists is neither to aggregate nor to distinguish, but rather to legitimate. It has served as a way for political scientists to say, in effect: "Hey, here are some things I consider valuable and desirable goals and important subjects to study." Such would indeed appear to be the principal function for the discipline served by the debates over the meaning of political development. This aspect of the use of the concept has perhaps been particularly marked in the arguments over the relation of democratization to political development and the perennial uneasiness faced by political scientists when they consider the issue: Is the Soviet Union politically developed? The concept of political development thus serves in effect as a signal o£ scholarly preferences rather than as a tool for analytical purposes.26 The popularity of the concept of political development among political scientists stems perhaps from the feeling that they should have a political equivalent to economic development. In this respect, political science finds itself in a familiar ambiguous methodological position between its two neighboring disciplines. In terms of the scope of its subject matter, political science is narrower than sociology but broader than economics. In terms of the agreement within the discipline on goals, political scientists have more shared values than sociologists, but fewer than economists. Sociology is comprehensive in scope; economics is focused in its goals; political science is not •• Some people may say that people In glass houses should not throw stones on the grounds that I did, after all, argue that political development should be defined as political !nst!tut!onallzat!on in my 1965 article on "Political Development and Political Decay." My answer would be: true enough. But I do not mind performing a useful function by throwing stones and thus encouraging others to move out of their glass houses, once I have moved out of mine. In my 1968 book, Political Order in Changing Societies, which other wise builds extensively on the 1965 article, the concept of political development was quietly dropped. I focus Instead on what I conceive to be the critical relationship between political participation and political ·institutionalization without worrying about the issue of which should be labeled "political development." quite one or the other. The eclecticism and diffuseness of sociologicaltheory are excused by the extent of its subject. The narrowness andparochialism of economics are excused by the precision and eleganceof its theory.· In this situation, it is quite natural for political scientists to borrowconcepts from sociologists and to imitate concepts of economists. Thesociological concept of modernization is, quite properly, extended andapplied to political analysis. The concept of political development iscreated in the image of economic development. In terms of choosingits models, one might generalize, a discipline will usually tend to copythe more structured and "scientific" of its neighboring disciplines.This leads to difficulties comparable to those normally associated withthe phrase "misplaced concreteness." Economists, it will be said, dodiffer over what they mean by economic development and how onemeasures it. These differences, however, shrink to insignificance incomparison with the difficulties which political scientists have withthe term political development. If, on the other hand, political scientists had modeled themselves on the sociologists and talked aboutpolitical change in imitation of social change rather than politicaldevelopment in imitation of economic development, they might haveavoided many of the definitional and teleological problems in whichthey found themselves. Approaches toPolitical Development Many of the things that are often labeled studies in political development are not such in any strict sense. The study of political development is not the study of politics in societies at some given levelof development. If this were the case, there would be few if any studiesof politics which were not studies in political development, since thosepolicies which are usually assumed to be developed are also presumablystill developing. Yet not infrequently studies in the politics of lessdeveloped societies are treated as if they were studies in politicaldevelopment. Tunisia, it is said, is a developing society; therefore, itspolity is developing polity; therefore, a study in Tunisian politics is astudy in political development. The fallacy here is to look at the subject of the study rather than at the concepts with which that subject isstudied. Depending on the concepts which were used and hence thequestions which were asked, for instance, a study of John F. Kennedy'spresidency might be a study in the uses of power, the institutionalization of an office, legislative-executive relations, consensus-building, thepsychology of leadership, the role of intellectuals in politics. Or itcould, conceivably, be a study in political development or politicalchange. Exactly the same possibilities would exist for a study of HabibBourguiba's presidency. There is nothing in the latter which makes itinherently more "developmental" than the former. Precisely the same 23 is true for the innumerable studies of the role of the military, bureaucracy, and political parties in developing societies. More likely than not, these are simply studies of particular institutions in particular types of societies rather than studies in change or development. Depending upon the conceptual framework with which these subjects were approached, they could just as easily be studies in civil-military relations, organizational behavior, and political behavior, as studies in political development. They are the latter only if the categories employed are formulated in terms of change. It could, of course, be argued that change is so pervasive that it is virtually synonymous with politics itself and that hence it cannot be studied as a separate subject. The rejoinder is that, to be sure, politics is change, but politics is also ideas, values, institutions, groups, power, structures, conflict, communication, influence, interaction, law, and organization. Politics can be studied, and has been studied, in terms of each of these concepts. Each sheds a different light on the. subject, illuminates different areas, suggests different relationships and generalizations. Why not also analyze politics in terms of change or development~ In fact during the 1950s and 1960s a variety of scholars did just that. Many different approaches were employed. Without making any claim to inclusiveness or to systematic rigor, it is perhaps useful to focus on three of these approaches: system-function, social process, and comparative history. System-function. In the analysis of political development, a close relation existed between systems theory, in the strict sense, and structural-functional theory. It is, indeed, impossible to apply a func tional approach without employing some concept of the political system. The varieties of theory encompassed in this general category are reflected in the names: Talcott Parsons, Marion Levy, David Easton, Gabriel Almond, David Apter, Leonard Binder, Fred Riggs. The principal contribution of these scholars has been to develop a set of concepts and categories, central to which are those of "system" and "function," for the analysis and comparison of types of political systems. Among their other key concepts are: structure, legitimacy, input and output, feedback, environment, equilibrium. These concepts and the theories associated with them provide an overall model of the political system and the basis for distinguishing types of political systems in terms of the structures which perform the functions which must be performed in all political systems. The advantages of the system-function approach clearly rest in the generality of the concepts which it deploys on the plains of analysis. One problem of the approach for the study of political changes is the defect of this great virtue. It is primarily a conceptual framework. This framework does not necessarily in and of itself generate testablehypotheses or what are often referred to as "middle level generalizations." Scholars using the framework may come up with suchhypotheses or generalizations, but it is an open question whether theeonceptual framework is not more of a hindrance than a help in thisrespect. The approach itself provides little incentive for scholars todig into empirical data. Indeed, the tendency is in just the oppositedirection. The theory becomes an end in itself. It is striking how fewfacts there are not only in general works, such as Levy's two volumes,but even in case studies attempting to apply the system-function approach to a specific society, such as Binder's study of Iran.27 A more fundamental problem is that this approach does not inherently focus on the problem of change. It is possible to employ theconcept of "system" in a dynamic context, focusing on lags, leads, andfeedback. In actuality, however, much of the theorizing on politicaldevelopment which started from a systems approach did not primarilyemploy these dynamic elements in that approach. The stress was onthe elaboration of models of different types of political Rystems, notdifferent types of change from one system to another. In his twovolume opus, Modernization and the Structure of Societies, Levy, forinstance, is overwhelmingly concerned with the second element in histwo-component title. The bulk of his work is devoted to discussing thecharacteristics of societies in general and then distinguishing betweenthose of "relatively modernized societies" and of "relatively nonmodernized societies." The question of modernization and its political components gets short shrift in the first and last chapters of this 800-pagework. As we noted earlier, Almond himself saw somewhat comparablelimitations in the framework which he used in The Politics of Developing Areas. The much more elaborate and change-oriented schemewhich he and Powell present in Comparative Politics: A Developmental Approach does not entirely escape from this difficulty. Amongthose works in the system-function tradition directly concerned withpolitical development, David Apter's The Politics of iJiodernizationhas probably been most successful in bringing to the fore dynamicconcerns with the rate, forms, and sources of ohange. Yet to the extentthat he has done this, it has in large part flowed from his independentconcerns with normative questions and ideologies, which are derivedfrom sources other than the system-function framework which he alsoemploys. The structural-functional approach, as Kalman Silvert haspointed out, was initially employed by social scientists ( anthropologists and Talcott Parsons) interested in studying either very primitivesocieties or very complex societies. It is an approach pecuHarly limitedin what it can contribute to the understanding of societies undergoing 27 See Levy, Modernization and the Structure of Societies, and Leonard Binder, Iran:Political Development in a Changing Society (Berkeley and Los Angeles, 1962). fundamental change. It is, moreover, rather ironic that political scientists should have seized upon this approach in order to study political change at the same time that the approach was coming under serious criticism within sociology because of its insensitivity to, and limited usefulness in, the study of change. As has often been pointed out, a related difficulty in attempting to deal with change in this intellectual context is the extent to which the concept "equilibrium" a:lso tends to be implicitly or explicitly linked to the system-function approach. The equilibrium concept presupposes the existence of a system composed of two or more functionally related variables. Changes in one variable produce changes in others. The concept, as Easton has pointed out, is closely linked with the ideas of multiple causation and pluralism. In addition, however,.equilibrium also means that the variables in the system tend to maintain "a particular pattern of interaction." 28 In its pure form the theory conceives of equilibrium as a. state of rest. In all forms it presupposes tendencies toward the restoration of an original condition or a theoretically defined condition of equilibrium. Equilibrium theory has obvious limitations as a framework for exploring political change. As one sociologist observed, the theory "does not attend to intrinsic sources of change, does not predict changes that have persistent directionality (but only those that restore balance if that is disturbed) , and thus does not readily handle past changes that clearly affect the current state of the system." 29 In effect, change is viewed as an extraneous abnormality. It is held to be the result of strain or tension, which gives rise to compensating movements that tend to reduce the strain or tension and thus restore the original state. Change is "unnatural"; stability or rest is "natural." Some thinkers have attempted to reconcile· equilibrium and chang~ through the concept of moving equilibrium·. J3y itself, however, this concept is inadequate to account for a change. Ifthe equilibrium remains the same but IS itself moving as a whole, the concept does not explain the cause or direction of its movement. If th~ equilibrium is itself changing, then moving equilibrium really means multiple equilibria, and again some· theory is necessary to explain the succession of one equilibrium by another. Social process. The social-process approach to political development starts not with concepts of the social system and the political system but rather with a focus on social processes-such as industrialization, urbanization, commercialization, literacy expansion, occupational mobility-which are presumed to be part of modernization and to have implications for political change. ')'he emphasis is on the process, not .. Easton, Political System, pp, 266,-267, 272 ff.; Harold Lasswell and Abraham Kaplan, Power and Society (New Haven, 1950), p, xiv. .. Moore, ·"Social Change and C9.mparatlve Studies," pp. 524-525. the system. The approach is more behaviorally and empirically oriented than the system-function approach) and it typically leads to theaccumulation of substantial amounts of data, often quantitative innature (surveys or aggregate ecological data), ·about these social processes which it then tries to relate to political changes. While thescholar working with the system-function approach typically attemptsto impute functions, the scholar employing the social-process approachattempts to correlate processes. He may attempt to move beyond correlation to causation and to shed light on the latter through varioustechniques of causal or path analysis.The scholars most prominently associated with this type of approachto political development and related questions in the W50s and 1960sincluded Daniel Lerner, Karl Deutsch, Raymond Tanter, HaywardAlker, Phillips Cutright, and Michael Hudson. The two most important early works, which stimulated much of what followed, wereLerner's The Passing of Traditional Sooiety (1958) and Deutsch's1961 article, "Social Mobilization and Political Development." 30 Thesystem-function scholar begins with a concept of the political system,then differentiates different types or models of political systems, andfinally attempts to spell out the consequences and implications of thesedistinctions. His approach typically is concerned with linking a pattern of action to the system as a whole, i.e., identifying its functionwithin the system, while the social-process scholar is concerned withrelating one pattern of action to another pattern of action.The great virtue of the social-process approach is its effort to establish relationships between variables and particularly betweenchanges in one set of variables and changes in another. In this respect,it does fi>cus directly on change. Its limitations in dealing with changeare threefold. First, more often than not, the variables which havebeen used concern levels of development rather than rates of development. Since it is empirically oriented, the variables employed an>shaped by the availability of data. Data levels of literacy in differentsocieties at the same time (i.e., now) are easier to come by than dataon levels of literacy in the same society over time. The latter, however,are necessary for longitudinal analysis and the use of rates of changein literacy. While cross-sectional analyses may be useful and appropropriate in studying some types of relationships, they are also frequently inferior to longitudinal analyses in studying other types ofrelationships. The difficulty of getting data on the changes in variables so Karl W. Deutsch, "Social Moblllzatlon and Political Development," American PoliticalScience Review 55 (September 1961) : 493-514. For a suggestive eft'ort to relate Almond,Huntington, and SSRC Comparative Politics Committee theories of political development tothe available quantitative data, see Raymond F. Hopkins, "Aggregate Data and the Studyof Political Development," Journal of Politka 31 (February 1009): 71-94. 27 over time in most modernizing societies in Asia, Africa, and even Latin America has consequently led many social-process analysts back to the study of Western European and North American societies. Here is a clear case where knowledge of political change or political development is advanced by studying developed rather than developing societies. A related difficulty is the extent to which the social-process approach has been applied primarily to the comparison of national societies, which are often units too large and complex to be useful for comparative generalization for many purposes. A second problem in the social-process approach concerns the links between the usually social, economic, and demographic independent variable and the political dependent ones. The problem here is the general methodological one of the causal relationship between an economic or social change (which is in some sense "objective") to political changes which are normally the result of conscious human effort and will. Ifthe problem is, for instance, to explain voting participation in elections or the frequency of coups, how meaningful is it to correlate these phenomena with rates of economic growth, fluctuations in price levels, or literacy levels? The relation between the "macro" socioeconomic changes and "ma~ro" politics] changes has to be mediated through "micro" changes in the attitudes, values, and behavior of individuals. The explanation of the latter is the weak link in the causal chain which is assumed to exist in most social-process analysis. To date, the most prevalent and effective means of dealing with this problem has been the various forms of the "relative deprivation" and "frustration-aggression" hypotheses utilized to relate socioeconomic changes to political instability.31 Finally, at the dependent end of the causal chain, social process an~:tlysts often have trouble in defining political variables, identifying indices for measuring those variables, and securing the data required for the index. One more general criticism which can be raised about the socialprocess approach concerns the extent to which it makes politics dependent upon economic and social forces. That the latter are a major influence on politics is obvious, and this influence is perhaps particularly important in societies at middle levels of social-economic modernization. In its pure form, which, to be fair, most of its practitioners rarely use, the social-process approach would leave little room :for social structure and even less for political culture, political institutions, and political leadership. One of the great problems of the social-process approach to political change has been to overcome this initial deficiency at Ibid.; James C. Davies, "Toward a Theory of Revolution," American Sociological Review 27 (February 1962) : 5 ff.; Ivo K. and Rosalind L. Feierabend, "Aggressive Behaviors within Politics, 1948-1962: A Cross-National Study," Journal o! Conflict Resolution 10 (September 1966) : 253-254; Ted Gurr, Why Men Rebel (Princeton, 1970). and to find ways for assigning independent roles to cultural, insti tutional, and leadership factors. Comparative hwtory. A third approach to political development is somewh!llt more diverse and eclectic than the two just considered. I'ts practitioners share enough in common, however, to be loosely grouped together. They start neither with a theoretical model nor with a focus on the relationship between two or more variables, but rather with a comparison of the evolution of two or more societies. What "the system" is to the system-functions man and "process" is to the socialprocess manl ''society" is to the comparative-history man. He is, ·however, interested not just in the history of one society but rather in the comparison of two or more societies. The system-functions man conceptualizes; the social-process man correlates; the comparative history man, naturally, compares. Among social scientists concerned with political development who would fit primarily into this school are Cyril Black, S. N. Eisenstadt, Dankwart Rustow, Seymour Martin Lipset, Barrington Moore, Jr., Reinhard Bendix, and, in some measure, Lucian W. Pye and the members of the SSRC Committee on Comparative Politics. The work of these people tends to be highly empirical but not highly quantitative. They are, indeed, concerned with precisely those f!llctors with which the social-process analysts have difficulty: institutions, culture, and leadership. Their approach is to categorize patterns of political development either by general stages or phases through which all societies must pass or by distinctive channels through which different societies may pass, or by some combination of these "vertical" and "horizontal" types of categories. Moore, for instance, distinguishes three patterns of modernization, under bourgeois (England, United States), aristocratic (Gennany, Japan), and peasant (Russia, China) auspices. While he admits there may conceivably be a fourth way (India?), he is very dubious that this possibility will materialize. Consequently, every modernizing society will presumably have to find its way to modernity by way of liberal capitalism, reactionary fascism, or revolutionary communism. Cyril Black, on the other hand, starts by identifying four phases of modernization through which all societies pass: the initial challenge to modernity; the consolidation of modernizing leadership; ecGnomic and social transformation from a rural, agrarian to an urban, industrial society; and the integration of society, involving the fundamental reordering of social structure. He then spec~fies five criteria for distinguished among societies in tenns of how they have evolved through these phases and proceeds to classify all contemporary societies into "seven patterns of political modernization" on the basis of these criteria. He thus combines vertical and horizontal categories into a truly all-encompassing scheme of comparative 2Q 328-687 0 -80 -3 history, and he very appropriately subtitles his book, "Study in Comparative History." 32 In a slightly different vein, Dankwart Rustow and the SSRC Committee on Comparative Politics have attempted to identify the types of problems which confront modernizing societies and to compare the evolution of these societies in terms of the sequences with which they have dealt with these problems. Rustow argues that there are three key requirements of political modernization: "identity is essential to the nation; authority to the state, equality to modernity; the three together form the political basis of the modern nation-state." 33 The critical differences among societies concern the extent to which they had to deal with these problems simultaneously or sequentially, and, if the latter, the order in which these problems were dealt with. On the basis of comparative analysis, Rustow suggests that the identity-authorityequality sequence leads to the most successful and least traumatic modernization. In a somewhat similar spirit and parallel endeavor, the SSRC Committee identified five crises which societies would have to deal with in the process of political modernization: identity, legitimacy, penetration, participation, and distribution. A rough equivalence presumably exists between these two efforts as well as that of Almond: Almond-Challenges Rustow-Requirements COP-Crises nation-building identity identity state-building authority legitimacy, penetration participation, distribution equality participation, distribution. Interestingly, the SSRC Committee originally had a sixth crisis, integration, which concerned the "problems of relating popular politics to governmental performance...." 34 This, however, turned out to be a rather nebulous and slippery crisis to handle; eventually it was dropped from the scheme. The great virtue of the comparative-history approach is that it starts by looking at the actual evolutions of societies, attempts to classify those evolutions into patterns, and then attempts to generate hypotheses about what factors are responsible for the differences in ., Barrington Mo9re, Jr., Social Origins of Dictatorship and Democracy (Boston, 1966) ; Cyril E. Black, The. Dynamics of Modernization:· A Study in Oompa~ative History (New York, 1966). aa Rustow, Wol'ld of Nations, p. 36. For a thoughtful discussion of sequences In political development, see Eric A. Nordllnger, "Political Development: Time Sequences and Rates of Change," World Politics 20 (Aprl! 1968) : 494-520. •• See Pye, Aspects, pp. 62-67. patterns. It starts, in short, with. the "real" stuff of history, at the opposite end of the methodological scale from the system-function approach with its abstract model of the system. Nor does it, like the social-process approach, ·assume that certain variables, such as urbanization and instability, can be lifted out and generalized about independently of their context. This approach thus clearly lacks generality. In effect, it comes back to a focus on the historically discrete phenomenon of moderniz·ation, and it deals with particular phases in the evolution of particular societies. Like most "developmental" analyses, its concepts are "less generalized than those of equilibrium analyysis." 35 In comparison to the system-function man with his conceptual complexity and the social-process man with his high-powered quu,ntitative analyses, the comparative-history fellow often seems like a rather pedestrian, traditional plodder, whose findings lack theoretical and scientific precision. On the other hand, he is, unlike his competitors, usually able to communicate those findings to readers who will not read jargon and cannot read numbers. Each of these three approaches has obviously contributed much to the study of political development. At the same time each has the defect of its virtues. From the viewpoint of a theory of political change, the system-function approach is weak in change, the social-process ap proach is weak in politics, and the comparative history approach is weak in theory. By building upon and combining the strengths of all three approaches, however, it may be possible to overcome the deficiencies of each. THEORIES OF POLITICAL CHANGE The study of modernization and political development thus genHated concern for the formulation of more general theories of political change. In the late 1960s the analysis of political change became in itself a direct focus of political science work, quite apart from any relations it might have had with the social-economic-culture processes of modernization or the teleological preoccupations which underlay much of the work on political development. In the course of a decade the work of political scientists moved from a generalized focus on the political system to the comparative analysis of modern and tradi tional political systems, to a more concrete concern with the discrete historical process of modernization, to an elaboration of related concepts of political development, and then back to a higher level of abstraction oriented toward general theories of political change. The transition from the static theory to dynamic theory, in short, was made by way of the historical phenomenon of modernization. ss Lasswell and Kaplian, Power and Society, p. xv. These new theories of political change were distinguishable from earlier approaches because of several characteristics. First, the theoretical frameworks could be utilized for the study of political changes in societies at any level of development. Second, these frameworks were either unrelated to the process of modernization or, at best, indirectly related to that process. Third, the variables and relationships which were central to the theories were primarily political in character. Fourth, the frameworks were sufficiently flexible to encompass sources of change and patterns of change in both the domestic and the international environments of the political system. Fifth, in general the theories were relatively more complex than earlier theories of political modernization and political development: they encompassed more variables and looked at the more extensive relationships among those variables. One transitional approach was presented by Huntington in his 1968 volume on Political Order in Ohanging Societies. In this volume, the central focus of political change is held to be the relationship between political participation and political institutionalization. The relationship between these determines the stability of the political system. The fundamental source of expansion of political participation is the nonpolitical socioeconomic processes identified with modernization. The impact of modernization on political stability is mediated through the interaction between social mobilization and economic development, social frustration and nonpolitical mobility opportunities, and political participation and political institutionalization. Huntington expresses these relationships in a series of equations.•• (1) Social mobilization =Social frustration Economic development (2) Social frustration =Political participation Mobility opportunities (3) Political· participation Political instability. Political institutionalization Starting with a central concern of the social-process approach to modernization, i.e., the relationship between socioeconomic changes ( urbanization, industrialization), on the one hand, and the political participation, political instability, and violence, on the other, this approach thus attempts to introduce into the analysis elements of social (mobility opportunities) and political (political institutionalization) structure. .. Huntington, Political Order, p. 55. Huntington is concerned with the relationship between political participation and political institutionalization. The source of the former is ultimately in the processes of modernization. What about the sources of the latter? Here he is less explicit. Implicitly, however, he suggests that there are two principal sources. One is the political structure of the traditional society. Some traditional political systems are more highly institutionalized than others (i.e., more adaptable, complex, coherent, and autonomous) ; these presumably will be better able to survive modernization and accommodate broadened patterns of participation. In addition, Huntington suggests that at particular phases in the process of modernization certain types of politicalleadership (aristocratic, military' revolutionary) and certain types of conflict may also produce institutionalization. The relationship between political institutionalization -and political participation, however, is clearly one that can be abstracted from a concern with modernization. The latter may be one major historical source of changes in participation, but it need not be the only one. The problem of balancing participation and institutionalization, moreover, is one which occurs in societies at· all levels of development. The disruptions, involving Negroes and students in the United States during the late 1960s could be profitably analyzed from this framework. In central cities and in universities, existing structures were challenged to provide new channels through which these groups, in the cliche of the times, could "participate in the decisions which affect them." This theoretical approach, originally focused on the relationship between two political variables, could be extended to include more or different ones. One of the striking characteristics of much of the work on political development was the predominance of concern with the direatwn of change over the concern with the objeots of change. This, of course, reflected the origins of political development research in the study of the transition from traditional to modern society. The first step in analyzing political change, however, is simply, as William Mitchell put it, to identify "the objects that are susceptible to changes." 37 It is to identify what are or may be the components of a political system and then to establish what, if any, relations exist in the changes among them. Such an approach focuses on componential change. A political system can be thought of as an aggregate of components, all changing, some at rapid rates, some at slower ones. The questions to be investigated then become: What types of change in one component tend to be related to similar changes or the absence of change in other components~ What are the consequences of different combinations of componential changes for the system as a whole~ ~hestudy of politica,I 81 William 'C. Mitchell, The American Polity (New York, 1962), pp. 369--370). change can be said to involve: ( 1) focusing on what seem to be the major components of the political system; (2) determining the rate, scope, and direction of change in these components; and (3) analyzing the relations between changes in one component and changes in other components. The political system can be defined in a variety of ways and conceived of as having various components, as, for instance, the following five: 1. culture, that is, the values, attitudes, orientations, myths, and beliefs relevant to politics and dominant in the society; 2. structure, that is, the formal organizations through which the society makes authoritative decisions, such as political parties, legislatures, executives, and bureaucracies; 3. groups, that is, the social and economic formations, formal and informal, which participate in politics and make demands on the political structures; 4. leadership, that is, the individuals in political institutions and groups who exercise more influence than others on the allocation of values; 5. policies, that is, the patterns of governmental activity which are consciously designed to affect the distribution of benefits and penalties within the society. The study of political change can fruitfully start with the analysis of changes in these five components and the relations between change in one component and change in another. How is change in the dominant values in a system related to change in its structures? What is the relation between mobilization of new groups into politics and institutional evolution? How is turnover in leadership related to changes in policy? The starting assumption would be that, in any political system, all five components are always changing, but that the rate, scope, and direction of change in the components vary greatly within a system and between systems. In some instances, the rate of change of a component may approach zero. The absence of change is simply one extreme rate ofchange, a rate rarely if ever approximated in practice. Each component, moreover, is itself an aggregate of various elements. The political culture, for instance, may include many subcultures; the political structures may represent a variety of institutions and procedures. Political change may be analyzed both in terms of changes among components and in terms of changes among the elements of each component. Components and elements are the objects of change. But it is still necessary to indicate what types of changes in these are significant to the study of political change. One type of change which is obviously relevant is change in the power of a component or element. Indeed, some might argue that changes in power are the only changes with 34 which political analysis should be concerned. But to focus on power alone is to take the meaning out of politics. Political analysis is concerned with the power of ideologies, institutions, groups, leaders, and policies. But it is also concerned with the content of these components and with the interrelation between changes in content and changes in power. "Power" here may have the usual meaning assigned to it in political analysis.38 The "content," on the other hand, has to be defined somewhat differently for each component. The content of a political culture is the substance of the ideas, values, attitudes, and expectations dominant in the society. The content of the political institutions of the society, on the other hand, consists of the patt~rns of interaction which characterize them and the interests and values associated with them. The content of political groups refers to their interests and purposes and the substance of the claims which they make on the political system. The content of the leadership refers to the social-economicpsychological characteristics of the leaders and the goals which they attempt to realize. And the content of policies, of course, involves the substance of the policies, their prescriptions of benefits and penalties. The analysis of political change may in the first instance be directed to simple changes in the power of components and elements of the political system. More important, however, is the relation between changes in the power of individual components and elements and changes in their content. Ifpolitical analysis were limited to changes in power, it could never come to grips with their causes and consequences. The recurring problems of politics involve the trade-offs of power and content. To what extent do changes in the power of a political ideology (measured by the number of people who adhere to it and the intensity of their adherence) involve changes in the substance of the ideology~ Under what circumstances do rapid changes in the power of political leaders require changes in their purposes and goals (the "moderating" effects of power) and under what circumstances may the power of leaders be enhanced without significant changes in their purposes ~ History suggests, for instance, that professional military officers can acquire political power in liberal, socialist, or totalitarian societies only at the expense of abandoning or modifying the conservative military values.39 In most systems, the enhancement of the power of an ,. Major contributions to the analysis of power by contemporary social scientists include: Lasswell and Kaplan, Power and Society, pp. 74 11'.; Herbert Simon, "Notes on the Observation and Measurement of Political Power," Journal ot PoZitic8 15 (November 1953) : 500-'516; James G. March, "An Introduction to the Theory and Measurement of Inftuence," American Political Science Review 49 (June 1955) : 431-451; Robert A. Dahl, ''The Concept of Power," Behavioral Science 2 (July 1957) : 201-215; Carl J. Friedrich, Man and Hi8 Government (New York, 1963), pp. 159-179; Talcott Parsons, "On the Concept of Influence," Public Opinion Quarterly 26 (Spring 1963). '"See Samuel P. Huntington, The 'Soldier and the State (Cambridge, 1957), pp. 80-97 and paslrim. ideology, institution, group, leader, or policy is bought at the price of some modification of its content. But this is by no means an invariable rule, and a variety of propositions will be necessary to specify the trade-offs between power and content for different components in different situations. One important distinction among political systems may indeed be the prices which must be paid in content for significant increases in the power of elements. Presumably the more highly institutionalized a political system is, the higher the price it exacts for powet•. Political change may thus be analyzed at three levels. The rllite, scope, and direction of change in one component may be compared with the rate, scope, and direction of change in other components. Such comparisons can shed light on the patterns of stability and instability in a political system and on the extent to which change in one component depends upon or is related to change or the absence of change in other components. The culture and institutions of a political system, for instance, may be thought of as more fundamental to the system than its groups, leaders, and policies. Consequently, stability might be defined as a particular set of relationships in which all components are changing gradually, but with the rates of change in culture and institutions slower than those in other components. Political stagnation, in turn, could be defined as a situation in which there is little or no change in the political culture and institutions but rapid changes in leadership and policies. Political instability may be a situation in which culture and institutions change more rapidly than leaders and policies, while political revolution involves simultaneous rapid change in all five components of the system. As a second level of analysis, changes in the power and content of one element of one component of the system may be compared with changes in the power and content of other elements of the same component. This would involve, for instance, analysis of the rise and fall of ideologies and beliefs, of institutions and groups, and leaders and policies, and the changes in the content of these elements associated with their changing power relationships. Finally, at the most specific level of analysis, attention might be focused upon the relation between changes in power and changes in content for any one element, in an effort to identify the equations defining the price of power in terms of purposes, interests, and values. A relatively simple set of assumptions and categories like this could be a starting point either for the comparative analysis of the more general problems of change found in many societies or for the analysis in depth of the change patterns of one particular society. Itcould fur nish a way of bringing together the contributions whiCJh studies of at titudes, institutions, participation, groups, elites, and policies could make to the understanding of political change. A somewhat different approach, suggested separately by both Gabriel Almond and Dankwart Rustow, focused on criYists of all members of the alliance. I have instructed the Secretary of Defense to seek increased opportunities to buy European defense equipment where this would mean more efficient a R. D. M. Furlong, "The Two-Way Street and NATO Standardization-A Clarification of the U.S. Position," International Defense Review, February 9, 1978, pp. 35-i'iO. "Legislation included the Nunn Amendment of Public Law 93~365 as amended by the Culver-Nunn Amendment of Public Law 94-106, in turn amended by Section 802, Public Law 94--361. 1• The Trilateral Commission (trilateral referring to the United States, Western Europe, and Japan) was founded In 1973 with the support of David Rockefeller and Zbigniew Brzezinski to improve the unity of the Western industrial democracies. Its members claimed Nixon ·and Kissinger were plnelng too much emphasis on diplomacy with the Soviet Union and Communist China. use of allied resources. I will work with the Congress of the United States tothis end. * * * * * * * I will make a determined effort to convey to my Government the feeling thatNATO standardization is not a panacea, simply a necessity.'" Congress in 1977 took a further major step by authorizing the Secretary of Defense to waive the "Buy America" Act in cases where hemay find it consistent with the public ~nterest. Secretary of DefenseBrown that same year initiated a number of reforms in weaponsprocurement with the objective of strengthening NATO standardization. The military departments were directed to consider standardization and interoperability in defense systems acquisition. Also,Secretary Brown appointed Robert Komer to the newly created position of Advisor to the Secretary of Defense on NATO Affairs and tomembership on the Defense Systems Acquisition Review Council. TheCongress has recognized standardization as a political, economic, andnot just a military issue. The Congressional .Research Service, theGeneral Accounting Office, and the Congressional Budget Office-supporting agencies of the Congress-have contributed significantly inproviding information. A special subcommittee on NATO standardization, interoperability, and readiness was created as part of theHouse Armed Services Committee in early 1978.Congress has passed various legislation to improve standardizationin NATO. For example, amendments included in the InternationalSecurity Assistance Act of 1979 authorized the President to providewithout charge certain quality assurance, inspection, and contract defense audit services on a reciprocal basis with NATO Allies; to makeprovision for facilitating cross-service and lead-nation procurement;and to facilitate cooperative projects involving pooled resources. Theseactions illustrate the growing importance of NATO standardizationin public policy.At the London Summit in the spring of 1977 when President Carterpledged his support to promote two-way trade in defense equipment,the participating countries took a major financial initiative by agreeing to increase their defense spending by 3 percent annually in realterms. During 1978, at the May summit meet~ng anc1 the Decembermeeting of Defense Ministers, the Carter administration reiteratedits support for the 3 percent annual increase. The American mediadevoted considerable attention during the year to an apparent controversy within the Carter administration on the issue of guns versusbutter. The question was also raised as to whether the 3 percent increase pertained to the total military budget or just the NATO por '"Quoted in Callaghan, "NATO Standardization," Military Electronics/Countermeasures, p. 42. 69 tion In January 1979 Carter's proposed budget for fiscal year 1980 called for outlays of about $125.8 billion for defense--a 3 percent increase over the previous years after allowing for inflationY At their spring 1977 meeting NATO Defense Ministers agreed that a long-term NATO defense program should be developed over the next year and that NATO military authorities should recommend shortterm measures to be taken by NATO countries aimed at early correction of critical deficiencies in certain areas. The ministers also agreed to U.S. proposals that focused the Long-Term Defense Program (LTDP) on ten high-priority critical fields. These program areas are: Readiness; Reinforcement; Reserve Mobilization; Maritime; Air Defense; Command, Control and Communications; Electronic Warfare; Armaments Rationalization; Logistics; and Theater Nuclear Planning. Task forces working on these areas for almost a year developed 121 recommendations. At their spring meeting in Washington in 1978 the NATO Defense Ministers agreed to the 121 recommendations.18 In the area of rationalization the NATO ministers agreed in principle to systemize armaments planning by identifying mission needs as the basis for cooperative action and to incorporate these into national weapons acquisition cycles. Accord was reached in agreements on molding and integrating the NATO Periodic Armaments Planning System procedures and NATO Armaments Planning review to form ·a NATO planning and review process for weapons acquisition. The ministers agreed to develop and strengthen standardization/interoperability ·requirements and machinery and to incorporate approval procedures into national operational requirements and weapons procurement. They also concurred in pursuing cooperative development and endorsement of technology. Heads of governments at the Washington Summit meeting in late May 1978 endorsed the Long-Term Defense Program which extends into the 1980s. Over the past two years NATO has established a coordinated framework for implementation of the LTDP plan. One facet of this framework is the Periodic Armaments Planning System aimed at produ~ing jointly agreed requirements for future arms and equipment and appropriate cooperation in research, development, and production of major weapons and military equipment. RSI REPORTS Secretary of Defense Harold Brown in his 1978, 1979, and 1980 annual reports on NATO standardization, in accordance with the Culver-Nunn Amendment and related statutes, provided information on 11 U.S. Office of Management and Budget, The United States Budget in Brief, Fiscal Year 1980 (Washlno;:ton: Government Printing Office, 1979), p. 27. 1B Galen. "Warsaw Pact Balance," Armed Forces Journal. 70 U.S. efforts that relate to or supplement the NATO short-and long term defense programs.19 1. Land Wa:rfare Doctrine. The manual, "NATO Land Force Tactical Doctrine" (ATP-35), issued in draft in 1975, has been ex panded to include air mobile operations, the land/air battl8, electronic warfare, and intelligence. Bilateral agreements have been reached be tween . the .U.S. and German Armies on nature of the threat~ antiarmor, air defense, airmobile operations, mobilityjcountermobility,fire support, military operations in built-up areas, terrain analysis,and reconnaissance. 2. Air Warfa,re Doctrine. The manual on "Doctrine and Procedures for Airspace Control in a Combat Zone" became effective in September 1977. A complete review of the manual on "NATO Tactical Air Doctrine" is underway with the aim of establishing a familyof tactical air doctrine under the umbrella of this doctrinal corner stone. 3. Naval Warfa:re Doctrine. NATO developed new or completelyrevised tactical doctrine publications in 1977 dealing with employment of naval forces, naval control of shipping, submarine operations,and nuclear fall-out forecast and warning. In early 1979 there were52 NATO-wide maritime publications which address virtually everyaspect of naval warfare. The U.S. Navy has contributed to the development of changes to promote standardization. 4. NATO EaJeroise Program. The central feature of the NATOexercise program within the Allied Command Europe is the Autumn Forge exercise series created in 1975. The intent was not to establisha single large centrally controlled exercise but, within the existingexercise structure, to strengthen the capabilities of our diverse national forces and the land, sea, and air components of those forces towork together. U.S. forces participated in 17 of the 31 exercises inthe Autumn Forge 78 series and conducted successful operations withBelgian, Dutch, French, German, Italian, Luxembourg, and Britishforces. Air and ground tactical and support operations reflected compatible doctrines and readiness. 5. Stationing of U.S. Brigade in Northern GeTmO/fl,y. This important deployment offers at least a partial solution to the strategicmaldeployment of forces in West Germany and provides increased opportunities for interoperability with NATO Allies in coalition warfare. In accordance with the Long-Term Defense Program, the Federal Republic of Germany has provided sites for pre-positioningequipment for the remainder of an additional heavy U.S. division inthe north, of which this brigade is the forward element. 10 U.S. Department of Defense, Rationalization/Standardization Within NATO, FifthAnnual Report, January 1979, and Fourth Annual Report, January 1978, Harold BrownSecretary of Defense (Wnshln~rton: U.S. Department of Defense). 71 6. Peacetime Basing of U.S. Aircraft on Non-U.S. NATO Bases. The United States plans to accelerate the deployment of A-10 aircraft to Europe (which began in 1979). The A-10 is being deployed/employed in Europe using a concept of rearward maintenance at a Main Operating Base in Great Britain and forward employment primarily from operating locations in the Central Region, probably using Allied bases already identified as Collocated Operating Bases. This concept improves the operational flexibility of these units to respond to ground force requirements, enhances interoperability, provides for mutual s·upport, and facilities commonality ofoperational procedures. 7. Collocation of Headquarters. Work was completed during 1977 on equipment and facilities for the site of the collocated war headquarters of Allied Forces Central Europe and Allied Air Forces Central Europe at Boerfink, Germany. Action continues on the project to collocate the headquarters of the Central Army Group, the 4th Allied Tactical Air Forces, and the Allied Command Europe Mobile Force (Land) with Headquarters, U.S. Army Europe, at Heidelberg. 8. Alliance Training P'l'ograms. Joint or multinational training, generally under the auspices of the Euro-NATO Training Group, is a major rationalization area. Many different types of training are provided including several relating to helicopters and others concerning automatic data processing, engineering work, and logistics. 9. /nteroperability. NATO has sharply accelerated its efforts to achieve interoperability of forces, weapons, and equipment, though concrete results will take time. The Aircraft Cross-Servicing Program progressed rapidly in 1978 with cross-servicing exercised 600 times with a common family of air-to-surface and air-to-air munitions identified. Member nations actively pursued programs to certify each other's weapons for use on NATO tactical aircraft; e.g., Germany certified five or seven members of the common family of air-to-surface weapons on its F -4 aircraft. Land forces have already standardized fuel, and naval fuel standardization is well advanced. NATO is progressing rapidly on plans to convert from F-40 (JP-4) military jet aircraft fuel to F -34 (JP-8), a kerosene fuel which is logistically preferred for the European area. Standardization of rifle, artillery, and tank gun ammunition is underway with emphasis on decreasing the variety of weapons with different calibers or other characteristics and on increasing interchangeability of ammunition of the same caliber. The United States has made bilateral arrangements with Great Britain, Canada, and Germany to exchange artillery and tank gun ammunition and conduct safety certification. 10. /nteroperability of Communications. NATO ministers have agreed that no future communications systems should be developed or procured without consultation and without consideration being given to collaboration among nations to assure interoperability. During 1979 72 NATO made significant progress in communications operability andinterconnection. Development efforts continued on the NATO Integrated Communications System. National tactical area communications were given additional interface units so they can operate witheach other automatically. There was greater interconnection of U.S.with central NATO systems and consolidation of U.S. and NATOcommunications systems in the Norfolk, Virginia area. The UnitedStates is sharing its command and control automatic data processingresources with NATO while NATO is implementing full-scale automatic data processing systems at selected major headquarters-the firstsystem became operational during 1979 at Supreme Allied PowerEurope. 11. Lines of Oom;m.unication and Host Nation SuppOTt. NATO'scivil agencies and European nations are carrying out many measuresto improve reception and onward movement of U.S. reinforcementsand supplies and to provide wartime civil and military assistance andresources to support allied forces in the host nation's territory, thusreducing the need for early deployment of combat service support unitswith reinforcing combat forces. Host nation support includes a wide range of reception facilities: transport (road, rail, barge, air, andship) ; gasoline, oil, and lubricants; recovery, repair, and cross-servicing of materials; medical and engineeringservices; and communicationand security. Negotiations among NATO nations are underway orhavebeen concluded for wartime movements, collocated operating bases,maritime forward area ordnance support bases, safe havens for battle damaged ships, and depot maintenance of equipment. Most ofthese agreements are for wartime use of allied assets, largely fromindividual civil economies although it may become necessary for theUnited States to assist in financing any peacetime preparatory costs. 12. Improving ReinjOTcement. Major NATO commanders haveconducted a series of studies on the rapid reinforcement of NATOto include integration of airlift and sealift resources. One of the mostsignificant cooperative developments of 1979 was the U.S. decision topre-position the equipment for three additional divisions in Europe by1982 with arrangements being made by Germany, Belgium, and TheNetherlands for storage sites. The United States and its Allies havealso committed nearly 600 merchant ships for reinforcement purposes,and Norway is providing new ships to speed the sealift deployment ofa Canadian brigade. Work is progressing within NATO on coordination of and arrangements for reception and onward movement ofreinforcements, and reinforcement measures have played an increasedrole in NATO exercises. 13. Cooperation in Logistics. Bilateral logistics planning andnegotiations between the United States and Germany, United Kingdom, Canada, and tho Benelux countries have been carried on, cover 73 ing various areas such as joint use of logistics facilities, ammunition, interchangeability, joint storage sites, administrative transportation support, collocated operating bases, labor and maintenance support, and mutual spare parts support. A major LTDP subprogram is designed to increase NATO's war reserve stocks of ammunition, fuel, and equipment. In the ammunition area, nations have already made improvements in several key areas. 14. Logistics Organization Within NATO. Various measures have been taken to improve NATO logistics organization. Important steps taken in 1979 included the establishment of an Assistant Secretary , General for Infrastructure, Logistics, and Council Operations and a new Director of Logisti~s and Staff. In addition, a logistics coordinating capability was established in Allied Forces Central Europe to coordinate in wartime the reception and onward movement of external reinforcements and resupply. 15. Alliamce Efforts to Achieve Standardization and Interoperability. The NATO Conference of National Armaments Directors is expected to play a key role in the intensified NATO Alliance effort to standardize new weapons systems in developing a Periodic Armaments Planning System to influence national weapons acquisition plans, to prepare NATO acquisition strategies, to assess progress at critical milestones, and tci monitor the degree of harmonization achieved. In addition, the alliance is now considering adoption of families of weapons systems in various mission areas which each nation would adopt, such as air-to-air, air-to-surface, ground combat, and control systems families of weapons. 16. NATO Study on Coproduction and Licensing. NATO has continued to consider licensed production and coproduction as mechanisms for achieving standardization and interoperability goals and for providing incentives for cooperative armament arrangements. Although complete solutions will not be immediately attainable, a set of principles and practices has been identified which should reduce the obstacles and major stumbling blocks caused by ingrained differences in past national policies. 17. Independent European Program Group. European members of NATO and France have participated in an effort to rationalize the European defense sector and to increase the European capability to develop cost-effective equipment that the United States might then be willing to consider for alliance-wide standardization. The group has created panels on equipment planning and schedules.and subgroups on specific equipment candidates for cooperation and on defense economics. 18. DOD Directives on Standardization. DOD Directive 2010.6 sets forth DOD policy and assigns responsibilities for achieving improved standardization and interoperability in NATO. It covers every phase of the equipment acquisition cycle to ensure that NATO con 74 siderations receive appropriate weight at each decision point. Thus,the Services are continually assessing standardization/interoperabilityopportunities, including the purchase and/or coproduction of alliedequipment when a NATO requirement can be met. 19. Weapons Systems Standa:rdization ProgrU/ln8. There are numerous programs for improving the interoperability and standardization of equipment used by NATO Allies. The status of particularprograms is outlined in the Secretary of Defense's Annual Report tothe Congress, Rationalization/Standardization Within NATO. Examples are the Belgian MAG-58 machine gun, Roland Air DefenseSystem, and the main battle tanks (German Leopard 2 and the U.S.Version, the XM-1). ONGOING PROGRAMS While recognizing that greater alliance cooperation continued to belimited by political, economic, and military obstacles within alliednations, Secretary Brown has reported significant progress m ongoing programs. In outlining inter-allied goals he stated : This need for coordinating or rationalizing alliance efforts is sometime moredifficult for the United States to accept than for the other partners. We arebigger and more independent. In the past we have been able to do everything our own way and still succeed. Or at least so it may have seemed. Sometimes weforget the major contributions our allies have made to defense technology throughthe years-such as the British invention of radar and Chobham armor, Germanadvances on guns, the French development of wire-guided antitank weapons, andmissiles like the French-German Roland.20 The key to the LTDP success, the secretary emphasized, is greateralliance cooperation.Further insights into U.S. views on the RSI issue were provided byRobert W. Komer, Advisor to the Secretary of Defense for NATO Affairs, at a conference in Brussels on new directions in NATO, sponsored by the publishers of Aviation Week and Space Technology inJune 1978. Full standardization, Komer stressed, is no panacea for allof NATO's ills, and in an alliance of sovereign states it is politically infeasible. He observed, "Indeed, interoperability, that halfway housetoward standardization, would often meet the bulk of the military requirements which concern us." 21 The highest priority needs for interchangeability, as identified by Komer, are: command, control, andcommunications capability; interchangeable munitions; compatiblebattlefield surveillance,/target designation/acquisition systems; and,standardized or interoperable components and spare parts. 20 Harold Brown, "Inter-Allied Goals for a Strong NATO Defense," Command Magazine,December 1978 (Arlington, Va.: American Forces Press Service), p. 5. 21 Quoted in Kozicharow, "New Directions," Aviation Week and Space Technology, p. 14. 75 Several different cooperative approaches for production of NATO military equipment have been used and with varying degrees of success. Licensed production, the manufacture of an item or system under an arrangement with the developer, was the first method to be used and it continues in use today. This is in fact a form of coproduction. Collaborative arrangements for development of military equipment may take different forms, ranging from cooperation in all states of development including research, development, and production to collaboration in just one stage-most likely the production stage. The sketch of cooperative efforts that follows illustrates the types of arrangements in use in recent years. LICENSED PRODUCTION Licensed production has been used to promote standardization for more than two decades. In the late 1950s Secretary of Defense Charles Wilson initiated efforts for Western industrial cooperation in such undertakings as the licensed production of the U.S.-developed Hawk air defense missile. It was hoped these moves would help Europe rebuild its industry as well as facilitate standardization of equipment. Adopted for licensed production by several nations, the Hawk missile was one of the more successful efforts and it continued into the early 1970s. Wilson had hoped the licensing of the Hawk system would bring follow-on collaboration in developing new generations of conventional weapons, but in this respect his initiatives largely failed insofar as U.S. participation was concerned. The licensed production of the U.S. Sidewinder air-to-air missile adopted by eight European nations and Turkey in 1959 is an example of a successful program of technology transfer and standardization. While early licensed production ventures were considered an advancement, allied military-industrial cooperation suffered when U.S. trade deficits started to develop about 1962 and U.S. military sales were promoted to improve trade balances. Later, U.S. preoccupation with Southeast Asia and allied trade deficits detracted from U.S.NATO cooperation. In the early seventies direct commercial military sales, given the green light by the Nixon Doctrine, added momentum to the ongoing U.S. military sales program that was largely competitive and protective of the fiscal, industrial, and technical interests of the United States.22 British procurement,of American F-4 Phantom fighters under licensed production arrangements in 1964 is an example of using this option primarily to minimize British foreign exchange problems and •• Robert E. McGarrah, "An Assessment of a Polley for U.S.-Allied Military Industrial Cooperation," Defense Management Journal, September 1978, pp. 36-4t, and Robert A. Gessert, "NATO Standardization," National Defense, Part I, March-April 11!77, pp. 366367 ; Part II, May-June 1977, pp. 460-462. maintain British employment. But, in this case, because of the manymodifications introduced by the British, the production costs turnedout to be about 50 percent higher than the direct purchase costs wouldhave been.By the mid-1970s when the economies of many of the WesternNATO .countries were more advanced and more competitive, the environment for licensed production arrangements had changedsignificantly. The United States had become more sensitive to militarysecurity (the possibility for procommunists in NATO to gain access toclassified technical data) and to industrial competitive factors. NATOindustrial partners had hardened their positions on licensing fees,royalties, and work-sharing arrangements to promote their economicinterests. Some faeets of the environment of recent years are illustrated by experience with the licensed production arrangements forthe F-16 fighter with Belgium, Denmark, the Netherlands, and Norway. These nations received production tasks in direct proportion tothe size of their orders. The arrangements, however, rewarded minornational industries with little long-term potential and excluded theleading European aircraft producers, the United Kingdom, France,and West Germany. The European Economic Community retaliatedby requiring a duty on imported parts for the F-16, an action thatraised the cost $100 million to the four European participants who,understandably, were angered. In this case the licensed productionarrangement may have fostered European disunity.23 Despite the difficulties encountered with licensed production, many still feel it is thefastest way to spread the use of a single system while at the same timehelping to transfer advances in technology and maintaining employment in the receiving nation. COLLABORATIVE PROGRAMS Among the several collaboration programs in equipment development over the past several years are: the British-French Jaguar tactical and training aircraft; French-German Alpha-Jet fighter andtrainer; the British-German-Italian multiple role combat aircraft; theFrench-German Roland antiaircraft defense system; and the U.S.Garman tanks, the U.S. XM-1 and German Leopard II. One of themost ambitious programs, the U.S.-German MBT 70 tank, was abandoned because it was too costly. Most of these efforts in developmentand production were intended to achieve a degree of standardizationand to share the benefits and burdens of high technology military in 23 Eliot Cohen. "NATO Standardization: The Perils of Common Sense." Foreign Policy,Summer 1978, pp. 72-103, and Gessert, "NATO Standllrdizatlon," National Defenae,pp. 366-367 and pp. 460-402. 77 dustry. The ultimate success of the projects depended in most instances on competitive sales to allies. These collaborative research and development and coproduction programs have run into several difficulties. Varied national requirements frequently lead to adoption of a design which when produced will not meet the performance desired by any of the participants. Managers come from an assortment of national, military, and technical backgrounds and they perceive needs differently. Much time is spent on negotiations involving technical designs, management and scheduling, and work and market sharing. Not infrequently disagreements are settled by trying to satisfy everyone. Inthe end, systems developed and produced on a collaboration basis generally cost more than similar systems produced entirely by a single nation. Also, the systems generally take longer to produce. A somewhat different approach has been taken in U.S. and German collaborative efforts in developing separate main battle tanks, the U.S. XM-1 and the German Leopard II, following initial efforts to adopt a single tank acceptabll\ to both. The two nations are trying to achieve maximum standardization of the components critical to both tanks so that parts can be interchanged in the field. Agreement has been reached in principle on a standard engine and a 120mm. tank gun, but not all details have been settled. Likely it will take several years before the engine and 120mm. gun of interchangeable design will be in field operation. The United States has bought major foreign equipment, for example the French/German Roland antiaircraft missile and the British Harrier V/Stol (vertical short takeoff and landing) jet, only when domestic producers had no comparable equipment to offer. After several modifications, the Roland missile appears to meet U.S. requirements, but the several changes have doubled the cost. The Harrier AV8A, used by the Marine Corps and the first vertical take-off fighter in operational use, experienced abnormally high operational losses initially, according to media reports, but the Marine Corps claimed that this was not true and that losses were not as high as for other planes that have come into use. At any rate, the Marine Corps f'~1.vors the acquisition of a modified Harrier. At the beginning of 1979 there was some question as to what course efforts to acquire modified aircraft would take. The President proposed to eliminate the Harrier AV8B, an advanced version developed through a license by an American producer. Another alternative was to acquire what amounted to an improvement of the Harrier in service, the AV8C. In the case of the Belgian MAG58 machine gun the Belgians agreed to unlimited licensed production. The United States made the machine gun transaction, it has been suggested, to facilitate purchase of the F-16 fighter by the Belgians. 78 CONTINUING PROBLEMS Despite the increased rhetoric of high level NATO leaders on theRSI concept since 1975, formidable obstacles remain and serious disagreement continues as to what is desirable and what is feasible. Differences arise from the very nature of the system of values the NATOAlliance fosters, particularly the freedom to exercise national autonomy and to pursue national interests. Many if not most NATOmembers want to be self-sufficient in the production of sophisticatedsystems and want to develop foreign military markets to reduce unitcosts-just as the United States does. In many cases moves for standardization are seen as forces requiring the sacrifice of the most sacrosanct of national ambitions. Under certain conditions they appear ascompetition for home industries and a threat to employment.European NATO partners are particularly sensitive about U.S.dominat1on of military markets. One writer reflecting these feelingslamented, "When Americans talk of weapons standardization, theymean to American standards." 24 Data provided by NATO for 19741977 showed that U.S. foreign military and commercial sales to Europe were nine to ten times greater than exports of similar items fromEurope to the United States. Long-standing European fears of American technological colonialism give rise to varying degrees of opposition to proposals for purchasing U.S. military materials. These fearsarise because in many areas American defense industry is bigger,more efficient, more reliable, and more advanced than European counterparts. This situation has developed because the United States hascontinually provided a larger market for its own defense equipmentthan Europe. 25 Moreover, military sales to NATO are a small shareof U.S. total foreign military sales. In fiscal 1977 they accounted for 7.4 percent as compared to almost 70 percent to Iran and SaudiArabia.26 Despite moves by the Oal'ter administration and Congress for giving a larger share of the NATO military market to European partnersand for making a so-called "two-way street," the American public is byno means undivided on how to achieve standardization and for thatmatter whether it is always desirable. Industry and labor in particularhave been critical, some spokesmen maintaining the Pentagon is giving our technology away so Europeans may compete against us. Wal ter Edgington, speaking for the Electronics Industries Association,summed up the situation, stating: The administration has adopted an approach which (1) acquiesces to politicoeconomic pressure from our European allies; (2) fails to account for the vast •• Felix Kessler, "A Franco-German Superpower?" Wall Street Journal, December 5, 1978, p. 26. 25 Cohen, "NATO Standardization: The Perils of Common Sense," Foreing Policy. 26 Borklund, "NATO RSI," Government EIJJecutive, p. 43. 79 difference in government-industry relations abroad; (3) faiLs to recognize the impact of third country sales ; ( 4) and, most importantly, appears to be placing new equipment development decisions in the hands of NATO bureaucrats who will decide who will develop what not on the basis of NATO mission-need but on the basis of "everyone having a slice of the Defense pie.""' The feelings and concerns of key industry executives on the RSI issue were expressed in dialogues with senior staff members of the Office of the Secretary of Defense in the fall of 1978 and are believed to reflect the view of the Defense industry sector. Among the many views of industry executives were the following.28 1. The role of government should be concerned with the determination of requirements, a broad agreement on program funding levels, and specific agreement on rules for industrial competition. Defense industry, in any NATO country, should have the opportunity to address requirements on a competitive basis, either singly or as a part of an international entity organized by individual companies. 2. Adjustments should be made to permit European and U.S. defense industries to compete on more nearly equal terms. European NATO nations often own wholly or partially major segments of defense industry. In these instances governments either award defense contracts on a negotiated basis or subsidize defense industries in order to achieve their goal. In contrast, U.·S. defense industry operates in an environment where there is genuinely competitive approaches to development and to procurement. 3. Government participation is required in NATO industrial teaming, for example, joint milit·ary requirements, coordinated financing, and allocations of work to participating countries. After these and other basic decisions are made, industry representatives proposed .free teaming of industries. It was proposed that the fastest and most effective implementation of the Office of the !Secretary of Defense RSI plan could be accomplished by permitting industries to work out their own license agreements under broad government to government memoranda of understanding. 4. It was proposed that the RSI program of NATO should follow the concept of free competition on the basis of technical, price, and delivery factors rather than using some sort of allocation between countries. 5. In implementing RSI objectives, U.S. company-developed data should be adequately controlled so that U!S. industry does not find itself competing in the world marketplace against products or systems derived from the transfer of its original technology. 6. Government-to-government negotiations and collaborative agreements should not impose artificial constraints on U.'S. industry and preclude them from effectively competing abroad. The recent initiatives by NATO, including the Long-Term Defense Program and adoption of some 121 recommendations on ten specific programs, are important first steps toward standardization of doctrine and joint efforts in establishing requirements. Some progress has been 21 Quoted by Borklund, Ibid. 28 These are taken from a typescript of "A Compendium of Industry Views RSI" on developed from numerous letters submitted to the American Defense Preparedness Association in response to ·a request of 22 September 1978. The authors and companies are not identified and there was no pagination. made toward a more sensible weapons procurement policy and NATOmembers have created the institutions and political climate with potential for more far-reaching improvements. Complete standardization isgenerally accepted as not possible. There is widening recognition thatwhat is really needed is interoperability so that standard ammunitioncan be used for a particular type gun, fuels can be transferred througha standard nozzle or fitting, and command and control communicationsare transferable. The developments of the past five years indicate thateven limited standardization is likely to be a drawn-out process and theprospects for a successful crash program are not at all hright. Nevertheless, progress toward standardization, especially considering thediversities and freedom of individual member-nations, has beenremarkable and unprecedented in an alliance of 15 sovereign nations. 81 READING 1-4 THE WORLD ECONOMY 1~979 Andrew Shonfield The troubles of the dollar, intermittently rising close to the crisis point during the year, once again dominated the international economic system. It became evident by the summer that the November 1978 measures of massive international support for the dollar had not worked as planned. Part o£ the trouble was that the post-1975 U.S. economic expansion proved to be more robust than had been supposed; moreover, the Federal Reserve's deflationary stance seemed to the rest of the world unconvincing. So in the end the American boom had to be publicly and unmistakably decapitated. This was done on 6 October, with all the appropriate gestures, by Mr. Paul Volcker, who had taken over the chairmanship of the Federal Reserve System a few weeks earlier. By then, the rate of increase o£ U.S. consumer prices had risen to double figures and the only way to convince the international community that the United States was this time in deadly earnest about reestablishing the capacity o£ its currency to act as a reliable store of real value was to provide demonstrable evidence that the U.S. economy's apparently irresistible propensity to grow had not only been stopped but had been effectively reversed. The dollar's recovery in foreign exchange markets thus became dependent on the belief that the series of measures taken by the U.S. authorities, culminating in the Volcker package, could be relied upon to push the United States into a recession. To this extent, whatever good domestic economic reasons there may have been for curbing the pace of an already flagging economy-and for doing so in a way which decisively lowered the inflationary expectations of native Americans-the form of the final deflationary squeeze and the degree of its severity were imposed by external forces. It is true that American self-suspicion not only reflected but also reinforced the international pressures. There was probably enough of this suspicion to counter the possibility of a hostile popular re- This selection is reprinted by permission from Foreign Affairs, "America and the World 1979." ·Copyright 1980 by Council on Foreign Relations, Inc. Sir Andrew Shonfield is Professor of Economics at the European University Institute, Florence. action that here was a healthy home-grown piece of American prosperity killed off by foreigners. It was visibly not healthy-though that may still not in the end save the foreigners from being blamed for their part in the 1979-1980 economic reversal, once the full consequences in terms of unemployment and business bankruptcies become apparent later on. The monetary relationship between the United States and "foreigners" was, predictably, a great deal more complex than this simplified version of events suggests. The foreign central banks were indeed ·exceedingly active in buy~ng up dollars as part of a collective effort to ward off a succession of speculative attacks on the U.S. currency in foreign exchange markets. Britain and Italy, which against most expectations proved to have the two strongest currencies in the European system during the first half of 1979, were especially heavy buyers of dollars which they added to their reserves. It was the German central bank, however, which played the crucial role during the early months of the year and again later on. It began the year with heavy support operations. Then during the spring, when the U.S. exchange rate strengthened markedly, the Bundesbank sold dollars in large amounts, chiefly in order to prevent a sharp fall in the D-mark rate, which would in turn have affected German domestic prices of imported commodities whose level is fixed in dollar terms. To that extent Germany, with its overwhelming wish to avoid any appearance of even a small increase in the rate of inflation at home, was responsible for holding back an upsurge in the dollar exchange rate that would have imposed a severe cost on those who had earlier speculated against it. As some observers argued, the occasional demonstration that speculating on the expectation of a weak dollar was not always an absolutely safe one-way bet might have had a salutary effect on the subsequent mood of international currency markets. But the German central bank's answer to such criticisms, namely that over time it fulfilled its function to moderate the violent movements, both upward and downward, in the market value of the dollar, ·had some force. Over the period as a whole, including the subsequent movement of exchange markets against the U.S. currency, the Germans ended up with a large net acquisition of dollars. It should be noted that although there is a tendency to talk of "foreigners" and "~nternational speculation," those concerned frequently included quite a lot of Americans, taking what they regarded as rational precautionary measures in converting a part of their portfolios of assets into foreign currencies. The individual who is branded as a "speculator" sees himself as a sober-minded "diversifier" of his investments. The trouble was that in 1979 there were altogether too many people and businesses determined to diversify out of the dollar at the same time; its current weakness combined with long-term investment reasons to push them in this direction. This tended to put a ceiling on the dollar exchange rate, which bore little relation to the purchasing power of the currency in comparison with others. The point was simply that whenever its exchange parity went up beyond a certain point, the temptation to spread future risks by buying alternative currencies at a more favorable rate became irresistible for a significant number of market operators. What this implies is that the dollar now requires a larger and more sustained improvement in the underlying forces determining the long-term value of the currency-the balance of payments on current account and the rate of domestic inflation-to establish an improvement in the rate of exchange. Thus the confidence expressed by authoritative American spokesmen early in 1979 that the tide of adverse forces was already being decisively reversed turned out to be premature. Whether it was Henry Wallich, a governor of the Federal Reserve, explaining that the substantial part of the American trade deficit was simply due to the fact that the U.S. business cycle in its upswing had got out of phase with that of the rest of the world, and would shortly be in phase again, or Richard Cooper, Under Secretary of State for Economic Affairs, pointing out that the flow of European and Japanese investment into the United States was growing on a sufficient sca.le to reverse the earlier adverse balance in the U.S. capital account, the predicted effect seemed to get systematically swamped by other factors.1 These factors were, it is arguable, in the last resort psychological-in the sense that market expectations in t~1e face of any event which might cause difficulty for the United States were almost invariably reinforced. Similarly, developments which were apparently favorable tended to be discounted. A clear example of the latter was the reaction to the sharp change in the world market for cereals following the poor harvests in some of the main producing countries. The United States had excellent har vests; it was evident that world trade in wheat and coarse grains would increase significantly, that prices would be higher, and that over half of the total of world exports of these products would be supplied from the United States. However, one consequence of this favorable turn was that domestic prices of food in the United States would rise and thus add something to the inflationary trend. In the balance of commentary on a development which was clearly going to be highly beneficial to the international position of the United States, it was the latter point which appeared to attract particular attention. 1 Henry C. Wallich, "Evolution of the International Monetary System," Challenge, January-February 1979, pp. 13-17; ·Richard Cooper, "Neo-Mercantllism in the '80's: The Worldwide Scramble to Shift Capital," Business Week, July !1, 1979, pp. 50-54. It was indeed very hard to see huw the United States could obtain some offset to the sharp deterioration in its terms of trade caused by the rise in the price of imported oil without an increase in the prices of internationally traded products of American origin, which also happened to be sold in the home market. This is only another way of saying that the Americans were fortunate enough to be able to meet the increased oil bill by transferring relatively fewer additional real resources than other nations to the oil producers. However, the confused thinking behind the slogan that had now been generally adopted about giving absolute priority to the fight against inflation meant that this American prize was promptly put into the disaster category. In a more general way, there was a tendency to understate the causes of the acceleration of the inflationary trend in 1979 which derived from events over which the U.S. policymakers had little or no possible control. Food, energy, and the rise in prices resulting from the big and sustained depreciation of the dollar during the earlier period up to 1979 were together responsible for a sizable portion of the additional inflation experienced in the year. The extent of the "J-curve" effect of currency devaluation-i.e., that the adverse effects of higher import costs come first, worsening the country's international performance, before the benefits of greater competitiveness come through-had been underestimated in the United States. This is not to say that domestically induced inflation was not also a major problem. But the latter was too readily and too often treated as if it were the whole problem. It is instructive to contrast this mood with the contemporaneous international response to economic developments in a country like Germany. The German economic policymakers had been highly successful during the late 1970s, and this led to a market reflex based on the expectation that they would continue to be so. It was only necessary to observe how the market responded in the first half of 1979, when the German central bank once again, for the third year running, was failing to achieve the targets set for the control of the country's money supply. There were, as we shall see, good excuses that could be made for this failure. The essential point was that Germany had accepted some of the consequences for the domestic economy of the emergence of the D-mark as an international currency, accepting it as its proper task to provide support for, rather than to replace, the dollar. But what was noteworthy was that the excuses never had to be made; the market generally gave Germany the benefit of the doubt. Meanwhile the President of the Bundesbank, Dr. Emminger, explained with engaging frankness that after all a country with an appreciating currency had certain domestic price advantages which meant that it could afford to be a bit lax in pursuing its objective of controlling the money supply.2 One cannot help wondering how a comparable explanation about an apparent failure of monetary policy would have gone down in some other financial center, London for instance. II This provides the background for what was perhaps the outstanding development in the economic relations of the Western world in 1979: Germany moved firmly and visibly into the center of the international stage. This was not immediately obvious to all observers, though many of them sensed that something had changed. In 1978 there was a tendency to group Germany and Japan together as problem countries, especially for the United States, which was trying to lead the world out of economic recession with little help-and occasional hindrance-from the other two most powerful economics. In the following year the U.S.-Japanese economic relationship improved in a dramatic fashion. The clearest evidence that the Japanese had become for the time being a non-problem was the fall in the yen-dollar rate from its 1978 peak by one-third. The center of the dollar's troubles moved elsewhere. Germany emerged as the main alternative pole of attraction in the international financial system. It had all the appearance of a reluctant emergence-rather like a minor actor who unwittingly stumbles backward into the limelight. There had been, it is true, the prelude to the drama when the Germans had appeared in the lead part during 1978 in the creation of the European Monetary System (of which more later). But this earlier event was seen by the Germans as an effort to share a key currency role with others, rather than to capture such a role for themselves. There were admittedly certain ambiguities here about the kind of sharing which the Germans had in mind: although the authority over European monetary arrangements was certainly intended to be collective, it was not absolutely clear whose national policy was to be adapted to whom. The gradual shift in German thinking on the subject of a possible reverse role for the D-mark was reflected in a carefully written statement by the Bundesbank toward the end of the year. Characteristically for that institution, it was tucked away as one of a series of articles in a modest position in the bank's monthly report.3 The report tells the story of the increasing use of the mark as an "international currency asset" and of the problems that this brings for German monetary management. There is a long list of the various devices employed by the German monetary authorities from 1970 onward to fend off the inflow of foreign funds. However, foreign holdings of German currency con • Lloyd'B Bank Review, July 1979. • Monthly Report of the German BundeBbank, November 1979, p. 26. tinued to grow very rapidly, especially in the second half of the 1970s; by the middle of 1979 the total was twice what it has been in 1975. It became evident, as the international wave of speculation mounted, that there was no practical way of preventing D-marks from accumu lating in foreign ownership and being used in transactions between third countries. The bank accordingly decided to confine its interven tions, which had earlier been exceedingly active, to the task of influ encing the form in which these internationalized D-marks were held, specifically to reduce their potential mobility so that being less volatile they had a lower nuisance value for the controllers of the national monetary system. One interesting aspect of the development of the new role of the D-mark in the 1970s was its coincidence with the decline of the pound sterling as an international reserve currency. Sterling had accounted for some 10 percent of international reserves at the start of the 1970s and declined to almost insignificant proportions by the end of the decade; meanwhile the D-mark's share of international reserves rose to 11 percent. The comparison between the past role of sterling and the new role of the D-mark is significant because of the Bundesbank's in sistence on its own role as the guardian of a secmul reserve currency a kind of surrogate for sterling-with no ambitions to replace the ·dollar. It is evident that the German authorities were, and are, extremely sensitive on this point. That sensitivity was no doubt enhanced by the tenor of some American comment on the European Monetary System (EMS) which saw in it a device that would, at the very least, make life more awkward for the dollar as an international currency, even if it did not successfully challenge its predominance.4 And the D-mark was after all the monetary cement which was intended to hold the EMS together. Was the European Monetary System in fact a kind of preliminary dress rehearsal for the D-mark as the international key currency of the future~ There was a view held by some European monetary experts that this was indeed the unstated, and probably largely unconscious, purpose of German policy in the establishment of the new system. If that was so, it would explain why the EMS avoided having a clear policy toward the dollar-a fact which particularly concerned the British, and also the Italians, both before and after the system started functioning in March.5 The question of the D-mark/dollar relationship • See, for example, Benjamin J. ·Cohen, "Europe's· Money, America's Problem," Foreign Policy, Summer 1979. 5 The British managed to establish a "half-in half-out" position, which allowed them to participate in certain parts of the new arrangement but did not tie the sterling parity to any fixed relationship with the other European currencies. The Italians became members on special terms, which gave them a wider margin of maneuver for determining their exchange rate In relation to the rest of the European Community. caused trouble for the EMS almost from the beginning. As was observed above, the Germans were anxious, for their own reasons, to prevent the dollar exchange rate in D-marks from rising by more than a moderate amount. For the other members of the European system, notably the Belgians, this rate, which clearly understated the relative purchasing power of the dollar, threatened to make them uncompetitive in foreign trade. The history of the EMS during the first few months of its functioning in 1979 illustrates both some of the unresolved conflicts of national policy inherent in it and the skill which the Germans, having now overcome some of their inhibitioins about the acceptance of an international currency role, applied to the management of the system. The Europeans belonging to the new monetary bloc appeared to have established an island of currency stability, while those outside-Japanese, Americans, Canadians, British-were tossed about by a series of violent storms. It is known that the Germans in fact used very substantial amounts of D-marks in day-to-day intervention in the foreign exchange markets with the aim of preventing the escalation of any small movement into a speculative assault on the currency of any one of the member countries.6 This intervention took place well within the limits for permissible changes in currency parities set forth by the EMS agreement, and applied especially to the French franc. These prompt intramarginal exchange market interventions certainly saved the monetary authorities of the European member countries a great deal of anxiety. As one participant in. these operations remarked privately, "The appearance of stability was highly manipulated." Still, it worked. The net cost to Germany at the end of the period was not on a large scale, certainly by comparison with the cost which Germany incurred in supporting the dollar. The trouble, if there was one, with the EMS was that member states were almost too reluctant to devalue their currencies when the need became apparent, because of their anxiety about possible domestic inflationary consequences. And when the first agreed currency realignment took place on 24 September, involving a small rise in the D-mark rate and a small devaluation of the Danish krone, the operation went off smoothly and did not give rise to a chain reaction of disturbances in other currency markets. The unresolved conflicts were concerned first with the extent to which the dominant members of the block would be prepared to modify national financial objectives to accommodate the interests of other members of the EMS, when the going became more dif • See the data In the paper by Prof. N. Kloten (provisional text mlmeogrnphed) for the Bologna Conference, Johns Hopkins University (Bologna Center) and the European University Institute, on "The Political Economy of the European Monetary System," November 1979. ficult. The second EMS currency realignment on 29 November was directly related to this question. It involved another devaluation of the Danish krone, which came under particular strain as the D-mark strengthened further with the tightening of German domestic financial policy, including a rise in interest rates. The Danes evidently, feared, for some reason, that they would not be able to prevent their exchange rate from moving beyond the permitted 2%, percent limit of divergence from the strongest currency, without very heavy intervention. And behind the problem of intra-EMS policy divergencies was the other major issue, that of the external policy of the European currency bloc toward the dollar. The two questions are closely interwoven. What it is possible to say on the basis of the evidence of 1979 is that Germany's responses do not,provide any support for the theory that the EMS is regarded as a stepping stone for the D-mark to a larger key currency role. As the Bundesbank made clear in the same statement cited above, it has been motivated to engage in extremely costly support operations for the dollar by a conviction that there is no available alternative to the latter as an international reserve and settlement currency at present. Certainly the European Currency Unit, although it has begun to be used for certain settlements between European central banks, is not one. The D-mark, the bank shows convincingly, is very ill-equipped to perform the role. As the Bundesbank sees it, it has in fact played a role of international intermediation between those who wanted to reduce their dollar holdings on the one side, and the United States on the other. Its policy, it explains, has been to smooth the process by accepting, in a limited way, the movement of funds into D-marks while itself transferring more D-marks to the United States and accepting additional dollars in exchange. The closing months of 1979 supplied a striking illustration of the political exposure that goes with the dollar's continued role as the key international currency. When the hostage crisis broke in November, Iran's threatened action against the United States, by the removal of its deposits and other liquid assets there, together with a refusal to accept future payments for oil in dollars, would have meant little if it had been applied to almost any other Western country. But the U.S. Government, in anticipation of the event, felt impelled to embark on the risky course of freezing assets belonging to Iran which were under American jurisdiction-risky because of the possible effects on the nerves of other potentially unpopular governments in the Middle East and elsewhere holding their reserves in dollars-and to issue hurried official reassurances about the continued viability of the international role of the dollar. The U.S. Deputy Secretary of Energy explained authoritatively the reasons why the dollar was unique as an international settlement currency: no other currency could provide tho necessary market and other facilities required to sustain an alternative medium of exchange for the immense value of world oil transactions during the "next several months if not years." 7 He was, as it happened, repeating almost exactly one of the arguments used by the German central bank in refusing for the D-mark the role of key international currency which circumstances appeared to be thrusting upon it. III Inside the European Economic Community (EEC), conflicts on certain other aspects of economic policy became acute as the year progressed. The main battleground was the community's budget. For somewhat different reasons two of the four larger member countries, Britain and Italy, felt keenly that they were receiving least-favorednation treatment from their partners. The Conservative government in Britain which took office in May, for whom the EEC attachment was an integral element of party policy, carried its complaints about the unjust proportion of the budget which it was compelled to shoulder loudly and bitterly round the capitals of Europe-and finally to the European summit meeting in Dublin at the end of November. The issue became a major source of conflict, as dangerous and bitter as any the European Community had experienced in its 20-year history. The Dublin meeting was deeply discordant in tone, and the British Prime Minister, Mrs. Thatcher, made it a point of honor to refuse the partial financial concessions offered to her. By the somewhat maladroit way in which she seemed to attack cherished community principles, in particular to assert the right of a member country to treat its EEC budget contribution as if it were still, in some sense, national property, Britain managed to isolate itself from its European partners, including Italy, which had a comparable, though much smaller, grievance. In subsequent weeks the British Government set about mending some of its fences. The gesture of intransigence having been made, it appeared that there might, after all, be a readiness graciously to accept some form of interim relief, so long as it was substantial. Whatever the outcome of this particularly bitter dispute with one member country, the deeper budget problems of the EEC which surfaced in 1979 were, it was clear, likely to assert themselves with increasing force in the period ahead. The demands on future budgets, which were already apparent, would soon push the community's expenditure beyond the capacity of the existing sources of community revenue. Britain and to a lesser extent Italy were in effect signaling the arrival of a mo~e fundamental crisis in the community. The efforts made by these two nations which felt themselves to be especially disfavored by the EEC budget came up against the resistance of the Franco-German entente which had become the hard core 7 The Financial Times (London), November 21, 1979, p. 1. of community policymaking.8 It was not so much that the Germans were unsympathetic to the Italian or the British cases. The key factor was the hostility of the French Government and the fact that West German Chancellor Helmut Schmidt realized that in order to make his initiatives in the European Community work he needed the active collaboration of France. Germany's activist policies in Europe, and elsewhere, were concerned with different and larger issues than making Britain and Italy happy and reasonably contented members of the European Community. Thus on the question of the overdue reform of the EEC's Common Agricultural Policy, while the Germans agreed about the need, they were not prepared to pay a price which involved even a small amount of French ill will. And if the Common Agricultural Policy was not ·to be quite radically changed, it would not be possible to meet Britain's and, to a lesser extent, Italy's grievances. Europe's internal relationships mattered more because, as already indicated, the world economic balance of power had changed. A curious aspect of the matter is that the highly successful development of the German economy in 1979-the combination of accelerated growth induced by a major budget stimulus with a strong currencyoccurred in large part as a result of international persuasion exercised on German policymakers, which Chancellor Schmidt went on denouncing to the end. In an interview in the autumn of 1979 he referred to the pressures that had been put on the Germans during the period of the weak rebound from the 1975 slump to move ahead and expand their economy faster than that of other Western countriesl as part of the effort to re-create a collective economic momentum. His verdict, delivered with characteristic contempt for those against whom he had argued rather fiercely on this subject, was: "I think that this ridiculous little 'locomotive theory' has withered away now. And correctly so." 9 In fact the "locomotive theory" of the Western economy-later renamed the "convoy principle" in a (not very successful) attempt to placate its opponents, since it implied that the strong countries would simply lead the weaker ones rather than be responsible for dragging the latter behind them-was precisely the policy that was adopted in 1978 and given the full sanction of the Germans and the Bonn summit of the heads of governments in July of that year. The German Government reduced taxes and embarked on a large increase in public 8 This had been reinforced further by the events leading up to the establishment of the European Monetary System. When the French delayed the start of the EMS for two-and-a· half months beyond the official opening date at the beginning of 1979 because of a purely domestic polltical issue requiring an international gesture from President Giscard d'Estaing to satisfy his agricultural lobby, the EEC taking its cue from the German 'Chancellor, showed marked sympathy and patience for the French Government's problem. The contrast between this and the tough treatment of the Itallans a few months earller in the context of the EMS negotiations, when they had asked for special consideration because of their own domestic polltical problems, was not lost on the latter. • The Economlllt, September 29, 1979. 9f investment; 1978 was a bumper year for the latter and the rise continued, though at a slower pace, in 1979. Further reductions in taxesraised the budget deficit and so imparted a continuing fiscal stimulusto the economy, which then induced a growing response ftom the private sector and brought on the high prosperity and the expansionistmood of the middle of 1979. As the OECD remarked in its mid-yearsurvey, "the concerted action program" (another, more respectablename for the "convoy" principle) had worked and "the geographicalpattern of the demand expansion has changed markedly." Domesticeconomic expansion was going ahead "much faster" in Japan and Germany than in the United States.10 The convoy therefore did arrive;but it came rather too late. It was too tardy to provide the hoped-forcontribution to the American balance of payments in time to dispensewith the further drastic measures of deflation which were imposed onthe U.S. economy in the course of the year. By the second half of 1979,the dollar was suffering from the protracted crisis of confidence andhad become distinctly accident-prone. The Iranian crisis in the autumnmerely rounded off its troubles.Already by the end of June, when the leaders of the seven majorWestern countries held their summit meeting in Tokyo, the UnitedStates was in no mood to persist in its earlier views about the appropriate international response when faced with an externally induceddisruption of the economy of the Western world. It had led the wayin the second half of the 1970s by accepting a massive balance-ofpayments deficit, in large part oil-induced, while calling on othernations to adopt more expansionist policies. But in June no one demurred from the argument that a rise in the cost of imported energy,which was not promptly and fully offset by an equal rise in exportsto the oil-producing countries, required a corresponding fall in domestic demand and economic activity in the importing countries. TheCarter administration had conceded defeat. IV The difference in the international mood following the first oil shockin 1974 and the second in 1979 was in this respect striking. The secondtime around, the Western countries made no serious effort to concerttheir policies with the aim of averting the threat of recession as domestic demand was squeezed by higher energy prices. Perhaps themost important factor was that in the five years' interval they hadhad the novel experience of sustained high rates of inflation associatedwith relatively low economic activity, which made them nervous aboutpolicies which deliberately aimed to give a boost, however temporary,to domestic demand. This sentiment was reinforced by the clear evi 1• OEOD Economic Outlook, July 1979, p. 19. 92 dence of an acceleration of the rate of inflution in the major Western countries during the first half of the year. That was in turn connected with the effect on business sentiment of the recovery of demand outside the United States, led by Germany and Japan, combined with the hard-to-break U.S. boom and secondary economic stimulus promptly communicated to the regional groups in Western Europe and the Western Pacific, directly dependent on Germany and Japan for much of their foreign trade. The coincidence of the sturdy tail end of the American prosperity and the strong upswing elsewhere induced a feeling of business buoyancy which was especially in evidence in the middle of the year. Even the Americans, despite the evidence before their eyes, of a sharply declining rate of growth, appeared to be ready at this stage to be comforted by arguments, officially as well as unofficially sponsored, that the recession that was bringing the current business cycle to an md would be short and shallow. Outside North America there were long-awaited signs that there vival of economic activity might at last be taking off into self-sustaining growth. The clearest indication was the revival of private investment, first in Japan and then in Germany. In Europe optimism was sustained by the movement of traditional indicators of investment demand, including the flow or orders to the steel industry, which after a long period of decline-cushioned by the efforts of an officially sanctioned steel cartel of the EEC countries-began to revive around the middle of the year. World trade in industrial products continued to move forward at the higher rate that it had reached in 1978, but its distribution had become more balanced and it looked more sustainable. Above all, the disequilibrium caused by the discrepancy between the exceptionally rapid growth of Japan's industrial exports and the slow increase in its imports was, at least for the present, eliminated. In fact, so effective were the measures taken to cut Japan's surplus that its balance of payments moved into substantial deficit on current account as the year progressed, bringing a drastic fall in the value of the yen. Its decline against the dollar amounted to as much as onethird from the high point in the fall of 1978. The secondary effects in terms of increasing the competitiveness of Japanese exports in foreign markets did not immediately make themselves felt. Meanwhile, however, higher import costs were working through into domestic inflation, and toward the end of the year the Bank of Japan embarked on a series of drastic measures aimed at raising the international value of the currency. It looked as if this was another boom that was going to be hard to break. In terms of its international repercussions, its favorable, and highly unusual, feature was that it was home-grown in ,Japan and not export-generated. 328-687 0 -80 -7 It is arguable that the governments of the leading countries of the West were already prepared to apply a touch of the brake to the growth of their economies even before the succession of new oil price increases-in June especially-made their effects felt. It see~ed safe, as well as prudent, to do so in view of what they saw as the underlying strength of world economic activity. But other views, and anxieties, on this subject were not wanting, although the doubts about the prospect ahead seemed to obtain wide currency only toward the end of the year. Anxieties centered first on the possibility that the American recession might go deeper; second, that it would coincide with a drop in economic activity elsewhere (for example in Britain, where it was an expected consequence of the Thatcher government's deliberate policy) ; and third, on the probability that the Organization of Petroleum Exporting Countries (OPEC) would not behave as they had done after the first oil shock in the early 1970s, when they had facilitated the adjustment of the advanced industrial countries to the effects of the big, adverse movement in their terms of trade. There was little likelihood this time that they would go on the unrestrained buying spree in which they had engaged as their vastly increased foreign exchange revenue carne in from 1974 onward. This was true especially for Saudi Arabia and the other Gulf States. The prospect was therefore that a much larger unspent surplus of oil export earnings would remain over for investment. The most serious effect of these changed circumstances was on the balance of payments of the developing countries outside OPEC. A question which assumed increasing urgency was how far the existing financial arrangements could be depended on to recycle the large capital funds accumulated by the oil producers to meet this deficit. These arrangements had progressively come under strain as a result of the highly successful efforts of the developing countries during the 1970s to finance a substantial proportion of their imports by borrowing in international private capital markets. The result, in the form of a loss of credit-worthiness by some of them, as their debts mounted much more rapidly than their earning power, was in evidence beforehand and grew more serious during the year. The other aspect of the matter, which carne into sharp prominence with the development of the dispute between the United States and Iran in the fall, was how far the owners of the oil surplus funds would be ready to entrust them to the same financial mechanisms as they had used in the years following the first oil increase. As already noted, the movement to diversify these assets by investing them in other currencies was putting a strain on the dollar. But the long-term prob~ lern created by the new accumulation of discretionary funds was not that the United States would be embarrassed in any significant way if the additional money were invested in other financial centers or inother currencies. It was rather whether the financial authorities responsible for some alternative national currency, or currencies, wouldbe able or willing to act in the role of worldwide financial intermediaryin a manner which satisfied both the owners' requirement for liquidityand the numerous potential borrowers' desire for ready access to alarge and efficient capital market. There were no vi3Jble candidates insight; but that would not necessarily avoid the travails attendant ontrying to find one. v The oil price increase also posed a threat to one important andpromising development in North-South relations of the late 1970s.During the five years following the end of the great business boomof 1973 imports of manufactured goods by the advanced industrialnations from the developing countries increased rapidly, at a notablyhigher rate than the exports of the advanced industrial countries toeach other. The new exporters were out-competing the old not onlyin the traditional lines of textiles and clothing but also in certainengineering products. Their market share of imports of engineeringgoods in the advanced industrial countries, starting admittedly froma modest level, rose by about two-thirds in five years.11 A trend ofequal importance for the long-term future of this improved tradingrelationship was that it was balanced by an increase in the share ofthe markets of developing countries in the exports of manufacturesfrom the industrial countries. The latter of course includes exports tothe oil producers in the developing world. Even so, it was a strikingchange in a period of five years for North America to increase theshare of its exports of manufactures going to developing countriesto almost one-third-that is, to a larger proportion of the total thanthat absorbed by Western Europe and Japan combined. A similarswitch in the relative dependence on markets in developing as compared with developed countries occurred in Western Europe's exportsof manufactures. The international economic balance, measured in terms of marketdependence, was thus in the process of changing. But how to interpretthe change was more problematical. The aggregate figures reflectedthe outcome of a series of complicated cross currents. The advancedindustrial countries greatly increased their exports to the markets of the developing world, with the main emphasis on the oil-producingcountries, while at the same time a group of developing countrieswhich were not oil producers managed to capture substantial new n See the GATT report, JnternaUona! Trade 1978/79, for data quoted here and in thefollowing text. 95 markets for their manufactured goods in the markets of Western countries. The two movements are not in any evident way casually connected. The rise in the efficiency and the international comparative advantage of the newly industrializing countries (NIC's) simply coincided with the export drive of the advanced industrial countries in certain parts of the Third World. But now the NIC's, which consist of a comparatively small number of countries in the Far East (Korea, Taiwan, Singapore, and Hong Kong) and in Latin America (Argentina, Brazil, and Mexico) have become more vulnerable because of the protectionist impulse of Western countries suffering from high levels of unemployment, which are subject to-or subjecting themselves tofurther deflationary pressures as a result of the events of 1979. As the GATT (General Agreement on Trade and Tariff) remarked in its 1979 survey of the performance of the NIC's: "Against the background of the numerous protectionist developments of recent years, the relatively high growth rate of industrial countries' imports of manufactures from developing countries may appear surprising...." 12 The explanation lies partly in the way in which these countries have succeeded in diversifying the export mix of their manufactured products. They remain, however, heavily dependent on their traditional exports of textiles and clothing; and the textile industries in the Western world which compete with them are in many countries the largest single employer of labor in the whole of the manufacturing sector. All the available evidence, including the special arrangements made for trade in textiles in the "Tokyo Round" of the GATT in 1979 (discussed below), indicates that this industry intends to conduct a vigorous battle to safeguard its home markets from the threat of further inroads from low-wage producers in the developing countries. If, as the responses to the events of 1979 suggest, a period of slower growth lies ahead in the Western economy, attitudes which have become widely ingrained in the textile industries will tend to spread to other sectors. In that case the Asian NIC's which have been outstandingly successful in their efforts to capture a growing share of the Western market for engineering products-they account for over half of total sales of these products by Third World countries in Western markets-will be at risk. VI In the broader context of economic relations between the advanced industrial countries and the developing world as a whole, poiicies were overshadowed by the domestic problems of the former. It was not only a matter of anxiety about the effects of a more liberal approach to trade on levels of industrial unemployment; the rich countries were ,. Ibid. 96 also in no mood to increase the volume of development aid at a time when national budgets were under increasingly severe scrutiny. There was a widespread view that an important source of the inflationary pressures from which the West was finding it so difficult to escape was the reaction of taxpayers, typically in the form of higher wage demands, to what they regarded as excessive claims made on them by public authorities. It was not a time for international generosity. Even when Western countries did agree to an increase in their aid contribution, as for example in the second Lome Convention which was signed after protracted negotiation by the EEC with the 57 socalled ACP (African, Caribbean, Pacific) states at the end of October, the outcome was only achieved by the application of considerruble and sustained pressure by the developing countries concerned. Itwas political rather than moral pressure that worked on the community. Its original offer of aid for development, made in May, covering the period 1980-1985, was only some 50 percent larger in money terms than the amount supplied under the first Lome Convention in 1975. The EEC's desire was to arrive at a quick settlement with these nations with which it recognized a special relationship. But they balked at what appeared to be a net reduction of aid in real terms, to be spread among a larger number of countries than the 1975 allocation. The donors had to be induced, in the course of some months of further negotiation, to do better. It was not only the wrangle over the amount of aid which delayed agreement; there were a number of other matters on which the 57 countries declared themselves less than fully satisfied. They are mostly small countries, and a number of them are highly dependent on the market price of one or two key commodities for the difference between subsistence and prosperity. In the_ earlier convention the EEC had established a stabilization fund, applying chiefly to tropical products, called STABEX, which was intended to supply insurance cover against the effect on export earnings of a fall in these commodity prices. The new element in the second Lome package was a scheme called MINEX which was to provide some of the same benefits to producers of mineral products. It was, however, cast on a less generous scale. The EEC countries in the end jibbed at the prospect that they might be called upon to make good the large losses caused by the extremely volatile market behavior of metals, like copper, which are ~n widespread use and are essentially sensitive to movements in the business cycle. So the conditions governing the use of the new fund, which is of modest size (under $400 million), allowing for the fact that it is intended to -accommodate such major mineral producers as Zaire and Zambia, are restrictive. Probably the best that can be said about the continuing dialogue between rich and poor countries in 1979 is that, even though there was little evidence of movement toward the establishment of a satisfactory long-term relationship, the fierce tone which was characteristic of the formal encounters of the two sides during much of the 1970s was somewhat moderated. The fifth UNCTAD (United Nations Conference on Trade and Development) conference on the problems of developing countries, which took place in Manila during May and June, although hardly a friendly affair, was felt by many of those involved to have been less dominated by adversary tactics and by the spirit of confrontation than earlier meetings on the same theme. It would be too much to say, however, that there was much evidence of consensus in the conclusions which attracted the support of a majority of the participants. Indeed, where these aimed to impose specific obligations on the developed countries, they generally failed to obtain the agreement of the latter. The essential matter of establishing a Common Fund to provide international assistance to the producers of a number of commodities of special interest to developing countries-a contentious issue left over from the previous UNCTAD meeting in Nairobi in 1976-had in fact been agreed in advance of the Manila conference. That may have helped the atmosphere. Although it was a much smaller fund than the Third World countries had asked for, the donor countries did show a willingness to take a more liberal view on the arrangements governing the way in which it was to be used. Manila was also notable for providing the occasion for a statement by Mr. Robert McNamara, President of the World Bank, on a longterm program aimed at improving relations between developing and developed countries. The main emphasis was on trade. The speech gave a gloomy, though realistic, appraisal of the poor prospect, during a period of slow growth in the advanced countries, for dismantling the great number and variety of non-tariff barriers employed by these countries to impede the exports of the developing world. But he went on boldly to propose that, as soon as economic conditions in the West improved, additional development aid should be earmarked for the specific purpose of expanding exports from poor low-wage countries. While the logic of his proposal could not be faulted on the assumption that the West had returned to full employment and was seeking to realize the gains of comparative advantage in international trade, the political issues involved were, in the conditions of 1979, highly sensitive and even explosive. The choice of certain development projects by the World Bank was already the subject of complaint by some industries, notably textiles, which had been adversely affected by Third World exports. Mr. MeN amara's proposed remedy for the industries so affected was to offer them some form of international "adjustment assistance" and to provide it on a far more generous seale then had been hitherto con templated by any organization, national or international. It should,he suggested, be supplied not only to the workers directly displaced,as well as to the local communities affected by competing imports fromdeveloping countries, but should also go to entrepreneurs who losttheir shirts when they were no longer able to compete in a previouslyprotected domestic market. This daring adaptation of the capitalistethos in the service of international amity and the benefits of comparative advantage stood in stark contrast to the highly restrictive positionmaintained by Western industries that were affected by Third Worldcompetition, notably in the field of textiles, in the GATT TokyoRound. VII The long, drawn-out negotiations in the GATT on the reduction oftariff and non-tariff barriers were brought to a formal conclusion inGeneva, after five and a half years, in April 1979. The end of theTokyo Round naturally served to recall the concluding stages of theKennedy Round of trade negotiations in 1967, in an atmosphere ofelan and excitement, which was recognized at the time as an expressionof the joint will of the nations of the Western world to advance byanother large step toward the objective of open world markets in industrial products. The nations involved, individually and sometimescollectively, had been awkward at various stages in that negotiationtoo, and the outcome was in doubt almost up to the end. But there wasno mistaking the underlying international mood in which the KennedyRound took place : it was a mood which could accommodate boldbargains. There was no sign of boldness in the bargains which emerged fromGeneva in the spring and which still required several months of refinement and clarification before they secured the approval of the governments of the main trading countries. All the bets seemed to ·be heavilyhedged. Even the program of tariff cuts, which did no more than lopsome two to three percentage points off average rates of import dutyon manufactured goods (around ten percent in the main industrialcountries), and was going to take eight years over the process, requiredthe backing of an insurance policy to calm unsteady nerves. It wasagreed that the annual tariff reductions could be stopped dead afterfive years, if parties to the agreement found them too uncomfortable.Sensitive items like textiles were, as already indicated, subject to nspecial let-out. The first tariff cuts were delayed for two years afterthe normal starting date (January 1980) and they can be halted at anytime if the importing countries run into any trouble which theyregard as serious. Moreover, behind the facade of the new tariff exercise there were the considerably toughened quantitative restrictionson textile imports from developing countries, negotiated earlier under 99 the revised international Multi-Fibres Agreement. Textiles even came in for specially protective treatment when they were the subject of ordinary trade between advanced industrial countries. The outcome of the special terms negotiated by the U.S. administration with the American textile industry left many of the Europeans, who had hoped for a freer run of a highly protected market, feeling that when any domestic interest group was strong enough to mount an effective lobby in Congress (as the textile lobby had shown once again it was preeminently capable of doing), the administration was ready to give very little away to foreigners. The prize case which attracted attention in Europe was a cut in the U.S. tariff on certain woolen textiles which would still leave the level of protection in 1987, at the end of the eight years, at 33 percent. One grand gesture which recalled something of the spirit of the 1960s negotiations was the agreement to abolish all tariffs and trade restrictions on aircraft for civilian purposes. The real issue which this raised was how far governments could be persuaded to stop inter vening in the many ways open to them, other than trade restrictions, to induce national airlines to place their orders with suppliers whom they happened to favor. In this case there was an early test of the willingness of one notoriously interventionist government, the French, to change its traditional style of behavior in order to abide by the spirit of the new arrangementY The underlying question, which applies to a number of other countries besides France, about the ultimate willingness of officials armed with public power to exercise deliberate restraint in using it, could not o£ course be answered in 1979. But the matter was at least taken seriously enough for the GATT to proceed with plans to create a committee of surveillance to hear compaints about aircraft sales which appeared to infringe the new rules. The agreement, as well as its policing was a distinct victory for the United States; International trade in aircraft is a large and growing business, and the United States has a dominant position in it. There were other bits of veiled and complicated power play in the negotiations, which did not always go the American way. The Europeans were able to obtain the removal of the objectionable Amer ican law which compelled the administration to impose countervailing duties on goods which the Americans held to be subsidized, regardless of whether they could be shown to cause damage to U.S. firms. The expected return for this concession was a tightly drawn code designed to control the use of subsidies by the Europeans and others. In the event the agreed rules, although they do indeed make it more difficult 1s See The Economist, October 1'3, 1979. The Americans .complained that the French Government was Interfering In the choice by Air France /between two competing aero engines (both American) for a new plane, In contravention of the GATT rules; thus far there Is no clear evidence that the eventual decision wlll be taken ln a different manner than It would have been In the past. to impose direct subsidies on exports, leave the more important, andmuch more complicated, business of indirect subsidies resulting fromvarious forms of government intervention for purposes other than theexplicit encouragement of exports largely uncontrolled. It is in factprecisely this kind of subsidy which the European Community authorities themselves have had so much difficulty in controlling in their ownmember countries. However, in terms of the short-term politics of thenegotiation, the 1979 agreement on subsidies gave the European Community more or less what it wanted, at the expense of the wishes of theUnited States.The most interesting question about the significance of the TokyoRound concerns not so much the detailed content as the practical handling of the various codes of conduct, mainly on non-tariff barriers,which were so exhaustively negotiated. An outstanding example is thecode laying down rules for government procurement of goods that areof interest to exporters in other countries. It not only marks a beginning in an area of economic activity which is already very big andlikely to continue to grow, but also points the way to a process ofcontinuing negotiation which, if it is followed, will progressivelyincrease the range of items subject to international surveillance.Here again the European Commission has a coincident interest inopening up this category of transactions, which has in large measurebeen treated as a national preserve, to international inspection. It hasindeed been struggling, not altogether successfully, with entrenchedgovernment habits in this field for some time past. Of course its aimis a more parochial one of giving the other Community countries anequal chance to tender for the government business ofany one of them.Hut like the GATT, its first endeavor must be to achieve greater'·transparency" in regard to the actions of national officials."Transparency" is the key concept in the new codes. They will onlylutve a significant effect if they induce governments in dispute with oneanother to demand information-and be ready to give it-on matterswhich have hitherto been treated as if they were strictly within thesphere of national sovereignty. The point can be put another way. Theeffectiveness of the codes, and of the new procedures which are essential to them, depends essentially on whether the spirit of internationallitigation can be successfully promoted by the GATT. The governments of the advanced industrial countries will have to be willing toengage in formal disputes with one another, rather than continue tofollow their instinct to rely on private deals privately arrived at, mostE:lspecially when dealing with any question that both affects international economic relations and involves awkward private interests. Butunless the habit changes it is hard to see how a body of case lawbacked by practical rules of a readily comprehensible kind could beestablished. 101 As one commentator on the agreement put it, "The new GATI has the mechanisms which would make the last twenty years of the century as civilized and expansive a period for world trade relations as those which followed the GATT's creation in 1947" 14~but all this was conditional on a high degree of active cooperation between the governments of the United States, the European Community, and Japan. It was, he added, a large condition. International cooperation of the kind that is being suggested in this article involves a willingness to handle differences in a new and more public way, relying on international institutions to do the job that has hitherto been regarded typically as the function of bilateral diplomacy. The developing countries which participated in the Tokyo Round were little interested in these issues. They were dissatisfied with the outcome insofar as it affected their trade, and by the end of the year very few of them had signed the new agreement. What they had ·achieved in the negotiation, as they saw it, was to block the proposal to modify one of the articles of the GATT in such a way as to make it easier to impose trade restrictions on an individual basis against the exports of countries which were competing too successfully with domestic producers. Some of the advanced industrial countrie.." had hoped to obtain permission to impose restrictions on imports from a particular source which was causing trouble without having to restrict imports of the product concerned from all sources.15 This was the mostfavored-nation principle, the core of the GATT, in reverse. The developing countries were assisted in their effort to resist this innovation by others who were worried about a change which looked as if it might put in doubt in an explicit fashion a key principle of international commercial conduct. VIII At the year-end a renewed major upsurge of oil prices-taking effect in a market that had become disorganized and more than usually unpredictable as a result of differences among the main OPEC members-dominated the prospects for the world economy. Even before the final round of price hikes which culminated in mid-December with the OPEC meeting in Caracas, the outlook for world economic growth had become bleak. The OECD had revised its estimate for the combined performance of the Western industrial countries for the year ahead to 1 percent, a fall of two-thirds from the fairly modest rate 8.ttained in 1979.16 The earlier late-June forecast of an overall growth rnte of 2 percent, it quickly became evident in the light of the new circumstances, had been too optimistic. u Sidney Golt, "Beyond the Tokyo Round," The Banker, August 1979. 10 They can, and do, secure the same practical result by means of Individually negotiated "voluntary export control agreements" ; these are not subject to GATT rules. 1o OEGD Economic Outlook, December 1979. The OECD had pinned its hopes for a less damaging world economic response to the second oil shock of the 1970s-in contrast to thesequence following the first shock in 1973-largely on the fact that theleading countries of the West were not, on this occasion, going to movedownward in unison from a highly synchronized business boom into acollective slump. The business cycle (as was observed above) had become desynchronized in 1979, with the German and Japanese economies advancing strongly through the year, as the United States andBritain turned down. This gave rise to a reasonable hope that the U.S.current balance of payments, which had been gradually improving,would consolidate its gains to show a substantial surplus in 1980the obverse of the anticipated deficits of Japan and Germany-imparting a new and welcome stability to world currency markets.However, the reactions to Caracas suggested that whatever initialgains might derive from desynchronized business cycle were likely tobe swamped fairly quickly by the unison of the Western policy response. (In 1974-1975, it will be recalled, there were significant variatiOns in economic policy and in consequence, at least temporarily, innational rates of growth and contraction.) Faced with a greatly increased balance-of-payments deficit and a further sharp rise in prices,as the higher energy costs worked through the system, all seemed determined on a prompt and complete deflationary adjustment to accomodate the change. Exhortations from the OECD that countries shouldrespond to it with different degrees of severity, in the light of theirindividual economic circumstances, were not likely to find a receptiveaudience.Any suggestion of delay or gradual adaptation tended to be discounted. Indeed it was precisely because the soft option had beenchosen by many countries after the first oil shock of the 1970s thatthe West was so ill prepared for the second. This conclusion was byno means self-evident-it could be argued that the general absence ofdrastic remedies, except in a few countries, had, through its effect inmaintaining a continuing rise in the prices of Western-produced goodsduring a period of slow economic growth, substantially offset the initial deterioration of the terms of trade with the oil producers withouta major social upheaval in the importing countries. In consequence,the real price of oil at the start of 1979, i.e., its cost in terms of othergoods and services, was only modestly above the level of the early1970s five years after the first oil shock.However, the important point was that governments were now notwilling to "buy time" for adjustment. They had decided, in fact, thatfurther inflation, even if it produced incidental advantages in international trade, was not acceptable. In a more general sense the moodof policymakers had shifted: the dominant motif was financial caution, most clearly reflected in the OECD's estimate that the contribu 103 tion of public expenditure on goods and services to the growth of demand in the whole group of member countries in 1979-1980 would be the lowest two-year average o£ the decadeY Demand restraint in the West promised no rewards for the developing countries; indeed it was already clear that the main deficit, matching the huge prospective surplus of the oil producers in 1980, would be in the Third World. The slowdown in international trade with the industrial countries would aggravate the problem, and it was hard to see how the existing international institutions, notably the International Monetary Fund (IMF) and the World Bank, could be adapted fast enough to meet what looked as if it might well become a crisis of Third World solvency. Developing countries would be making increased demands on international capital markets to finance their immediate import needs at a time when the major banks and credit institutions had come to share the mood of financial caution of Western governments. Moreover, the certain prospect that a number of advanced industrial nations would be turning to the international market for loans to cover their balance-of-payments deficits meant that the Third World would be up against greatly reinforced competition for private capital, as well as more exacting standards of creditworthiness. All this, together with the new uncertainties about the future behavior of the major depositors of surplus funds in the international financial system, added up to a sense of enhanced vulnerability among those whose actions could well determine whether the recession of 1980 would be transformed into a worldwide slump. At the same time, American efforts to use nonmilitary means o£ pressure, especially financial pressure, in its dispute with Iran tended, ironically, to aggravate the underlying malaise. To many foreign observers it appeared that the U.S. threat to Iran's capacity to survive could only be made effective if the freezing of its dollar assets were accompanied by a full-scale economic blockade which effectively prevented the Iranians altogether from selling their oil-a difficult operation in conditions of world oil shortage. In default of this, the Americans might be tempted to use the monetary instrument with increasing vigor, and this could in turn reinforce the trend among others besides the Iranians to diversify their financial holdings out of dollars. Not for the first time, the key currency was found to be a highly uncertain weapon when used on its own, without other powerful means with which to back it up. In fact the dominant trend in international financial opinion, including that of the United States, was moving strongly against the whole notion of national key currencies as the basis of the world monetary system. The experience of the dollar had demonstrated that 17 Ibld., p. 18. even when supported by a continental economy of exceptional size and strength, the key currency suffered from a high rate of obsolescence. It was now proposed that as a first move a way from the old system the IMF should proceed to a systematic funding of the excessively large dollar balances held outside of the United States and issue its own internationally guaranteed paper in exchange. This scheme which had earlier been viewed with suspicion was strongly supported by the United States and the IMF. Itwas regarded by many as an elementary form of insurance against the risks of a major speculative attack on the international key currency. But a "dollar substitution account" would almost certainly prove expensive and there was no agreement about who would meet the cost. It was of course to be expected that there would be argument on this and other matters connected with the movement away from the traditional key currency system. Yet it was hard to avoid the impression that the pace of required institutional change was lagging dangerously far behind the pace of changes occurring in the international marketplace. LIST OF ABBREVIATIONS ABM Antiballistic missile CTB Comprehensive test ban EEC European Economic Community EMS European Monetary System GATT General Agreement on Trade and Tariff GNP Gross national product ICBM Intercontinental ballistic missile IMF International Monetary Fund LTDP Long-Term Defense Program MBFR Mutual and Balanced Force Reductions MIRV Multiple independently targetable reentry vehicle NATO North Atlantic Treaty Organization NIC Newly industrialized country OECD Organization for Economic Cooperation and Development OPEC Organization of Petroleum Exporting Countries RSI Rationalization, standardization, and interoperability SALT Strategic Arms Limitations Talks SLBM Submarine-launched ballistic missile SSRC Social Science Research Council UNCTAD United Nations Conference on Trade and Development 107 U.S. GOVERNMENT PRINTING OFFICE 1980 0 -328-687