The UN and Development: From Aid to Cooperation

3. A UN Fund for Economic Development

three A UN Fund for Economic Development n Capital: A Scarce Development Resource n The Lost Cause: The Special UN Fund for Economic Development (SUNFED) n The United Nations Special Fund In the 1950s, the UN system’s efforts in support of economic development in less-developed countries were confined to providing governments with technical assistance and urging the IBRD system to switch a larger part of its development lending from “developed” to “underdeveloped” countries. Although the combination of expanded technological insight and capital was widely recognized as necessary, the UN system did not combine technical assistance and financial assistance. In the late 1940s and early 1950s, however, an ambitious idea was launched and discussed in both ECOSOC and the General Assembly: a Special UN Fund for Economic Development. The intention was to provide soft loans, even grants, to less-developed countries to finance projects to develop their economies, especially infrastructure. The Marshall Plan was the model, although differences in the settings were recognized. The idea stayed on the UN’s agenda during the first half of the 1950s. However, it met with heavy resistance from the major industrial countries , especially the United States and the United Kingdom. In 1957, a compromise proposal on a special fund was agreed on. This fund had more limited functions and a smaller financial frame than the original idea. It was initiated and driven by the United States as an alternative to SUNFED. This more limited idea won the day, and the UN General Assembly formally established the UN Special Fund on 14 October 1958. Although the Special Fund was slimmed down in both ambition and scope, the long fight for and against SUNFED is part of the early history of the UN’s contribution to the idea of international development assistance. It illustrates, better than the story of the EPTA’s emergence, that ideas are not enough, however innovative they might be. Power and interests also play an important part in international relations. In the late 1940s and the 84 n The Emergence of International Development Assistance 1950s, governments of new and emerging states perceived needs and priorities differently from governments of the hegemonic industrialized powers of the North that had the final say in the establishment of the fund. Since capital is considered so important for economic development, this chapter starts with a brief survey of the predominant thinking about the role of capital during the late 1940s and 1950s at the UN. Capital: A Scarce Development Resource In the late 1940s and early 1950s, the United Nations attracted a number of economists who later earned reputations as pioneers in development ; a few of them became Nobel laureates in economics. They served in an organization that had come to define poverty and economic underdevelopment as major international problems that demanded solutions. These economists combined theories related to the underdevelopment of new and emerging states with ideas that they hoped would solve problems . They sat down with stakeholders who represented different and often conflicting perceptions and interests to assess their analyses and to decide on the follow-up. They combined theoretical work with political and economic entrepreneurship.1 Most of these economists had been molded in the Keynesian tradition that emphasized the crucial role of the state in economic development. This view of economics held that planning and state intervention were important preconditions for development. On this issue, they were confronted with strong opposition from neoclassical economists.2 The predominant view within the United Nations was that “underdeveloped ” countries were responsible for their own development. Any assistance from outside should be help to self-help and should be provided on the premises that governments of these countries set. During the early years, UN policy documents and reports took a broad perspective on economic development. Most of them reflected the view that the countries concerned should work toward diversifying their economies, diversifying their export base, industrializing, diversifying their technology, and developing their agriculture.3 However, the theme in these documents is that industrialization was what really mattered and the first step in industrialization was the accumulation of physical capital and modern technologies. In this view of economics, there were basically four ways of ensuring capital for development: trade (export earnings), domestic savings and investments, private financial transfers, and foreign investment and A UN Fund for Economic Development n 85 government loans on commercial conditions and loans from abroad on concessionary terms or...