Competition Can Be Good for the Developing World

Adding Infrastructural Muscle to Development Support
US America and China flags on chess king on a chessboard. (Getty)

The United States and China are locked in a contest for influence over the rest of the world. The new great-power competition looks in this sense very much like the one that took place during the Cold War between the United States and the Soviet Union. But back then, the United States had a compelling economic and political model to offer developing countries. Today, China has seized the initiative by offering practical investments in tangible projects, free of political interference.

The United States can compete on this field. But in order to do so, it needs a new model—one that rests not on the pieties of the past or on soft demands for institutional change but on a willingness to invest concretely, as China has done, in the well-being of those in developing nations.

The Consensus of the Past

The approach that the United States followed during the Cold War can be broadly divided into two phases. During the first phase, just after the end of World War II, the United States concentrated its efforts on rebuilding the economies of Western Europe, Japan, and South Korea through direct aid and open markets. Washington sought to create in these countries an affluent middle class, on the assumption that such a demographic would be disinclined to vote for communist parties that challenged the private ownership of capital. This postwar period is associated with the Marshall Plan and is often considered the high-water mark of American hegemonic benevolence.

The American record during the second phase of the Cold War is much more checkered. In the 1960s, during the decolonization of much of the developing world, Washington at times supported regimes that were socially reactionary and uninterested in economic development, such as those in Congo, pre-revolutionary Cuba, the Dominican Republic, and South Vietnam. But at other times, it urged land reform and broadly based economic growth, for instance in Colombia, South Korea, and Taiwan. Gradually, a consistent Western view of economic development emerged—one based on modernization theory, which held that by creating a strong middle class, economic development would lead to democracy.

During the Kennedy administration and throughout the 1960s and the 1970s, U.S. policy toward less developed countries was heavily influenced by a book by the economist W. W. Rostow entitled The Stages of Economic Growth (revealingly subtitled A Non-Communist Manifesto). Rostow argued that countries could “take off” into sustainable, “modern” economic growth only if they increased and then productively invested their savings (rather than allowing elites to squander those savings on luxury consumption). Economic growth was central to Rostow’s vision. To the extent that such growth would lead to inequality, American policymakers pointed to the work of the economist and statistician Simon Kuznets. Kuznets argued that although inequality might increase during the early stages of development, it would change course and move downward as the population became more educated and the gap in wages between high-skilled and low-skilled workers diminished.

U.S. development advice to many countries during the mid– to late–Cold War period combined these two relatively simple but powerful theories of growth and distribution: countries should focus on economic growth, and growth would eventually take care of inequality. Higher and more equally distributed incomes would lead citizens to demand democracy. The same conditions would make democracy sustainable. Notably, the United States did not seek to impose democracy by insisting on institutional change before the economic conditions were ripe. Rather, democratization was to be reached indirectly, through economic growth and the fairer distribution of resources. The model worked most clearly in South Korea and Taiwan but also in Botswana, Costa Rica, Mauritius, and southern European countries such as Portugal and Spain.

Nonetheless, the 1980s saw the advent of a neoliberal economics that overtook this model. The new one called for reducing the role of the state and opening institutions and the “investment climate” to the private sector. Growth was supposed to follow. The end of the Cold War and the collapse of the Eastern bloc hastened the turn toward neoliberalism. U.S. advisers and the international organizations in which Washington played a leading role, such as the World Bank and other development banks, ceased to stress growth and redistribution. Instead, they promoted institutional reforms. When countries faced balance-of-payment crises, development banks provided loans that were contingent on “structural adjustment”: governments were expected to reduce spending, lower taxes, deregulate, and privatize.

These policies, together known as the Washington consensus, reflected ideological developments within rich countries themselves during the 1980s and 1990s. U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher deemphasized the role of the state as a matter of principle. Moreover, as the competition between the Soviet Union and the United States waned and ended, neither the public nor the political class sustained much interest in the fate of developing countries. There was no longer any pressing need to convince other countries of the superiority of American arrangements, which now seemed obvious. The United States could dispense with special efforts to woo developing countries and no longer even needed to pay much attention to them.

The effects of the neoliberal model are difficult to disentangle from those of globalization, but the record of both together was mixed. China obviously benefited a lot, but its domestic policy approach was often at the very opposite end of what neoliberalism advocated. India, after 1991 and even more recently under the government of Prime Minister Narendra Modi, came closer to following neoliberal recommendations. But for many countries in Africa, the 1990s and the first decade of the twenty-first century were marked by low, often negative per capita growth that made them fall even further behind the rest of the world than before.

In this photograph taken on February 24, 2020 laborers work at a construction site on reclaimed land, part of a Chinese-funded project for Port City, in Colombo. (Getty)

Less Hectoring, More Money

The rise of China and the sudden Western need to counter its influence have laid bare an uncomfortable fact: the United States and the European Union no longer have a clear philosophy of development with implementable lessons to offer other countries. If a minister of a poor country were to ask American diplomats or economists for advice about development, he or she would likely be given a rather tedious lecture about human rights, fighting corruption, freedom of the press, and the like.

These are laudable objectives. But they require a long-term institutional transformation that can be brought about only through consistent policies pursued over a period of several decades. Such advice does not address the pressing concerns of most low- and middle-income countries, such as jump-starting economic growth in remote regions, finding jobs for graduating students, or reducing crime driven by economic destitution. Rather, the advice is inapplicable to conditions on the ground, takes a long time to bear fruit, and does not come with funds. Most governments of developing countries would probably prefer fewer lectures and more money.

Fortunately for the United States, China doesn’t have coherent or consistent precepts to offer, either. China owes its own economic rise not to well-thought-out policies that Beijing might “package” into a toolkit to give to developing countries. Rather, the country followed a heuristic path to growth, groping through a process of trial and error and gradually identifying and implementing the good policies and weeding out the bad ones. This process took place under very special conditions that may be unique to China: decentralized regional governments were free to experiment, knowing that a very centralized party would ultimately choose what worked and reward the successful policymakers.

Infrastructure development emerged from this crucible as one of the most successful Chinese policies. In the early 2000s, China had no high-speed rail system. Now it has by far the largest in the world, with more than 24,850 miles of track. Freight trains between China and Europe (and all other transit destinations, including Kazakhstan and Russia) have notched up annual increases of around 70 percent. The recent blockage of the Suez Canal underlined the importance of these links. Not surprisingly, in its dealings with less developed countries, China stresses infrastructure development. Beijing has offered this emphasis with accompanying cash through its Belt and Road Initiative, a program of loans and investments for infrastructure development, and through the recently founded Asian Infrastructure Investment Bank, which China dominates.

Less developed countries appreciate that China offers them something tangible that promises economic betterment both immediately and in the future. Furthermore, as an explicit matter of policy, China avoids entanglement in recipient countries’ domestic politics. Many such governments prefer China’s approach to that of the United States—first, because it does not question their political systems, and second, because it promises to yield higher economic growth. Beijing thus delivers more money and less hectoring than Washington does.

Seneglese and Chinese workers observe a ceremony at the national theater construction site financed by China on February 14, 2009 in Dakar, during a visit by Chinese president Hu Jintao and Senegalese president Abdoulaye Wade. (Getty)

Silver Linings

If Western countries and the United States, in particular, plan to compete with China in the developing world, they must move away from an approach based on arguing for quixotic institutional reforms while denigrating the role of the state in economic development. Instead, the United States needs to fashion a more appealing approach that delivers tangible goods to the populations of developing nations. Some of these goods could take the form of old-fashioned dams, electric grids (less than one-half of the African population has access to power), water and sewage systems, and even productive investment in processing or manufacturing. Other investments could support education, health, urban development, wireless networks, or direct cash transfers to eligible populations. What is essential is that U.S. projects result in visible improvements in the daily lives of ordinary citizens.

Following the old dictum that imitation is the sincerest form of flattery, U.S. President Joe Biden recently floated the idea that American companies could lead an international infrastructure development effort in Africa, Asia, and Latin America. The administration has yet to formulate an accompanying policy, but if the suggestion is for the United States to return to “brick and mortar,” or rather “dock, road, rail, and WiFi,” investments, it is a sound one. The United States cannot effectively compete with China in all areas, but there are many in which it has the technological edge or in which its engineering qualities are superior.

As happened in the 1980s, domestic and international developments are likely to proceed in parallel. Many of the domestic policies that Biden and his treasury secretary, Janet Yellen, have recently announced on infrastructure, corporate taxes, public education, child development, and the like have clearly broken with the economic policies that reigned supreme over the last 40 years. These shifts presage a change in the focus of U.S. policies regarding international development.

If China and the United States really do begin competing in earnest to build the world’s infrastructure, countries that great powers have long neglected will suddenly acquire much greater influence. Many that once played the United States and the Soviet Union against each other would do the same with the United States and China. From a global perspective, the empowerment of these countries should not be considered a bad outcome. On the contrary, if the United States and China compete for the support of poor countries, those countries will likely get more resources, which should boost their growth and help reduce global poverty. And even though a cold war between China and the United States would be an unfortunate geopolitical event, it could contain a silver lining if it were to accelerate economic growth in African countries that are not only the poorest in the world but are also experiencing high population growth. Competition between China and the United States in Africa could play a role akin to the one that competition between capitalism and communism played in twentieth-century Asia.

But first, the West must think seriously about how its active government policies can accelerate the development of poor countries. The United States should abandon its current approach, which is based on the “soft” development of institutions and civic society, in favor of a “hard” approach, whose success would be measured by how quickly and directly it affects people’s material standard of living.

This article was originally published on ForeignAffairs.com.