INTERNATIONAL PERSPECTIVES AN ASSESSMENT OF WORLD TRENDS AND PROSPECTS

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R00603A003000130001-7
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• Document Creation Date: December 16, 2016
• Document Release Date: November 17, 2004
• Sequence Number: 1
• Content Type: STUDY

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INTERNATIONAL PERSPECTIVES
An Assessment of World Trends and Prospects
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I. A GLOBAL PERSPECTIVE
IT. PROBLEMS OF THE INDUSTRIAL DEMOCRACIES
A. Western Europe
B. Japan
III. TRENDS IN THE COMMUNIST WORLD
A. Soviet Union
B. Eastern Europe
C. China
IV. PRESSURES FROM THE DEVELOPING COUNTRIES
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1. The world in 1977 seems dominated by the opposing
dynamics of cooperation and conflict. The economic, political,
and social pressures that have been building rapidly in recent
years, and show no sign of abating, operate both as cause and
effect of this international trend in different directions
at the same time. The combination of pressures induces the
nations of the world to cooperate in solving problems beyond
their individual control while. at the same time it impels
them to seek national advantage; the result is a compounding
of the pressures on national and international institutions
that is evident in every region of the world.
Cooperation and Conflict
2. Contradictory forces operating for and against
cooperation have always been at play in international relations,
buy they seem central to an explanation of world trends in
the present period. It is the complexity and urgency of
today's global problems that drive governments to work jointly
to relieve the pressures that affect them all. And yet these
same global issues, impacting on internal economic and social
problems, create domestic pressures that undermine stability
and force authorities to put national imperatives before
international needs.
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3. A number of factors contribute to the current premium
on cooperation, First, there is a new sensitivity to inter-
national economic dislocation and a growing awareness of
economic interdependence. Recognition of the new realities
has led policymakers around the world to place more emphasis
on a search for international solutions of mutual or reciprocal
benefit. Secondly, the industrial nations are finding that
their power to control developments beyond their borders is
increasingly constrained by domestic factors, especially in
situations where the use of military capability or substantial
economic assistance may be indicated. (These domestic factors
are examined in the regional sections that follow.) Thirdly,
the growing wealth and influence of certain developing
countries, combined with the domestic inhibitions on foreign
policies in the industrial West, have contributed to the
diffusion of power evident in international relations for
some time. This in turn has further stimulated cooperation
by restricting the ability of major actors to pursue their
objectives unilaterally and impose their will.
4. The forces that move nations in the direction of
conflict are very old and very new in origin. Classic
rivalries for national power remain a strong force in the
the world, of course, and take various political, military
and economic forms. Secondly, the lack of institutional
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arrangements to deal effectively with the growing array of
world problems has made it difficult to keep tensions in
check, and the search for new mechanisms itself causes much
friction as national players strive for advantage in
international forums.
5. In a sense, the pressures for cooperation mentioned
above--the enormity of global problems and constraints on
national governments--also feed the counterpressures to secure
national advantage and thereby risk conflict. With little
confidence in consensual "fixes" and anxiety over the
consequences of economic problems at home, governments feel
forced to play for short-term gain.
6. Finally, the growing interconnections among global
issues (for example, between energy dependence and nuclear
proliferation or between LDC demands and the economic problems
of industrial nations) inhibit cooperation on any single issue.
The difficulties presented by one problem are almost always
magnified by the reverberations among related issues.
"National solutions" also become more complicated and difficult
to achieve. While the prospects for cooperation might therefore
improve over the long run, there are serious near-term grounds
for conflict as each linkage problem confronts national
leaders with very hard choices.
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7. The international energy situation perhaps best
illustrates the tension between forces operating for and
against cooperation. First they can be seen in the uneasy
relationship between the developed nations--the oil
importers--and the oil producing countries. Promoting
cooperation is a mutual need for a stable, smoothly functioning
international economic system, with particular reference
to technology transfer, trade, and investment. On the
other side, opposing objectives with regard to oil supply
and price, as well as underlying differences over regional
political issues, promote conflict.
8. Another set of forces operates within each community.
Among the developed nations, there is a genuine desire to
cooperate in energy research projects, joint resource development,
financial integration, and emergency sharing programs. On
the conflict side, nations vie with each other to establish
closer bilateral links with OPEC producers to gain a preferred
position among consumers.
9. The member states of OPEC are similarly afflicted
with contradictory pressures. The desire for higher national
revenues and for an influential role in efforts to resolve
Middle East issues, which flow from shared control of oil,
strongly motivate the Arab countries toward cooperation. On
the other hand, deep-seated regional antagonisms and ideological
differences between conservative and radical states are sources
of current and potential conflict.
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10. Managing the problems and the opportunities that
emerge from these crosscurrents will remain a central challenge
to US and foreign policymakers during the last two years of
the 1970s and the early 1980s. The ever-increasing strain
on the institutions and systems through which solutions must
be found will make this huge task even more difficult.
11. The world has grown accustomed in recent years to
rapid and extensive change in settled patterns of international
relations, and most governments, although unable to anticipate
or control these political, economic, and social changes, have
managed better than might have been expected. But in 1977
the cumulative wear and tear on established institutions has
become increasingly evident. Political authorities are
finding it more difficult to respond effectively to rising
pressures and demands. And it is not only national governments
but a variety of international, regional,and local institutions
and systems that simply are not working very well anymore.
12. The international arrangements stemming from World
War II and its aftermath began to fray some years ago.
Strained further by the impact of decolonization and the oil
price revolution, they are now in some disarray. International
and regional organizations, distracted by an increasing
politicization of issues, have lost influence and effectiveness
over the past few years.
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13. The new tensions are also having a corrosive effect
on the major alliance systems. The US finds its NATO allies
.)reoccupied with economic problems and divided on a number
of issues. Disparities in national power and divergent
interests seem to be widening the gulf between certain of
the member countries--e.g., between West Germany and its
less prosperous allies--and the trend is accentuated by
differences over specific issues like arms standardization
and positions taken in the negotiations with the USSR on
force reductions. On the Communist side, the Soviet Union
to worry about the loyalty of its Warsaw Pact allies.
14. The pressure on international systems seems certain
to grow in the years ahead. The precise effects this will
have on already unhealthy institutions are not as certain,
but the nature of the dilemmas posed can be suggested:
-- whether the political underpinnings of the major
alliance systems can withstand the challenges of
phenomena like the West European Communists' bids
for power in France and Italy, the growth of
dissidence in Eastern Europe, or other byproducts
of detente;
-- whether individual allies, especially our own,
can continue to support the rising costs of
modern armaments in an era of slow economic
growth and increasing social pressures;
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whether the emergence of regional powers with
increasingly sophisticated military machines
and expansionist ambitions will invite super-
power intervention in local conflicts despite
the risk of strategic escalation;
whether nuclear weapons can be limited to a small
number of responsible governments, given growing
energy needs;
whether technical advances and weapon developments
will not so blur the distinction between conventional
and nuclear warfare that the latter becomes "thinkable";
-- whether
growing
nations
-- whether
international economic cooperation can survive
disparities in the economic performances of
and mounting pressures for protectionism;
more rapid economic expansion, essential to
overcome unemployment
demands in industrial
and to pay for growing social
countries, can be achieved with-
out giving OPEC stronger grounds to raise oil prices,
possibly bringing on another economic recession.
15. In addition to these problems at the international
level, national institutions are being severely tested by
pressures from without and within. The nation-state is still
the preeminent political form in the world today, and will
remain so for the foreseeable future. But here again, the
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national governments of the world are not functioning very
well. This is conspicuously true of the wealthy western
industrial states, where internal pressures upon parliamentary
institutions and political parties are straining the system.
16. Economic considerations continue to determine
national choices. Demographic and economic changes are
forcing some painful reappraisals of priorities; in particular,
the trade-off between unemployment and inflation has become
more costly. Politicians and bureaucrats must weigh the costs
and benefits of pension, health, and unemployment insurance
schemes established at a time of sustained rapid economic
growth. Virtually every democratic government faces hard
economic decisions, e.g., to curb inflation by wage restraint
or to reduce payments deficits by curbing economic growth.
Even where a government is strong enough to carry out a tough
program, there is often uncertainty about the correct remedy.
Hence, the outlook for some of the industrialized societies,
which had assumed ever continuing rises in living standards,
is unclear. Popular expectations are being thwarted, and the
burdensome combination of high unemployment an/ inflation is
likely to prevail for some years.
17. These economic worries are likely to translate into
political expressions of discontent with the prevailing governing
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groups. In the industrial West, number of incumbent
governments command bare majorities, or less; others have
already been turned out by disgruntled electorates and if
newly installed parties cannot deliver, they in turn will
be replaced. The days of predictable attachment of social
classes to particular parties have gone, and a restless
voting public is more demanding than before.
18. In parts of the world where voting is not the
prime political tool--such as the communist countries and
much of the Third World--economic problems will have
different political consequences. But, as in the OECD
states, economic pressures and constraints will put the
political systems under great stress. In much of Africa,
Latin America and Asia, authoritarian governing elites
are mainly interested in preserving themselves in office.
Such governments are often too preoccupied to give much
attention to popular demands or to devise institutions that
would facilitate the solution of national problems. In most
cases national policies reflect some combination of tribal,
regional, social and military group interests. Where national
problems are seriously considered, the solutions are frequently
judged either too expensive, too risky or too elusive.
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Superpower Perspectives
19. In the complex world of the 1970s, the
superpowers must contend with this expanding catalogue
of global issues affecting everyone while continuing to
give first priority to the threat posed by each to the
other's security. Despite the proliferation of threaten-
ing global problems, the most dangerous security questions
for the US and the USSR are familiar ones.
20. The world must still be viewed in strategic terms,
as a bi-polar world. The relationship between the super-
powers will continue to be an adversary one, whether or
not it is described as "detente". The strategic balance
will still be an overriding concern for both in the future
as in the past, as priority is given to military expendi-
tures and the quantity and quality of weapons is increased.
But because the rough equality in strategic forces of the
two superpowers is likely to be maintained, the focus of
competition and potential conflict between the US and USSR
will continue to be on other national interests and in
other regions of the world.
21. Certain global issues, not wholly manageable
by even the most powerful states working together, pose
threats to their security second only to the strategic
rivalry. An example is the proliferation of nuclear
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weapons capability, a danger that becomes even more
threatening in the context of increasing terrorism. The
decade ahead clearly will involve a critical period of
adjustment to the proliferation process. The fears and
concerns of each new or potential nuclear state will have
to be addressed directly. The major nuclear powers,
working together, will be able to slow the spread of
nuclear arms and to dissuade new nuclear powers from
brandishing their weapons only at some considerable cost
to themselves. The effort will require a delicate mix
of political, military, and economic pressures and incen-
tives.
22. This paper does not attempt to examine all of
these global issues individually. In the sections that
follow, however, we trace the varied ways in which the
major trends affect the current and future direction of
the industrial democracies, the Communist powers, and
the developing countries.
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II. PROBLEMS OF THE INDUSTRIAL DEMOCRACIES
1. The increased complexity of international relations
in the seventies not only reflects the growing interconnections
among global issues, but also the strains global problems
place on relationships among the industrial democracies as a
result of their varying degrees of sensitivity and vulner-
ability to these issues. The individual democracies, like
the Communist powers, approach each of these problems with
their own calculations of risk and opportunity which can
serve not only to frustrate US objectives but to complicate
alliance and East-1-;est relationships generally.
2. Even as the wealth and military power of the
industrial nations increase on an absolute scale, their
ability to control or to ignore global problems is constrained.
This is manifested most clearly in the frequency and
effectiveness with which the nonindustrial countries,
individually and collectively, challenge the general authority
and the specific policies of the advanced nations. At the
same time, the industrial democracies are encountering
increased domestic obstacles to controlling developments
beyond their borders, a trend that can be seen in the
declining domestic support for costly foreign policy
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initiatives. A major contributing factor here is the constraint
caused by slower rates of domestic economic growth at a
time of intensifying demands for social and economic benefits.
3. The different countries of Western Europe and Japan
experience these effects in different ways, but there is a
remarkable degree of commonality in the impact of world
issues on each of these developed nations.
A. WESTERN EUROPE
4. Western Europe is drifting. The postwar formula of
"miraculous" economic growth accompanied by equalizing
gains in social welfare is no longer working. West European
electorates, their expectations out of line with new economic
realities, continue to make demands that public authorities are
unable to satisfy. The inability of governments to solve
today's complex problems has fostered universal questioning
of traditional values and institutions.
5. The restiveness in European society has led to a
search for alternatives, which in turn has accelerated the
pace of political change. In some cases, the result has been
a burgeoning of leftist parties; in others, a conservative
resurgence. The movement toward political extremes has also
been spurred by changes in political and strategic relation-
ships between the United States and the Soviet Union. Detente
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has fostered domestic conditions in Europe enhancing the
respectability of the left; the steady buildup of Soviet
military power, combined with Soviet intervention in such
areas as Angola, has increased the appeal of the right. In
no instance, however, :rave these movements attracted
majority support. The consequence is political stalemate
in many European countries. Although governments have
changed hands--it is difficult to find one that was in
power a few years ago--in most cases the new incumbents are
minority parties or coalitions.
6. In the struggle to adapt to new economic, social,
and political factors, Western Europe appears for the moment
to have lost its sense of direction. Although cooperation
within the European Community (EC) on technical matters
continues, progress in policy coordination on key intra-
European affairs has faltered. Coordinated economic and
monetary policy is frustrated by the gaping disparities in
the economic performances of EC partners. Community members
are unified enough that they cannot insulate themselves from
each other's problems, but are unwilling or unable to unite
sufficiently to address them together.
7. The Community has achieved a somewhat better record
in maintaining a common front toward third parties. Considerable
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solidarity exists among the Europeans, for example, on the
nuclear proliferation issue. EC members also agreed eventually
on minimal positions in the North-South dialogue and on
Middle East issues. In the NATO context, the Europeans have
at least signaled their desire for a stronger role by
tentative moves to standardize arms within the European
Program Group and by discussions of security matters in EC
forums.
8. The greater assertiveness of the Europeans in
external affairs reflects recognition of their economic and
strategic weakness relative to the United States and the
Soviet Union. By sticking together they hope to strengthen
their voice in world affairs and to increase their influence
on US policies affecting their interests. They fear the
United States, in pursuit of detente, may be looking out
more for its own interests than for theirs.
Shaken Economies
9. The postwar pattern of West European social and
economic progress has been disrupted both by external shocks
and by factors inherent in the European system.
10. The oil price rises have had the most dramatic
effects, reducing the growth of national income, necessitating
costly efforts to use energy more efficiently and to develop
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alternative energy sources, accelerating inflation, and
leaving some countries with large gaps in their foreign
accounts. Some nations have adjusted to this shock better
than others. Governments in most European countries, however,
while recognizing the need to divert more resources from
consumption to investment, have been unable to prevent
government and business from bearing a disproportionately
large share of the adjustment burden.
11. The West European working man who has kept his job has
been shielded by the institutional strength of his labor unions,
which ensured continued gains in real wages even during the
worst of the recession. The commitment of European governments
to far-reaching social programs also has insulated most
consumers from the impact of the oil price hikes. Joblessness
has soared, however, and many people--especially new entrants
to the labor force--have found themselves ineligible for the
widely touted benefits given the unemployed.
12. Although labor has done relatively better than
other interest groups in recent years, workers remain restive
because of their expectation of continually improving living
standards and government attempts to check the growth in
wage rates to reduce inflation and foreign payments deficits.
Adding to the general discontent is a feeling that governments
have not fulfilled their promises of more and better schools
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and hospitals, more efficient judicial systems, and improved
public transportation. One result has been attempts by
workers to achieve more influence via direct participation
in management. Another has been narrower electoral margins
for the majority parties.
13. The skewed adjustment of many West European
economies to the oil price rise, lowering profit margins
and elevating deficits, augurs a slow return to rapid economic
growth. Investment--the engine of growth--clearly is in
trouble. Worry about the impact of rising costs on profits
is delaying investment decisions in many countries. In some
countries, uncertainties about the form of future governments,
and their policies add to the deterrent effect on capital
spending. Governments already deeply in debt also are holding
back on their capital outlays. It seems increasingly clear
that Western Europe is on a new growth path that is much
less dynamic than the prevailing postwar pattern.
14. This relative economic sluggishness will be
accompanied in coming years Ly an acceleration in labor
force growth in many countries. Because of the baby boom
of the early 1960s, many West European nations expect a
sizable jump in the number of workers entering the job
market through the 1980s. If the powerful bargaining strength
of European labor keeps the price of labor relative to
capital from falling despite the greater supply, this surge
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could lead to persistent high unemployment. Structural
change in industry sparked by the adjustments of recent
years will also boost unemployment rates. Untrained youth
will be particularly hard hit over the next decade, with
possibly an additior.al 1 million young people out of work.
Such a pool of jobless will strain Europe's generous social
security programs. Some governments, moreover, will be
forced to choose between higher infation and less capital
spending.
Hamstrung Governments
15. Trouble in the system has much to do with the
difficulties that governments are having and will continue
to have in dealing with these problems. Traditional
government policy solutions do not work the way they used
16. Central public authorities in many cases have been
partially immobilized by the popular dissatisfaction that
has grown out of economic malaise. With single parties
unable to muster broad political support, weak coalitions
and minority governments, surviving through compromise
and expediency, are the rule of the day in Western Europe.
In many cases, the balance is tipped by small parties whose
weight in decisionmaking is grossly out of proportion to
their voting strength.
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17. In other cases--Spain, Greece, Portugal--authorities
striving to implement new constitutions without provoking
counteractions by the right or the left simply are unable
to make the proper policy responses to economic and social
problems.
18. The delicate mandates of many European governments
not only impair their ability to solve internal problems;
their responses to initiatives on global issues are also
affected. The international benefits of slowing nuclear and
arms exports, to cite one example, must be weighed against
political fallout at home should curtailed sales lead to
job 1-,sses. Internal problems also make it increasingly
difficult for Europeans to maintain a united front on
multilateral negotiating issues, and thus increase the leverage
vis-a-vis the rest of the world.
19. Over the next few years, all four major European
countries are likely to be ruled by weak governments, each
facing difficult tradeoffs that could tip the scales in
favor of the opposition.
-- In West Germany, the Social Democrats will have
to keep pressure from their left wing for greater
government participation in the economy and for a
bigger say for labor in management in check if they
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hope to retain the support of their Free Democratic
partners. The split between the Christian Democrats
and the Christian Social Union on social policy and
other issues raises questions about their viability
as an alternative coalition solution.
-- In France, a leftist alliance, should it gain power,
would have to weigh its desire for massive social
change against the danger of disrupting the economy
and evoking a political backlash. It would, moreover,
have to resolve formidable internal differences
over the extent of nationalizations, defense policy,
and France's role as a nuclear power. A center-right
alliance, for its part, would have to appease labor
without compromising its conservative economic
principles.
-- In Britain, the Labor Party will have to juggle its
desire to maintain traditional ties to labor against
the demands of the Liberals for continued pay
restraint. If returned to power, the Tories would
have to risk alienating their right wing in order
to make the compromises that would be required to
avert labor upheaval.
-- In Italy, the Christian Democrats will continue
to balance a need for support from workers for
economic stabilization measures against the
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cost of increased Communist participation in
decisionmaking. The Communists will have to
weigh doctrinal sacrifices and discontent among
their hardliners against the benefits of a share
in power.
The Leftist Option
20. The growing disenchantment in Europe with ruling
elites has enhanced the appeal of leftist political situations.
Whether Communists will formally enter into European governments
any time soon is ,till uncertain, but their increasing
political strength has already left its mark on European
politics. In France, it has contributed to President Giscard
D'Estaing's desire to build a center-left coalition. In
Italy, it has helped displace the center-left political model
with one based on Christian Democratic-Communist cooperation
in tackling economic problems. In Portugal, it has inspired
a reaction that has strengthened the role of the Socialists
and democratic forces.
21. Despite the concerns generated by the Communists'
increasing role, both Italy and France could eventually see
Communist parties participating in government coalitions.
The French and Italian parties are different animals with
diverse sets of problems to tackle. Both parties, hoF;;ever,
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with varying degrees of credibility, currently are stressing
the need to adapt Marxist-Leninist ideology to national
circumstances. While such a posture leads them to deemphasize
their ties to Moscow, it does not necessarily move them
closer to the United States. Rather, all three parties assert
the need for Europe to be independent of both the United
States and the Soviet Union.
22. Should these parties formally take part in government,
they would have to focus primarily on pressing internal
problems. Abrupt shifts in foreign policy would not be likely.
There is considerable evidence in fact that Italian Communist
Party Chief Berlinguer views Rome's membership in NATO as
a means of mitigating Soviet meddling in Italian affairs.
The intentions of the more doctrinaire French party in
external affairs, while less clear, probably would be
moderated by their dominating Socialist partners.
23. Communist approval already is crucial to survival
of the Italian government, and one way or another Communist
influence in Rome promises to be long-lasting. In contrast,
Communists in France have no comparable leverage on the
government now, and the Alliance of the Left seems unlikely
to have much staying power if its wins control. Dissension
between the Communists on the one hand, and the Socialists
and Left Radicals on the other, probably would hamstring
a leftist French government and bring it down.
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24. Communist participation in key European governments
would, however, have major negative effects, economically
as well as politically. International economic cooperation
would probably suffer since both the French and the Italian
parties are disposed toward autarkic solutions to foreign
payments problems. Protectionist trade policies and
rigid capital controls would not only undermine EC principles
but would fan papered-over mercantilist sentiments in other
countries.
25. Implications for European security would be more
serious. The presence of Communists in coalitions,
particularly in France, would threaten traditional European
political relationships. For one thing, the close Franco-
German cooperation or postwar years that has been a
cornerstone of EC progress would be jeopardized. At a
minimum, West Germany's economically conservative cabinet
ministers would find it difficult to tolerate even a
modified version of the Common Program advocated by France's
leftist alliance. More important, the Germans would be
gravely worried about the future of French troops in West
Germany and French-German defense ties outside NATO under
a French regime in which Communists were represented.
26. The leftist alternative would also, of course,
have disturbing implications for the strength of the Alliance.
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-- Inclusion of Communists in key European governments
would mean that new institutional forms and procedures
would have to be devised within NATO.
-- Communist participation in decisionmaking, however
limited, would iot73r the common denominator of
agreement among NATO-members.
-- To the extent that Communist parties increased their
access to NATO information through their expanded
governmental roles, sensitive material could be
compromised.
27. The outlook for NATO is not especially encouraging
even without this problem. Whether or not Communists are in
government, it will probably become increasingly hard to
convince electorates of the need to spend more money to defend
against a Communist threat. The younger generation already
questions the basic purpose of NATO, while a larger part of
the public and some government officials feel that increased
European defense expenditures would be ineffective against a
Soviet threat. Public toleration of increased defense
outlays could wane even further if inflation remains high
and economic growth slows as expected. Moreover, if military
pays rates continue to rise faster than defense spending, as
also seems likely, a relatively smaller share of funds will
be available for hardware in the next few years; and it will
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become even harder to maintain investment in research and
development on new systems.
28. Despite popular questioning of the Alliance,
European governments are at least as apprehensive as before
about their vulnerability; hence, they cling to their
Atlantic ties. This recognition of their own weakness in
the fact of Soviet military preponderence produces ambivalent
feelings toward detente. While wanting to explore the
possibilities that a relaxation of tensions might open up,
especially more meaningful relations with Eastern Europe,
the Europeans feel directly threatened by any shift in US
strategic posture and by compromises comtemplated to achieve
a SALT agreement. They are particularly concerned about
possible limitations on the range of US cruise missiles
and on transfers of technology in this area; in any event,
the French intend to produce their own version of the
cruise missile and the British may do so also. Euro,e's
ambivalence has also been reflected in their role in
MFR--supporting the process but insisting on maximum
positions,
EC Integration Stalled
29. The economic upheavals of recent years have
widened the gap between the stronger and the weaker European
economies, straining political relations and crating
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further obstacles to integration. The vigorous collective
action required to reduce the gap implies closer economic
supervision by the EC itself than most of its members are
yet willing to accept. It would also involve a larger
transfer of real resources from the richer to the poorer
countries than the rich are willing to tolerate. Thus,
despite recent advances in several specialized areas,
progress has almost come to a halt on economic and monetary
union, energy policy, and major reform of the common agricultural
policy.
30. Persistent unevenness in the economic performancev
of member countries may heighten Community tensions. Most
notably, if West Germany's economic health continues to stand
well above that of the rest of the Community, the Germans
would come under sustained pressure to play a more active
leadership role in Europe than they feel is suitable, given
latent European hostilities. The Germans are also concerned
that their relative economic strength leads others to view
them as politically and socially stable, when in fact
Chancellor Schmidt's hold on power is tenuous and alternatives
are uncertain.
31. For all its troubles, the Community still holds a
remarkable attraction for many Europeans. Three new members
may in fact be welcomed into the fold sometime in the
next decade. Opening the doors to Spain, Greece, and Portugal
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would aggravate EC economic tensions, but would also
entail some political pluses.
32. On the negative side, the admission of these
three South European nations would widen the disparities in
economic structure and performance already plaguing the EC.
By threatening Italian and French producers of Mediterranean
products, enlargement would set off a heated debate on
agricultural policy. Furthermore, admission of the three
candidates would lead to an influx of unwanted labor to
the North.
33. On the plus side, EC enlargement would strengthen
the western orientation of the three countries and increase
their ties to NATO. It might also reinforce the trend
toward common European action on external problems since an
expanded number of European countries would be engaged in a
broad range of economic and political deliberations. In
short, enlargement could bring to Europe an enhanced sense
of common identity.
A High Risk Future
34. All in all, the outlook for Western Europe is
chancy. Although economic and political institutions have
so far shown remarkable resiliency, the stresses of recent
years have left the European system highly vulnerable.
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35. At best, most economies probably will experience
uncomfortably high rates of unemployment and inflation for
the next few years. Several will have large payments problems.
Another shock comparable to the 1973-74 oil price boost
would worsen matters drastically. Such a shock would strain
the international financial system and could trigger
widespread resort to import controls.
36. The probable political effects of further major
disruption seem clear. At a minimum, the weak governments
trying to cope with such problems would be exchanged for
other weak governments. At worst, frustrated voters and
leaders might resort to authoritarian solutions, at either
end of the political spectrum.
37. Following more than a decade of spectacular
economic success, Japan has begun to lower its expectations
and--more gradually--adjust its policy goals to a period
of decidedly lower economic growth. Tokyo's success in
making the transition smoothly will largely determine
Japan's domestic political environment and its international
behavior over the next few years. The political changes
that occur will be gradual, reinforcing the trend already
under way toward the center and away from the extremes.
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In the international arena, Japan will remain a target
for protectionist pressures from other developed countries
and escalating economic demands from the LDCs.
Economy in Transition
38. he Japanese have concluded that they have
permanently shifted from the "miracle economy" of the
1960s--with annual growth in the 10 to 12 percent
range--to a more mature economy capable of growth in the
range of 6 to 8 percent. There is an emerging
consensus that even growth in the 6 percent range between
now and 1980 may be optimistic. The sharp reduction in
expectations results in part from the constraints imposed
by higher costs for imported raw materials and from the
realization that other countries will no longer tolerate the
rapid increase in Japanese exports that helped fuel growth
in the past. In addition, increasing demands for government
action on long-neglected "quality of life" issues such as
pollution, housing, and welfare reflect the erosion of
Japan's postwar national consensus that economic growth
should be the nation's top priority.
39. The effects of lower growth on popular attitudes
will present Japan's conservative ruling establishment with
a wider range of competing political and economic demands.
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These changes probably will result in more extensive government
involvement in the economy, particularly in wage settlements
and price movements. Industrial demand for labor, for
instance, may not be strong enough to cut into unemployment,
which now stands at some 2 percent--high by Japanese standard:;.
The reduced economic pace will also force labor to accept
lower wage settlements. Nonetheless, labor-management
relations are unlikely to reach the adversary state common
in most other industrial democracies, in part because of
the government's increased involvement.
40. Japan's international influence will continue to
increase. Even at 6 percent annual growth, for example,
its economic performance would still outpace those of other
developed countries. In international trade, the reduction
in Japanese growth will create more problems than it solves.
Big Japanese industries, such as steel, autos, and electronics,
will find it easier to justify export drives to keep production,
employment, and profits at acceptable levels. Japanese
companies traditionally look to foreign markets to take up
the slack when domestic demand slips. Given the outlook
for relatively high levels of unemployment in other OECD
countries, adverse reaction to Japanese export gains is
almost certain to increase. On the other hand, slower
Japanese growth will add some stability to raw materials
markets. In the early 1970s Japanese sales from stockpiles
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contributed to the sharp price instability in copper and
rubber markets.
41. Tokyo in the future will face a difficult task
in managing Japan's international economic relations. The
government's major tool--jawboning--has become less effective
over time and more direct controls over export industries
probably will be needed. More important, to prevent
excessive foreign sales, Tokyo will have to bring about
a shift from export to domestic-led growth. Overseas sales
have supplied almost half of GNP growth in 1976 and so far
in 1977. Clearly changes in Japanese import policies that
protect key economic sectors such as agriculture and manu-
facturing will be needed if Tokyo wants to forestall new
trade barriers against its exports. Given the current
protection afforded Japanese markets, a 6 to ti percent
percent GNP growth will provide little import opening for
foreign suppliers.
Political Reflections
42. The shift in voter attitudes already evident in
Japan is unlikely to alter the basic conservative case of
Japan's domestic or foreign policies. The ruling Liberal
Democrats need not face another election until 1980. The
moderate opposition parties, which have been the major
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beneficiaries of the ruling party's decline at the polls,
generally share the government's policy goals. They are
likely to continue to capitalize on their ability to offer
pragmatic alternatives to government policy as a means
to solidify their electoral gains--an orientation that
promises accommodation rather than confrontation in the
daily management of government affairs.
43. In foreign policy, Tokyo will continue to focus
primarily on the United States. The Japanese will emphasize
the benefits of their political, economic, and security
relationship to underscore their desire for a strong United
States presence in East Asia. Although Tokyo has in the
past entertained the notion of adopting a more independent
diplomatic stance, the Japanese recently have grown concerned
over the signs they perceive of US retrenchment in Asia.
That perception, combined with the memory of economic and
political shocks experienced by the Japanese in the early
1970s, has led Tokyo to stress its interest in maintaining
the closeness of its US connection.
44. The primary concern of Tokyo's foreign policy is
certain to remain economic. Trade issues, in particular,
will continue to dominate Japanese relations with its economic
partners in the developed world. To the extent that the
Japanese see a need to broaden their ties with Western Europe,
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their attention will be devoted to dealing with economic
complaints rather than broadening the format of their
political relationships.
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1. The problems of the Communist world basically are
not all that different from those of the industrial democracies.
The philosophy, the methods, and the levers of control are
different, but the tough problems nevertheless are how to
allocate resources and avoid inflation, how to restrain con-
sumption without generating riots in the streets, and how to
divert from the total product what is wanted for public in-
vestment and national defense.
2. The Soviet Union and China deal primarily, of course,
with problems and behavior peculiar to their own societies,
but to some extent they experience both the domestic and
external constraints on foreign policy initiative that are
characteristic of the rest of the industrialized world. While
the Communist powers may try to take advantage of opportuni-
ties to expand their influence and presence in various parts
of the world, their cost-benefit calculations are also
conditioned by domestic problems and by the diffusion of
power in international relations resulting from the greater
wealth and assertiveness of the developing countries.
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3. The Soviet Union, like the rest of the world, has
had to contend with uncertainty and accommodate to far-reaching
change. Not all of this has been a negative experience for the
Soviets. At least one important change--the dramatic growth
is Soviet strategic offensive forces--has of course been a
highly positive development, from Moscow's point of view.
Over the past 12 years, the USSR has achieved rough strategic
parity with the US and even leads in several single measures
of strategic power, such as the number of delivery vehicles,
megatonnage, and missile throw weight. In the same period
Soviet military manpower levels have steadily increased and
the Soviet armed forces are now more than twice as large
as those of the US. The Soviet navy has been transformed
from a force oriented toward defense of Soviet coastal waters
to one capable of carrying out a variety of missions in more
distant seas.
4. We suspect, however, that Soviet satisfaction in
"catching up" militarily is now being diminished by the
growing realization that economic realities will make "keeping
up" an extremely difficult task. The rate of Soviet economic
growth has been steadily declining. Most indicators suggest
that over the next decade this trend is likely to intensify--
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and with it the competition for the country's resources that
already exists between the defense industry and other sectors
of the economy.
The Economic Slowdown
5. The Soviet economy was headed for trouble even before
the world became aware of the energy crunch. A slowdown in
growth has been evident since the 1950s. In 1976 the growth
of GNP was only 3.7 percent--the same as the average annual
gain during 1971-75--despite a record grain crop. Industrial
expansion was the slowest since World War II.
6. These results reflect, to some extent, the exhaustion
of abundant supplies of labor that fostered rapid development
in the past. Labor participation rates are still the highest
of any industrialized country, but the decline in birth
rates has already reduced the number of new entrants to
the Soviet labor force. The situation will become acute in
the early 1980s. By then, the growth of the working-age
population will be less than one-half percent annually compared
with an average of 1.7 percent during the 1970s. The
military, of course, will be competing for the same age group
if it is to keep the same high manpower levels.
7. A further complication is that most of the increase
in the labor force in the 1970s, and nearly all of it in the
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1980s, will be of non-Slavic (principally Turkic) minority
populations. These peoples have consistently avoided migrating
from Central Asia to the industrial areas of the USSR. Even
if they did, very few would have the skills required by
modern industry.
B. One other disturbing factor with regard to the Soviet
labor force is the decline in the growth of output per worker.
It has dropped by nearly one-half between the 1960s and the
first half of the 1970s and is well below most of the modern
industrial countries. To a certain extent this performance
can be attributed to general apathy and lack of incentive
on the part of the worker, but it is also a product of the
technological gap between the USSR and the West.
9. Prospects for closing the gap are poor. The Soviets
are caught in a vicious circle in which their economy is
not productive enough to generate civilian finished products
of sufficient quality and on a sufficient scale to pay for
the new Western technology they count on to improve their
economy. Hence, they must rely in large part on sales of
raw materials, particularly oil. This situation could
soon get worse because the USSR's main hard currency earner,
oil, is expected to be less available for export in the near
future.
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10. New deposits of Soviet oil are not being found and
developed rapidly enough to offset declines in older fields.
As a result, production is expected to begin to fall in the
late 1970s or early 1980s, dropping to 8 to 10 million
barrels per day by 1985. The discovery of new fields may
arrest or slow the decline, but such respites are likely to
be temporary. Depletion of existing fields is now very rapid,
and exploration and development of frontier areas is a slow
and costly process. To stave off or slow down the expected
fall in production, the Soviets will need high-capacity lifting
equipment involving US technology. Without them, oil production
will fall sooner than would otherwise be the case.
il. It is thus possible that events could force the
Soviet Union--which already has a serious balance of payments
problem--to choose between a retreat toward autarky and
greater dependence on the West. The Soviet leadership will
have to weigh its desire for continued economic growth against
its concern that increased contact with the West will be
ideologically contaminating. The ultimate decision will
have a major impact on the course of detente and on Soviet
society.
12. These problems will be addressed either by an aging
leadership or by a leadership in transition. Neither case
holds much promise for an innovative, dynamic approach to
these questions in the immediate future. The present leaders
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probably will not be inclined to take risks in their declining
years. And if Brezhnev should disappear from the scene, it
is likely to be at least several years before a leader emerges
with sufficient power to institute far-reaching policy
measures appropriate to the dimensions of the Soviet economic
problems.
13. If the Soviet economy continues to be sluggish,
however, these problems may have an increasing impact in
areas with sensitive political implications. For example,
it :ray- become increasingly difficult to muster the wherewithal
to purchase grain abroad during poor crop years. Future
fcoc, shortages also will be accentuated as a result of the
recent declaration of a 200-mile fishing zone by most of the
world's coastal countries. Fish is an important part of the
Soviet diet and more than half of the USSR's catch has been
taken from non-Soviet waters.
14. The leadership realizes that further progress in
US-Soviet relations could help ease some of the problems
facing them. The conclusion of arms agreements with which
the Soviets feel reasonably secure, for example, conceivably
could allow Moscow to divert more funds into other sectors
of the economy. Under these circumstances the USSR might
hope to be able to produce more goods that could be exchanged--
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particularly in an atmosphere of good US-Soviet relations--
for the technology that would further enhance the economy's
efficiency.
15. In order to work properly, the above scenario would
necessarily involve more East-West contact than now exists.
The Soviet leadership is concerned, however, that increased
exposure to Western values and life styles will create pressures
to reduce internal controls in the USSR. In short, they
worry about whether the rewards of closer cooperation and
more interaction with the US are worth the repercussions.
The emphasis on human rights in US foreign policy has heightened
such concerns.
16. These misgivings will persist. Some elements of
the Soviet leadership probably believe the problem is
manageable, while others will carry their worst suspicions
to the grave. The temptation to put their doubts in
abeyance must be great, not only because of the economic
benefits, but because the leadership would like to be in a
position to exploit the other advantages of being on good
terms with the US.
17. Good relations with the US places Moscow in a
better position to cope with China. Superpower consultations
in an atmosphere of goodwill on the major issues troubling
the world--nuclear proliferation and a Middle East settlement,
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for example--help foster the impression that Soviet interests
cannot be ignored. They also increase Moscow's influence
with its client states.
18. Nonetheless, the Soviet motives for seeking improved
relations with the US will continue to be in constant conflict
with other forces driving Soviet policy. In the case of
SALT, the desire for agreement must be reconciled with the
imperatives of an immense Soviet strategic weapons program
and the still ambiguous motives and ambitions which underlie
that program. More broadly, Moscow perceives its influence
in most of the world as necessarily inversely proportional
to US influence, and the Soviet effort to build an exclusive
relationship with Washington therefore coexists with a felt
need to struggle against the US in many arenas.
The China Problem
19. Unlike their dealings with the US, Soviet efforts
to improve relations with China have remained on dead
center ever since the armed clashes along the Ussuri River
in 1969. The Soviets have concluded that the post-Maoist
leadership, like its predecessor, is an unyielding and
irrational adversary, rarely willing to make even modest
concessions to reduce tensions between the two Communist
powers.
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20. The focal point of the Sino-Soviet conflict is the
disputed border between the two countries, but tensions are
exacerbated by nationalistic and ideological differences and
even racial hatred. Moscow fears China's numerical superiority,
its eventual nuclear potential, and its claim that it is the
true interpreter of Marxism-Leninism--and therefore the true
leader of the world Communist movement.
21. The Chinese have vied with Moscow for influence
throughout the world but the Soviets are particularly worried
that they may find themselves the odd man out in the Pacific
Quadrangle of China, Japan, the US, and the USSR. The Soviets
have made many representations to the Japanese, for example,
expressing their indignation over the proposed anti-hegemony
clause--clearly directed at Moscow--in the Sino-Japanese
negotiations.
22. More recently, the Soviets have become increasingly
worried about the possibility of Chinese tampering in the
USSR's East European empire. While Yugoslavia is not itself
part of that empire, Yugoslav President Tito's first visit
to China last September was the latest example of Peking's
support for independent-minded East European Communists.
In sum, by providing an alternative in the Communist world
for those who resent Moscow's dominance, China presents a
disruptive influence quite different, but just as dangerous,
from the ever-present economic and ideological attractions
of the US and Western Europe.
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Mixed Performance in Western Europe
23. The gains the USSR has made in Western Europe in
recent years have to a certain degree been offset by troubling
side effects. Moscow successfully negotiated a series of
treaties and agreements which certified the postwar division
of Germany and Europe. The centerpiece of these arrangements--
the Quadripartite Agreement on Berlin--remains, however, an
agreement to disagree.
24. It did not alter the dichotomy between the objectives
of the West Germans and the Western allies, on the one hand,
and the Soviets and East Germans on the other. The
opportunities for friction on this issue continue to bedevil
East-West relations and it is one of the first pressure
points used by the Soviets to express their exasperation
with the West. Unfortunately it is also the most dangerous.
25. The Helsinki Agreement, originally hailed as a
triumph of Soviet diplomacy, has meanwhile boomeranged. Its
human rights provisions have both encouraged and helped to
legitimize dissent in the USSR and in some countries of Eastern
Europe. The problem is under control but near the surface,
and the authorities are concerned that recurring food
shortages might set off a new wave of dissent that would
go beyond intellectual circles.
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26. The rise of Eurocommunism is another product of
detente that causes considerable anxiety in Moscow. The
Soviet leadership is concerned that the democratic rhetoric
espoused by the Communist leaders of Spain, Italy, and France
is not just a tactic to gain power, but the beginning of a
new movement with potential implications that are more
dangerous than China's rejection of Moscow's leadership role
in international communism. China's complaint--that the
Soviets have not been orthodox enough--has never had much
worldwide appeal. The Eurocommnunist emphasis on more
freedom, however, and repeated criticisms of the ''obsolete''
Soviet system have struck a response chord in both East and
West Europe. This could, if it is allowed to blossom,
challenge the degree of control Moscow now exercises over the
population of Eastern Europe.
27. The USSR has worked hard to improve its position
in the Third World politically, economically, and strategically.
Since the mid-1950s it has given large quantities of military
aid to the developing nations, particularly to those countries
that rim the Mediterranean, the USSR, and China--in an effort
to exploit anti-Western and anti-colonial sentiments and local
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and regional antagonisms. In recent years it has emphasized
commercially profitable economic ties and military hardware
sales designed to gain hard currency as well as political
influence.
28. The results have not been as satisfactory as
Moscow would have liked. On some occasions, significant
investments in military aid--as in Egypt--have failed to
produce the political influence Moscow had anticipated. On
other occasions, the Soviets have found themselves on both
sides of a conflict, as is now the case in the Horn of
Africa. In some instances the poor quality of Soviet
aid, untimely deliveries, and the Soviet penchant for
heavy-handed treatment of the aid recipients have tarnished
rather than improved the Soviet image in the Third World.
29. Soviet assistance has at times outlived its
usefulness, leaving developing countries to turn to the
West for sophisticated military equipment, technology, markets,
and capital. At the same time, since the USSR is a growing
maritime and global economic power with developmental needs
of its own, over the last few years it has often found its own
economic interests in closer alignment with the developed
West than with the developing states of Asia, Africa, and
Latin America.
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30. Despite these Soviet frustrations and contradictory
interests, we expect the USSR to continue to be active in
the Third World and to capitalize on targets o,_ opportunity
as they have in Angola in the past few years. Efforts to use
Angola as a political base, however, to expand Soviet influence
throughout black Africa have produced spotty results and
familiar suspicions, which threaten to stall the growth of
Soviet influence in this part of the world.
31. Soviet influence in Latin America has been minimal.
With the exception of Cuba, and more recently Peru, only the
poorest, smallest states of the Caribbean have been tempted
by Soviet aid offers. In the case of Cuba, Moscow obviously
feels that the well over $2 million a day it spends to keep
the Cuban economy afloat is worth the cost. In Soviet eyes,
Cuba serves as a symbol for the rest of the Third World of
Soviet good faith and the ability of a small power to stand
up to the US if it has Soviet support.
32. In the Middle East, Moscow's efforts to balance
its deteriorating relations with Egypt by courting more
radical states such as Iraq and Libya have not produced any
solid benefits. Indeed, the bilateral suspicions that exist
between many Arab states--Egypt-Libya, Iraq-Kuwait, Algeria-
Kuwait, Algeria-Morocco, for example--often make it impossible
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for Moscow to register a gain with one state without alienating
another.
33. On the other hand, Soviet relations with Syria have
for the most part recovered from the strains generated by the
Syrian intervention in Lebanon. Soviet relations with the
Palestinians also have improved somewhat, both because of
Moscow's supportive position toward them during the Lebanese
civil war, and because of Soviet efforts to bring the PLO
into the Middle East peace talks.
34. In the near term Moscow will continue to court the
radical states and to press for reconvening the Geneva
conference where, because of its role as co-chairman, it
would expect to hold a strong position. Even in the Geneva
context, however, Moscow's willingness to press the Arabs to
make the concessions necessary to reach an agreement will be
sharply limited by fear that this might alienate its radical
clients. Rather than risk such political capital, Moscow
would if necessary prefer to see the talks collapse. The
USSR believes that if worst came to worst, the US would
bear most of the onus for failure of the Geneva conference,
in Arab eyes, because of the US relationship to Israel.
35. A failure of diplomacy and a drift toward a new
round of fighting would allow the Soviets to play their
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biggest card--arms assistance. The Arab ''confrontation states''
realize that only Moscow is in a position to provide them with
a swift and massive resupply effort in the event of hostilities.
Should a new war break out, the USSR would certainly resupply
Syria, and might well do the same for Egypt despite the
intense mutual dislike and distrust existing between the
Soviets and Sadat.
36. Under some circumstances, the Soviets might also
introduce ground forces of their own into Syria, but this
would more likely be part of an effort to deter Israel from
overwhelming the Syrians rather than an effort to meet the
Israelis in combat. Because of logistic problems, the
quantity of such forces which the Soviets could introduce during
a short Arab-Israeli war would be quite limited.
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37. Eastern Europe is likely to be a more volatile area
over the next two or three years than it has been earlier in
the seventies. The underlying causes are unchanged: the
chronic disaffection of the public with the Communist system,
nationalism, and the attraction of the West. New destablizing
factors--detente, slower economic growth, and renewed dissident
activity--have added to the tension between the regimes and
the people.
38. Economic problems, here as elsewhere, are taking on
new significance. The economies and living standard of the
people have grown substantially over the past 15 years, but
growth rates are slowing down and consumer dissatisfaction is
likely to grow over the next few years. This could be
dangerous for the regimes because they have consciously
generated rising material expectations.
39. The region as a whole is resource-poor. Even in
good harvest years, the northern countries are not self-
sufficient in grain. Eastern Europe is especially dependent
upon energy. Already heavily reliant on foreign trade, the
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countries of Eastern Europe in recent years have also
suffered the consequences of Western recession and inflation,
higher prices for Soviet oil and raw materials, and the need
to import more grain in the wake of poor harvests. At the
same time, manufacturing plants are obsolescent in important
sectors; productivity suffers from lack of incentives; and
management is beset by the inefficiencies endemic to
centralized planned economies.
40. Unable to generate enough exports, all of the
countries of the region are accumulating large hard currency
debts. In order to keep new borrowing down, the East
Europeans will have to restrict imports from the West as well
as increase exports. But, as in other areas, economic growth
itself depends on the acquisition of quality Western equipment
and industrial materials. The East Europeans have already
scaled down their growth projections for the current five year
plan (1976-80), and there is reason to doubt that even these
modest projections will be met. Further ahead they must
anticipate more severe strains in the 1980s, when declining
Soviet oil production is likely to reduce oil imports from the
USSR and to increase the need for hard currency purchases of
oil.
41. The impact of these problems will renew the case for
reforms--increased material incentives, realistic price
structures, and further decentralization. Most of the East
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European leaders will be reluctant to go this route. In
addition to their ideological misgivings, they are likely
to want more, not less, centralized control at a time when
hard economic choices must be made. Although increased
economic stringency hardly augurs well for political stability,
with adroit economic tinkering most of the East European
regimes may avoid the worst harzards of the next few years
with the tacit support of peoples reluctant to risk their
hard-won gains. The greatest threat is in Poland, where the
people are more volatile than elsewhere, and in East Germany,
where the attraction of West Germany is felt deeply.
Dissidence, Detente, and Moscow
42. Dissidence is not a new phenomenon in Eastern Europe.
But its re-emergence over the past year or so is of more than
usual concern to the East European leaders because of the current
context. Their performance in office now is being judged
against Western standards of freedom and human rights at a time
when their economic performance, also relative to the West, is
being judged deficient. Contributing significantly to this
state of affairs has been the Helsinki agreement, Eurocommunism,
and US administration's emphasis on human rights.
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43. The main danger in this situation for most of the
East European leaders, of course, is that the dissidents will
incite a population already restive over economic and other
grievances. The dissidents also make it more difficult to
maintain the kind of political relations with the West, and
particularly the US, that can be helpful on the economic
front.
44. Moscow obviously is concerned about current and
potential unrest in Eastern Europe. A blow-up in any country
would have not only important implications for the region as
a whole and for its ties to the USSR, but for stability in
the Soviet Union itself and in its dealings with the West.
45. Czechoslovakia in 1968 proved that Moscow can be
pushed too far, and will intervene with force if it feels its
security interests are seriously threatened; but by and large
the Soviet leadership under Brezhnev has opted for stability
in Eastern Europe at the expense of ideological purity.
Although the Soviets feel uncomfortable with the more permissive
approaches of the Poles and the Hungarians, they have
reluctantly permitted Gierek and Kadar to divise tactics to
fit their own circumstances. These leaders, in Soviet eyes,
are good Communists who will neither be transformed into
social democrats nor forget their special relationship with
Moscow.
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46. The Soviet Union will probably continue to provide
the financial support necessary to stave off political upheaval
in Eastern Europe. Moscow has restricted its price increases,
accepted payment in overpriced machinery, permitted the East
Europeans to run sizable trade deficits, and granted
supplementary oil deliveries.
47. One consequence of the increased economic pressures
is that the USSR will have to continue to look tolerantly on
Eastern Europe's economic ties with the West. The Soviets in
fact hope that the West will share the burden by continuing
to finance Eastern Europe's purchases and by helping to
modernize its industry so that it can pay for Soviet imports
with quality goods. Farther down the road, in the 1980s, the
Soviets will have to re-evaluate the trade-off between
continued economic support to Eastern Europe and their own
exports for hard currency if, as expected, they develop
serious energy problems.
48. Detente has been a factor in helping the East
Europeans gain more latitude in their dealings with the USSR.
Western goods bolster economic growth and enrich consumer
supplies; Western credits permit large trade deficits;
Western contacts cater to (as well as arouse) popular
aspirations. Eastern Europe's economic needs have in fact
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been a strong underlying motive for detente in Europe and
for the region's opening to the West. These needs will grow
over the next few years, and while increased trade and credits
from the West will not provide the remedy for Eastern Europe's
economic ills, they can be of considerable help. The East
European leaders are likely to find their Soviet allies
increasingly reluctant to bail out their economies, thus
forcing them to do more business with the West. Those
countries which do not now have most-favored-nation status
with the US will have increased interest in getting it. All
will show greater interest in barter arrangements with
Western companies and in joint economic ventures.
Yugoslavia
49. The key question here will be whether the federal
system developed by Tito will long survive his passing. Should
the system fail, ensuing Balkan instability would once again
threaten peace in Europe.
50. The 85-year-old leader, although in reasonably
good health, could die at any time and set off a succession
crisis. Some arrangements have been made, but the country's
main political institutions are relatively young and totally
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untried in transferring power. Moreover, the country's
problems are so complex that it will require much skill
and good luck for his successors to even maintain the uneasy
status quo.
5). Ethnic rivalries, still keen despite years of
unified government, are likely to pose the most severe test.
Should civilian leaders prove themselves unequal to the task
of holding the country together or managing Yugoslavia's
agenda of problems, the military could be expected to act.
Relations with Moscow will be the principal foreign policy
concern for a successor government. The challenge will be
to maintain relations on an equitable basis while fending
off likely Soviet attempts to circumscribe the country's
independence.
52. Economic problems--chronic inflation, growing
unemployment and regional disparities in living standards--
if not managed well could cause political instability. The
difficult job, as in many other European countries, will be
to trim inflation while continuing growth patterns at a
satisfactory level. Belgrade's ability to continue to
attract foreign credits--it already has a $6 billion hard
currency debt--will be a key factor in establishinq economic
equilibrium.
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53. The impact of the new forces at work in Eastern
Europe will not be uniform. In short, the possibility of
a popular uprising, perhaps bringing down the current leader-
ship and even compelling the Soviets to intervene to restore
order, will be greatest in Poland. The situation will be
less volatile in East Germany, but the Honecker regime will
have a harder time balancing its economic need for closer
ties to the West against the unsettling effect those ties
have on the East German people. In the rest of Eastern
Europe, the tensions probably will not get out of hand;
dissident activists by themselves will not seriously
challenge these regimes.
54. The East Europeans are not likely to seek, nor
will they be granted, any significant greater independence
from Moscow in the conduct of foreign affairs. While the
US probably will not have a major impact on internal
developments in any of the countries, the East Europeans
generally will attach increasing importance to developing
better relations with the US, not only for possible economic
benefits but for the added prestige such ties bestow on
government leaders.
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55. China's problems in one sense are different from
those being experienced in Europe. China's primary task is
to repair institutions that functioned well until crippled
by factionalism, rather than to adapt present institutions
to changing circumstances.
56. The Party Congress that formally installed the
post-Mao leadership this year ended more than a decade of
civil turmoil. During that period factionalism undermined
Chinese political institutions, disorder and incompetence
held back economic growth, and nearly all foreign policy
questions were seen in the single dimension of anti-Sovietism.
57. Renouncing the leftist policies that so disrupted
domestic affairs, the Congress pledged a return to the
rational, orderly, pragmatic policies that were in favor in
the early 1960s and that sparked China's recovery from an
earlier period of upheaval. The domestic reconstruction
actually began a year ago when Mao died and the leftist
members of the Politburo were summarily purged. The
leadership has since taken many steps to revive political
institutions and rehabilitate the economy.
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Political Processes in Flux
58. Although the present leadership is the most
unified in recent years, political problems remain. While
there is broad agreement on policy matters, the distribution
of power among institutions and personalities will continue,
as always in China, to be contentious matters. The regime's
ability to come to grips with China's problems and operate
effectively on the international stage will depend heavily
on whether the unity of the new leadership can be maintained.
58a. Like other Communist nations, China has not been
able to institutionalize the succession. The leadership
elected at the 11th Congress is old by Western standards; a
number of key figures are over 70. It is conceivable that
many of the leading figures will die within five years,
making it necessary to choose a new generation of leaders
who will have to work out their own policies and their own
division of power.
59. The problem is accentuated by the present
leadership's failure to bring along younger men. By relying
so much on older officials, Peking has created a generational
problem. And because the present leadership seems to be
disinclined to do much about it, the problem is likely to
grow worse.
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60. There is also the "Mao problem"--how to interpret
Mao's legacy, especially the last ten years of his life
during which he waged the Cultural Revolution and promoted
the careers of the leftists. Some leaders want a negative
assessment of Mao which would facilitate implementation of
policies running counter to his thought. Such a de-Maoization
program, however, would also run the risk of undermining
the legitimacy of Communist rule. The leadership has
attempted to handle the problem by rewriting party history
so that Mao now opposes all they oppose. Vilifying the
father of the Chinese revolution is more difficult than
vilifying Stalin, who was not the father of the Russian
revolution.
61. The rewriting of party history contributes to
another problem: the declining prestige of the party in
the eyes of many Chinese. In fact, the foremost political
challenge facing the new Chinese leadership is to reintroduce
into the political system the authority and discipline
squandered in the past. The political infighting and violence
of the last decade have fed the cynicism of the masses,
undermining the party's claim on their loyalty and obedience.
This last point is particularly important. In a country as
large as China, the willing and energetic cooperation of the
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people is vital to the success of most programs. The
decline in prestige makes it more difficult for the party
to enlist that type of cooperation, particularly from the
intelligentsia. These people have been wooed in one period
only to be attacked later for their "elitist" ideas. The
party is once again courting such groups, but winning their
confidence and total cooperation is likely to be a long,
slow process.
62. To restore the party as the source of authority,
Peking is trying now to rebuild party discipline and to
de-personalize politics. Honesty, openness, and tolerance
are stressed, but the emphasis on discipline, combined with
the experience of the past, will make Peking reluctant to
allow much in the way of open debate.
Major Economic Challenges
63. Economic issues have top priority at present and
probably will continue to for the foreseeable future. Some
of the problems would seem familiar to Western leaders: a
demand for higher living standards, a need to raise
productivity, limited resources, etc. Other problems,
however, are more characteristic of the less developed world:
population pressures and questions of development strategy.
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64. China's declared economic goal is to transform the
country into a modern, industrialized nation by the year 2000.
In fact, Peking will do well to achieve a regular agricultural
surplus and maintain a modest rate of industrial growth.
65. China's immense population--now estimated at over
900 million people--colors every economic problem, but
especially agriculture. Over the last decade, grain production
has barely managed to keep pace with population growth,
despite increased emphasis on and modest success with a
birth control program. Any improvement in this situation
will probably have to come from increased agricultural output.
The government has ambitious plans to mechanize agriculture
and upgrade agricultural technology, but a major breakthrough
in the near future is unlikely. China will continue to be at
the mercy of the weather and, to the degree that imports are
required, the international grain market. The slow growth
of the agricultural sector will continue to hamper overall
economic development.
66. Questions of development strategy have been
sensitive in the past. The present leadership seems more
willing to accept Western technology and assistance, but
China will still have to--indeed wants to--rely primarily
on her own resources. It had expected to finance its
development through oil exports, but expanding domestic oil
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requirements and a deflated world market have burst this
bubble. If resources remain limited, competition for those
available may intensify between various sectors of the
Chinese economy, and could contribute to strains in the
leadership, particularly between civilians and military men.
67. China's workers, like those in the West, are
demanding a higher standard of living. Although their basic
needs are taken care of by the government, their living
conditions have not improved significantly since 1949. Wages
have remained virtually static despite some inflation.
General economic conditions are such that any improvement is
likely to be small and very gradual. In the past, workers
have expressed their dissatisfaction through slowdowns or
strikes. Should they resort to these tactics once again,
the new leadership would probably act quickly to bring them
into line, despite the risk of undermining China's claim to
be a state run by the workers. While production would thus
be maintained, what is really required is increased
productivity. That probably will require work incentives,
which the government will have trouble providing.
68. Peking, well aware of its military weaknesses,
also seems committed to modernizing its armed forces. This
requirement, however, conflicts with an equally high priority-
development of civilian industries. A decision apparently
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was made earlier this year to invest the bulk of China's
limited resources in basic civilian industries and allow the
military-related industries to follow on. Some military men
had sought a higher priority for defense industries, and
opposition to the decision is still present. The disagreer,.ent
seems sure to rise again.
69. In any case, modernization of the armed forces is
likely to take place or a piecemeal basis. The Chinese cannot
afford to do more than upgrade selected components at this
time. Moreover, they are reluctant to buy whole weapons
systems from the West tor fear that they will become dependent
on foreign sources for the basics of their defense.
70. China's own scientific and technical development
program is unlikely to be able to make up the difference.
Scientific education programs suffered a serious setback
during the Cultural Revolution, and it will be many years
before new scientists can be trained to replace an aging
crops of researchers. China thus is likely to find itself
further behind in military technology five years from now,
despite a crash development program in this field.
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Triangular Politics
71. It is largely because of these military problems
and its inability to mount an effective counter to the threat
perceived from the Soviet Union, that China has strived to
develop a relationship with the US as a strategic counterweight.
From Peking's point of view, such a relationship reduces the
possibility of success in what it sees as a Soviet effort to
"encircle" and ultimately subdue China. To the degree that
the Soviets must consider a US response in making strategic
calculations regarding China, Peking's security is enhanced.
72. China's real leverage in such an arrangement, however,
is limited. While anxious to preserve at least the image of
continually improving links with the US to prompt the highest
possible level of concern in Moscow, Peking's problem with
the US over the Taiwan issue blurrs that image somewhat. The
Chinese do not, however, show an inclination to take advantage
of concern in the US that Peking and Moscow might ameliorate
their differences in the absence of improvement in Sino-US
relations. Chinese antipathy toward the USSR has not softened
since Mao's death and the purge of the leading leftists last
year.
73. Nonetheless, Peking does not relish the prospect
of being "a card in the game" between Washington and Moscow.
In the long run, the Chinese probably will attempt to adopt
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a more balanced role in triangular politics, hoping to gain
more room for maneuver and leveizage vis-a-vis both superpowers.
It also seems likely, however, that hostility toward the
Soviet Union will remain the most prominent feature of Chinese
foreign policy, suggesting that the turn toward the US will
prove more a long-term strategy than a temporary expedient.
74. In addition to countering the Soviet threat, Peking
is seeking from the US connection a resolution of the Taiwan
problem in terms favorable to Peking as well as increased
trade and advanced technology.
75. With respect to Taiwan, the Chinese are maintaining
their three conditions: the US must break diplomatic
relations with Taipei, withdraw all US forces from the island,
and abrogate the mutual defense treaty. The Chinese contrast
their inflexibility on these basic principles with their more
amenable position on the actual extension of mainland control
over Taiwan.
76. Peking realizes this is a long-term goal. In the
near-term, it is unlikely to let disappointment over progress
on the Taiwan issue threaten its overall relationship with
Washington and the protection it offers vis-a-vis the Soviets.
77. Peking's interest in the United States as a
trading partner, and especially a source of technology, may
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be increasing. The new Chinese leaders, committed to
increasing the pace of economic development, may be more
willing to relax earlier strictures against credits and
large-scale imports. Some of the technology the Chinese are
interested in is not readily available from other suppliers.
Trade, however, is not as important to Peking as the strategic
and political aspects of the relationship with the United
States.
78. The Chinese, of course, also view the US in an
ideological context, as a capitalist power with interests
basically inimical to China's. This historical assessment,
however, will not get in the way of Peking's need to pursue
better relations with Washington in the here and now.
79. China's long-term goal in Asia is to create a
sphere of influence in which Chinese interests, particularly
security interests, can be protected and advanced. Lacking
the economic and military strength to achieve this in the
short run, Peking is focusing its efforts on blocking the
expansion of Soviet influence in Asia while encouraging a
continued US presence--military and economic--in Asia and the
Western Pacific. In this sense China has become an advocate
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of the status quo in Asia, fostering good state-to-state
relations with non-Communist states and in general putting
less emphasis on the pursuit of ideological and revolutionary
goals. China probably will pursue this approach for an
extended period as it concentrates on putting its domestic
house in order and on building up its economic and military
strength. Such priorities argue against an adventurous
policy in Asia, or for more active support to the various
Southeast Asian Communist movements still responsive to
Chinese guidance. Peking nevertheless places great importance
on maintaining and cultivating its ties with these
revolutionary movements in order to block the intrusion of
Soviet or Vietnamese influence and to keep open the option
of a more aggressive or subversive approach to the region.
80. Fears of Soviet inroads and of possible confrontation
with the US figure prominently in China's assessment of the
Korean situation. China must necessarily give strong public
support to Kim Il-song's position on reunification and on
the withdrawal of US military forces. Privately, however,
Peking shows a desire to maintain the status quo on the
peninsula and probably will continue to urge restraint on the
North Koreans.
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81. Peking's relationship with Japan is heavily
influenced by economic considerations, although there is the
anti-Soviet aspect as well. The Chinese hope to see Japan
put more distance between itself and the Soviet Union. The
negotiations between Peking and Tokyo on a Peace and Friendship
Treaty continue to be deadlocked over the anti-Soviet "hegemony"
clause.
Since Peking apparently is unwilling to give ground on this
issue, the treaty could remain indefinitely a minor irritant
in their relationship.
82. These differences over the treaty have not stood
in the way of Sino-Japanese trade relations. Japan continues
to be Peking's major trading partner and one of its most
important sources of modern technology. Although the Chinese
are interested in a long-term trade agreement, prospects for
early conclusion of such an agreement are slim.
83. The emergence of Vietnam as a unified and militarily
strong state represents a potential threat to Chinese ambitions
in Asia, and will continue to complicate Peking's regional
diplomacy. While the Chinese in the past worried that the
Vietnamese might serve as agents of Soviet influence throughout
the area, more recent events seem to have persuaded them that
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the Vietnamese intend to set an independent course between
Peking and Moscow.
84. Peking nonetheless does not wish to see Hanoi become
a rival in its own right for influence in the region. Some
Southeast Asian states, fearing Vietnamese expansionism,
see China as a counterweight to Vietnamese expansionism--a
view which Peking has sought to encourage. The perhaps
inevitable Sino-Vietnamese rivalry thus is likely to remain
a prominent feature of the Southeast Asian scene.
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CONFIDENTIAL
IV. PRESSURES FROM THE DEVELOPING COUNTRIES
1. The new significance of relations between the developed
and developing countries has been a principal contributing cause
of the complexity and uncertainty so evident in today's
international environment. As we have seen, this complexity
reflects the many interconnections between North-South
relations and the management of such global problems as
energy supplies, nuclear proliferation, and human rights.
We have also noted the strains that LDC pressures can place
on harmonious relations among the advanced countries because
of the varying degrees of vulnerability to these pressures
among the industrial democracies. Issues between the developed
and developing nations thus not only represent an important
part of the international agenda in their own right, but have
a significant role in shaping the character of US relations
with traditional allies, adversaries, and key Third world
nations.
2. A number of international trends have combined in
recent years to give new prominence and greater impact to
North-South relations--multilateral and bilateral alike.
Among these are the growing power of the oil producers' cartel
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and the sharpened sensitivity of the industrial nations to
their dependence on oil and raw materials; the accumulating
wealth and regional influence of ''upper tier'' LDCs, such
as Brazil and Iran; and the assertiveness of LDCs generally
in demanding major reforms of the international political
and economic order.
3. The ''North-South dialogue'' per se is but one part
of this complex set of relationships. Individual LDCs have
key interests regarding US relations that either lie outside
of, or are distorted by, the global issues addressed in various
North-South forums. Similarly, the US has important interests
with individual countries and blocs of LDCs that are difficult
to address with North-South initiatives, even those that
strive to be comprehensive.
4. In this section we attempt to illuminate some of
these complexities, and to clarify the basic forces and trends
that will affect US interests and initiatives in the global
arena over the next year or so.
5. The atmosphere of North-South relations has undergone
a gradual change over the past year or so. The outcome of the
Conference on International Economic Cooperation (CIEC) in June
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1977 confirmed that a spirit of accommodation between LDCs and
industrialized states--a searching for practical solutions
through give-and-take bargaining--now prevails. Virtually all
participants preferred to compromise on various aspects of the
final agreement rather than risk a breakdown of the North-South
dialogue and a regression to the sense of confrontation that
characterized the 1974-75 period.
6. The industrialized states conceded on some points at
the conference not only because of direct economic and political
pressure, but also because most. did not want deteriorating
relations with the LDCs over economic issues to restrict their
freedom of action in other areas of foreign policy. (France,
for example, supports many LDC demands in order to maintain a
degree of influence in francophone Africa.)
7. Most of the industrialized states considered the
conference a qualified success because the concessions
necessary to avoid a confrontation were not perceived as too
costly. The concern they expressed over the failure to
establish a continuing energy dialogue reflected disappointment
over the outcome of the bargaining process. No industrialized
state questioned the need to bargain with the LDCs.
8. The reaction of the developing nations also suggests
general satisfaction with the improved climate of the talks if
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not with the specific outcome of the negotiations. They seem
to accept the notion that relations with the industrial nations
are evolving into a genuine bargaining process, and are developing
sense of pragmatism about how much multilateral negotiations with
the industrialized countries can actually achieve. Many now
acknowledge, for example, that the ''New International Economic
order'' is unrealistically demanding and that continued
insistence on it might jeopardize what gains are possible.
Moreover, most of the LDCs appear to recognize that bloc
solidarity is limited by the clash of national economic interests
over such key issues as the Integrated Program on Commodities and
automatic debt-relief schemes.
9. Another cause of this retreat from the tactics of
confrontation is the preoccupation of certain key ''radicals''
(for example, Algeria) with domestic and regional problems, and
with changes in administration (for example, Mexico and
Pakistan). The so-called radicals--like most LDCs--are still
interested in changes in the international economic order,
but for the moment they appear to accord a lower priority than
previously to aggressive tactics to force systemic change.
Their reduced profile has given the more moderate LDCs, who have
consistently favored a more conciliatory approach to economic
negotiations, a stronger leadership role in LDC caucuses.
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10. Despite this trend toward accommodation on economic
issues, a major gap remains between what the LDCs are demanding
and what the industrialized countries are willing or able to grant.
Partly because of reduced tensions in economic negotiations,
LDC demands for a redistribution of political (that is,
decisionmaking) power in the international system are likely
to become more prominent.
11. These political demands have always been part of the
set of issues in contention between the LDCs as a bloc and
the industrialized nations. They grow out of a conviction that
the international economic system established by the industrial
democracies after World War II is unfairly dominated by those
states, not only in their ability to extract economic benefits
but also to the degree that they can restrict LDC prospects
for greater wealth and influence through their control of the
rules, institutions, and procedures of the system.
12. The US is likely to find LDC demands for multilateral
negotiations aimed at increasing their decisionmaking role in
international institutions even more difficult to cope with
than the purely economic demands that have until now been at
the center of the North-South dialogue. One problem will be
finding common ground with other industrialized nations on how
to deal with a challenge to their collective political authority.
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The problem is further complicated by major divergences among
the LDCs over priorities for changing the international system.
Conflicting Interests
13. The development of a coherent policy toward the LDCs
is still further complicated by the fact that the US has a wide
range of interests that engage the LDCs but do not directly
involve the kinds of systemic economic or political change most
LDCs are demanding. This array of interests includes traditional
economic concerns (for example, maintenance of alliances or
special security relationships) that are essentially bilateral--
at most regional. But it also includes issues rooted in deeply
felt US values, such as efforts to promote human rights and to
curb nuclear proliferation, which are worldwide in scope.
14. Thus US policy toward developing countries must deal
with a mix of country and global issues, on one hand, and the
North-South issues of systemic change, on the other. The
tailoring of policies for individual countries, or groups of
likeminded countries, is made more complex by the numerous
conflicts that occur within and between these foreign policy
dimensions. Three trends in particular have emerged which are
likely to further confuse the foreign policy environment over
the next year or so.
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15. First, LDCs have a tendency to interpret many US
policies toward them as related directly to the issue of the
international distribution of wealth and authority, even though,
from the US viewpoint, the policies are not directly linked
to North-South politics. Thus, while the US pursues on their
own merits policies that promote human rights and discourage
arms transfers and nuclear proliferation, many of the countries
most affected by these US initiatives perceive them as having
an immediate impact on (and even as deliberately intended to
affect adversely) their security and their prospects for greater
growth and prestige. Brazil, for example, sees US efforts to
block its nuclear agreement, with West Germany, which includes the
sale of sensitive technology, as a deliberate attempt to prevent
Brazil from acquiring a critically needed energy source and one
of the attributes of major power status. US refusal to sell
advanced aircraft to Ecuador, in line with a global policy of
cutting back on conventional arms sales where possible, is
perceived in that country as harmful to Ecuador's security in
view of neighboring Peru's ability to acquire arms from the
USSR. Indonesia and the Phillipines have shown similar concern
over our efforts to limit arms transfers. The problem becomes
even more complicated in the case of these two countries because
of the US policy of linking arms sales to a reduction in human
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rights abuses there. A further difficulty occurs in relations
with South Korea and Pakistan, both of which have pressing
security problems but are prevented by the US nuclear
nonproliferation policy from obtaining weapons-applicable
nuclear technology that could offset the limitations on
acquiring conventional arms.
16. The second trend derives from the fact that different
groups of developing countries want different kinds of changes
in the international system and that, as bargaining becomes
more specific, these differences are becoming sharper.
Consequently, each US policy on a North-South issue will address
the concerns of only certain countries. It will often leave
other groups unaffected (and uninterested); it might also be
perceived as adversely affecting them. To illustrate: a
US-sponsored effort to satisfy the basic needs of the world's
poor would address the concerns primarily of those countries
seeking essentially economic--as opposed to political--change.
It would not meet the interests of those LDCs that have an
equal or greater desire for a redistribution of power in the
international system. Such a basic human needs policy might
in fact be perceived by some of these more developed LDCs as
threatening to their political stability and inimical to their
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economic development strategy, to the extent that their strategy
featured deliberate reconcentration of income to foster investment.
17. Finally, the potential for splits among the industrial
countries on noneconomic issues appears to be growing despite
the degree of agreement on how to deal with North-South economic
issues at the conference in June. The US and its OECD allies, for
example, have different perspectives on the consequences of a
serious deterioration of relations with the LDCs. The governments
of the West European countries and Japan see their economies
as far more sensitive to the loss of markets or supplies of raw
materials procured from the LDCs. Special European political
and economic relationships with the LDCs, dating back to the
colonial era, are also a factor. Public opinion, moreover, in
some West European states (for example, the Netherlands, Norway,
Sweden) is oriented more toward responsiveness to LDC demands
than is the case in the US.
18. These differences provide some basis for potentially
serious policy disagreements between the US and other industrialized
nations. As we have seen, certain West European countries such
as Germany and France would place fewer limitations on the
sale of sensitive nuclear facilities or conventional arms to
LDCs than would the US. They are also less inclined to try to
force changes in human rights practices by levying economic
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sanctions against important trading partners. In these and
similar matters affecting their relations with the LDCs, each
industrialized nation is under pressure to develop specific
sets of policies that will best serve its perceived interests.
Consequently, as a wider range of issues enters the negotiation
stage between North and South, the negotiating freedom of the
US will increasingly be constrained by the more explicit
concerns and policies of its industrialized allies.
19. Major differences clearly will persist between and
among the industrialized and the developing states, despite
tce current atmosphere of accommodation in multilateral economic
negotiations. Movement toward broadly accepted compromises will
be slow in talks in the various technical economic forums
(for example, the common fund negotiations, Multilateral Trade
Negotiations, the IMF) that will be addressing LDCs in the
corning months. Eventually, the patience of the developing
nations will start to wear thin. They will probably not
return to full-scale confrontation, however, unless they
conclude that the industrial countries are no longer bargaining
in good faith. Thus while relatively harmonious relations on
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multilateral economic issues will continue, at least in the
near future, North-South tensions will begin to rise thereafter
in the absence of substantial movement toward meeting LDC demands.
20. Other developments could also lead to an overall
deterioration in the atmosphere of relations with the developing
nations. Political and security issues, always a part of the
pattern of relations between industrialized and developing
countries, are likely to get more attention from both the
LDCs and the US, particularly as long as the process of
negotiation on economic issues continues on track. Moreover,
if developments in such areas as the Middle East, Southern
Africa and Latin America evolve along current lines, attention
will be focused even more intensively on political issues. Increased
tensions in the Middle East and Southern Africa, for example,
would pit most of the LDCs against most of the industrialized
states. Similarly, the buildup in Latin America of strong
sentiment against the US is not hard to imagine if Congress
fails to endorse a new Panama Canal Treaty. Under such
cirsumstances, it could be difficult--if not impossible--to
maintain the fragile atmosphere of accommodation that now exists
due to US multilateral initiatives toward the LDCs.
21. The potential for new tensions is also likely to be
heightened by the efforts of the developing countries to exercise
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what they perceive to be their new bargaining leverage. In
multilateral forums this is likely to show up in the UN
General Assembly, especially on such issues as the Middle
East and Korea; in the Security Council on Southern Africa
as well as the Middle East; in the struggle for control over
the future role of the International Atomic Energy Agency; in
the negotiations of the Conference of the Committee on
Disarmament; in the preparations for the UN Conference on
Science arid Technology; and in the controversy surrounding
the US decision on whether to stay in the International Labor
Organization.
22. Efforts to exert new leverage on the US are also
likely in bilateral relations, when, for example, Mexico makes
decisions on oil and gas sales to the US and the Philippines
enters into negotiations on the base rights issue. It will
be in this bilateral arena, in particular, that the LDCs'
sense of increased bargaining power will conflict with the
kinds of demands that the industrialized states, including
the US, will be making in exchange for taking LDC economic
demands seriously. As noted earlier, polarization often
develops over such issues as energy supplies and human rights
because they are interpreted as raising questions of sovereignty
and political control.
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23. For the US, the level of tension in North-South
relations could ultimately pose a challenge to its traditional
leadership role among the industrial countries. The political,
economic, and security objectives of the non-Communist industrial
states are all interrelated; frictions caused by a clash of
purposes in one area affects the prospects for consensus and
cohesion on the others. There are limits to what the US can
do to protect the economic security of Europe and Japan
against the threats posed by concerted LDC actions to link
concessions on their demands to assurances of stable sources
of raw materials. Under certain conditions and during
particular crises, then, Europe and Japan may perceive that
the risks of associating with the US outweigh the gains.
24. So far, Moscow and Peking have derived little direct
political benefit from the tensions in North-South relations.
But should these tensions lead to sharper differences in view
among the Western powers and Japan over such issues as how to
secure stable sources of raw materials, burden-sharing in the
defense field, the role of tariffs and other barriers to trade,
or the kind of restrictions that ought to be set on the export
of technology, the impact of such discord on established
conceptions of mutual security could redound to Soviet (and,
to a lesser extent Chinese) advantage. In such an event,
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Communist leaders might be tempted to increase their support of
radical LDC spokesmen, in order to promote even greater tension
in North-South relations of the sort that would amplify the
differences among the industrial countries.
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