THE TENTH
GABRIEL SILVER LECTURE was delivered by the
Hon orable George D. Woods, President, International Bank
for Reconstruction and Development, under the auspices of
the School of International Affairs, Columbia University,
April 13, 1967.
Previous Gabriel Silver Lecturers were President
Dwight D. Eisenhower, the late George C. Marshall, Sir
Anthony Eden, His Majesty Mohamed Reza Shah Pahlevi,
Sir Sarvepalli Radhakrishnan, the Honorable J. William
Fulbright,His Excellency Pierre Mendes-France, the Hon-
orable Willy Brandt, and Lord Caradon.
Printed in the United States of America
FINANCE FOR DEVELOPING COUNTRIES:
A TIME FOR DECISION
The Honorable George D. Woods
IT WAS an act of bravery for Dean Cordier to invite a banker to
come here this evening to deliver the annual Gabriel Silver Lecture
Devoted to World Peace. It has been the misfortune of bankers to
be recorded in history more often in connection with panic than
with peace; and I can hope to reward the Dean's audacity only in
a modest way. Nevertheless, I was delighted to accept his flattering
invitation to speak here at Columbia University. Since then I have
been emboldened by Pope Paul's recent encyclical, according to
which "The new name for peace is development."
We are now approaching the 20th anniversary of the inception
of the Marshall Plan-the date when Secretary of State Marshall,
at a time of deep economic and political crisis in Europe, spoke the
sentences which launched the great cooperative effort of the Euro-
pean Recovery Program. Secretary Marshall's initiative began a
transformation. The creative genius of Europe awoke. American
aid began to flow out steadily to the 16 countries which had united
in the Recovery Program. Those countries, later joined by others,
worked their way back to productivity; they formed new habits
of collaboration which, as is now apparent to all, opened the way
to an economic revolution.
Today, there is another such crisis in the world. It is big, it lacks
focus; most of us do not even think of it as a crisis. But food riots
in Asia, government coups in Africa, student violence in this Hem-
isphere and elsewhere, are among the symptoms of it. It is the
crisis of a new world trying to be born-the crisis of the develop-
ing countries in their struggle to achieve economic viability, na-
tional unity, and the respect of other nations.
3
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This new world contains about two billion people-about two-
thirds of humanity. Most of it is hungry most of the time. Average
calorie consumption is on the order of 2,000 a day-an intake
which in Europe two decades ago, we regarded as being danger-
ously near the famine level. Between the income of an ordinary
citizen in western Europe and that of an ordinary African or Asian,
the disparity is ro or 15 to one, with the contrast that implies be-
tween standards of shelter and education, work and enjoyment.
In the case of the United States, the figure would be 20 to one.
Thanks to modern medicine, underdeveloped countries enjoy a
20th century death rate; but they still are experiencing a 19th cen-
tury birth rate. As a consequence, five-sixths of the population
growth in the world is occurring in the less developed countries.
Of the 60-million increase which we can expect in 1967, 50 mil-
lion will be in countries with per capita incomes of less than $2 50
a year. Such a rate of population growth has never before occurred
over such a wide part of the globe.
The existence of hundreds of millions of destitute human beings
in the world is a threat to peace. We see every day how it may
create vacuums of authority into which the great powers may be
drawn in uneasy confrontation. The chances of disagreement and
disaster can be magnified by what happens in places of Africa,
Asia and Latin America that many of us had not even heard of ten
years ago.
Over the years, rich nations have been engaged in extensive but
largely unconcerted efforts to help the poor. The pattern is differ-
ent from that of the Marshall Plan: instead of one principal coun-
try trying to help a dozen, there are now more than a score of
countries engaged in various efforts to help about a hundred others.
These activities have grown haphazardly, for the most part from
former colonial responsibilities, in some part from humanitarian
or diplomatic or commercial motives. They have not-and I want
to emphasize this-they have not been the result of conscious com-
4
mitments to a coherent, cooperative attack on the problems of
world poverty and disorder. This has not been tried.
The task of development assistance has proved to be one of
almost infinite complexity. The process of growth, whether of
people or countries, is intricate, and when its intricacy is com-
pounded by all the difficulties of relationships between sovereign
nations, problems seem to arise in a limitless number of permuta-
tions and combinations.
The effort of some countries to help others has been freighted
with irony and paradox. The very economic strength that gives
rich countries the means to help the poor also opens up a gap be-
tween them: the capital-intensive technology of the industrial
countries is not all suited to the problems of the low-income
nations.
It is a paradox, too, to speak of development assistance as "for-
eign aid." In fact, as we all know, in the past much development
assistance has been given in forms designed to benefit the immedi-
ate self interest of the giver-forms rather different from those that
would have been followed had economic development been the
prime objective, and rather different also from those which would
have been followed if performance by the developing country had
been an important consideration.
Most providers of aid, sooner or later, and in one form or an-
other, have used overseas assistance as a subsidy for their own in-
dustries-as a way of exporting goods and services at higher than
world prices. It is estimated that the donor countries put a value
on their annual aid about $ 1 billion a year higher than the same
goods and services would bring in competitive world markets.
And it goes without saying that when development finance has
been used to protect spheres of political and commercial influence,
or to serve strategic military purposes, it has been to some extent
of help to the donor countries themselves.
To win for aid programs the support of legislators with many
5
vexing problems of their own including poverty pockets and
other high-priority domestic demands for public funds all these
motives of self-interest have been proclaimed publicly-and often
-in donor countries. Small wonder, then, that development assist-
ance has not infrequently failed to stir feelings of gratitude or to
encourage the performance that was expected, from the recipient
countries.
The paradoxes have not all been on the side of the rich. Not a
few developing countries, for instance, have asked for help from
abroad at the same time as they have been practicing forms of na-
tionalism that make international cooperation impossible.
While governments and leaders have proclaimed economic de-
velopment to be high on their list of goals, they often have failed
to take the action and adopt the policies necessary to achieve it.
Despite the popularity of the phrase, "revolution of rising expecta-
tions," the somber truth is that in many countries, the population
lacks the ferment of aspiration and determination without which
economic development is impossible. In some countries, deep
seated political instability has undermined the hope of steady eco-
nomic progress.
Some paradoxes have trapped both donor and recipient. Con-
sider the irony that development assistance, instead of hastening
the day when the poor countries could make their own way, may
in some cases actually have postponed it. Exports of American
food surpluses have fed the hungry overseas; in their time they
have saved the United States Government several hundred million
dollars a year which otherwise it would have had to spend on crop
storage and price support operations; but food aid programs have
not always been administered so as effectively to stimulate in-
creases in production in agricultural sectors overseas. Aid pro-
grams have helped recipients, on occasion, to defer or avoid the
hard measures they should have been taking on their own behalf.
Aid has given donors an excuse-although not a good one-to def er
6
liberalizations of their own commercial policy which might en-
large the trade earnings of developing countries and thus lessen
their reliance on development aid.
Despite its contradictions and paradoxes, in two decades, devel-
opment assistance has accomplished much good. I think, indeed,
that this period since the Second World War will be remembered
in history as the period when the engineering of social and eco-
nomic progress in the developing world .first became a universal
preoccupation of governments. There has been planted, literally
and .figuratively, seeds whose fruit the developing countries will
be harvesting for many years. For millions of human beings, the
development effort has been the difference between life and death;
for millions more, it has been the beginning of hope; and for some
it has been the beginning of prosperity.
Installed power capacity in developing countries has more than
doubled in the last dozen years. Cement production has more than
doubled; the manufacture of steel has tripled; mining production
is rising at a rate of almost IO per cent a year. Commerce is grow-
ing: freight moved by rail has been increasing annually by IO per
cent in Africa and 1 2 per cent in Asia. The expansion of educa-
tion, that vital springboard of economic advance, is proceeding
significantly faster than the growth of population. All this began,
however, from a low starting point, and much more needs to be
done.
Today the capacity of developing countries to grow is greater
than it has ever been. The most important single accomplishment
of the development effort over the past 20 years is that peoples
throughout the developing world have acquired skills, adopted
attitudes and built institutions that greatly increase their ability to
use capital productively. Many developing countries are attaching
greater importance to .fiscal and monetary policies, and even to
market incentives. It is slow, hard work, but many are building
more adequate frameworks of administration. Investment and sav-
7
ings rates have moved upward. However, given the heavy expen-
ditures on education-and in other sectors which give a return
in increased production only after a long waiting period-it is
hardly surprising that growth has been spectacular only in a few
countries.
Despite many errors of commission and omission, despite the
instability of political institutions, the growth potential is there.
The developing countries are ready and able to continue progress
at a faster rate.
On the side of the countries and institutions engaged in develop-
ment assistance, experience has brought progress also. The quality
of aid, while it still leaves much to be desired, has consistently im-
proved; and the givers of aid have acquired growing understand-
ing of the problems they face.
In the past two or three years, most of the aid-giving countries
of the world have put their programs of development assistance
under close examination. This scrutiny has resulted in a shift
toward the greater use of international organizations, as one way
of filtering some of the contradictions out of aid and of directing
a larger flow of assistance to countries where economic perform-
ance justifies it. Since 1960, the participation of these multilateral
organizations in the net transfer of financial resources to develop-
ing countries has increased threefold, although it still accounts
only for a modest fraction of the total.
Development functions are being more effectively carried out,
either by the established multilateral agencies or by new regional
organizations which have been created. New combinations of bi-
lateral and multilateral assistance are being worked out, to such an
extent that in the next fiscal year, an estimated 85 per cent of
United States aid, for instance, will be given either through multi-
lateral channels or as part of a multi-national effort coordinated by
international agencies.
The World Bank group of institutions is in the mainstream of
8
these developments. This Group, as most of you know, is a cluster
of three institutions. At the center is the Bank itself. It is the World
Bank-the only thing of its kind. Our member share holder gov-
ernments are spread over the world; our financial resources come
from all over the world; we finance projects in all quarters of the
world; our Executive Directors, officers and staff are from all parts
of the world. No other institution or government department has
the experience of the World Bank-the concentration of expertise
and know-how embodied in our international staff, chosen and
retained strictly on professional merit.
The Bank is now 2 1 years old, and has lent some $ 1 o billion,
mostly in developing countries. Its loans are long term, at more or
less conventional rates of interest, for projects of high economic
priority. About a third of its lending has been for electric power
development, a third for the development of transportation, and
the rest for agriculture, industry and education.
Flanking the Bank on one side is the International Development
Association engaged in the same kind of business, but on much
easier conditions of repayment. IDA, as we call the Association for
short, lends to the poorest countries in the Bank's membership-
those not able to borrow and service on conventional terms all the
capital they can effectively use for development. So far, most of
its financing has been done in Asia; and more than 70 per cent of
its $ 1 .6 billion of commitments have been made there. The pur-
poses of ID A's lending reflect some of the most pressing problems
of these client countries: the Association has been particularly ac-
tive in financing agricultural and education projects.
Flanking the Bank on the other side is its other affiliate, the
International Finance Corporation, or IFC. IFC works exclusively
in the private sector. It does several things the Bank does not do:
it makes loans to private borrowers without government guaran-
tee; it invests in share capital; and it underwrites offerings or place-
ments of securities by new or expanding enterprises. IFC operates
9
in countries with a reasonably high level of savings and entrepre-
neurship; and more than half its $200 million of commitments are
for enterprises in Latin America.
The operations of the three institutions, although each has Its
own separate financial assets, are closely integrated. This year,
I expect that they will disburse well over a billion dollars on their
loans and investments, mostly for projects in the developing
countries.
Many of the founding fathers of the Bank have had the oppor-
tunity of seeing their child grow up; otherwise they would not
know their offspring today. Mr. Dean Acheson, who was then the
American Under Secretary of State, expected in 1945 that the
W odd Bank would be a quite limited enterprise. He explained to
a Congressional committee: "In the normal case, a country will
borrow from private bankers; but where private banks, because of
the risk, cannot make the loan on terms which are possible for the
borrower, both the borrower and banker may need the assistance
of the ... Bank. The Bank's function will be to investigate the
soundness of the projects for which capital is desired, and if it
agrees they are sound, it will guarantee the loans made by private
banks." In fact, of course, this never happened; the Bank, under
the successive presidencies of Eugene Meyer, John McCloy, and
particularly Eugene Black, became a borrower and a lender on its
own account.
While they may not have been good forecasters, the founders
nevertheless gave the Bank a priceless gift in the form of an extra-
ordinary charter, called the Articles of Agreement. This charter
endowed the Bank with three faculties.
First, it gave the Bank an aptitude for cooperation. In fact, the
Bank is a true cooperative, deriving its resources from its members
and using these resources for their benefit. Its member govern-
ments are not only its principal debtors, but also its shareholders
and large creditors.
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/
Second, the Bank was given the opportunity to be independent.
It was not to rely solely on paid-in capital from governments; in
addition, it was enabled to provide the larger part of its resources
by borrowing in the world's capital markets. It was cast in cor-
porate form, and was given the capacity to earn a profit and be-
come self-supporting.
Third, the Bank was given a fundamental policy. It was com-
manded to base its operations on economic factors, and to stay out
of politics. The Bank was thereby given a hunger for facts, and
a desire to develop the expertness needed to understand and inter-
pret the facts.
All three of these faculties converged on one objective: the eco-
nomic growth of the Bank's member countries.
The Bank did not learn to exercise these faculties all at once.
As far as cooperation is concerned, some member countries, in-
cluding Cuba under Castro and Indonesia under Sukarno, decided
that the Bank was not the kind of cooperative they wanted to be-
long to, and they left-although Indonesia has now come back.
In dealing with its borrowing shareholders, the Bank has moved
carefully from problem to specific problem, elaborating its own
policies and marking out its own trails. The Bank has worked hard
during nearly all its twenty years to establish and maintain its high
standing in the money markets of Western Europe, Canada, and
the United States.
The instrument the Bank was given for dealing with its member
countries was capital. This capital, to use the words of the charter,
was to be applied to "projects, large and small alike." But one of
the first things the Bank found out was that many of its clients did
not know how to prepare projects. We had proposals, to mention
a few, for dams that would be starved for water, for electric power
systems that would lack customers, and for highways that would
not fit local traffic and terrain.
In these circumstances, it seemed plain that if the Bank were
11
to help finance any considerable number of projects, it would have
to offer advice about how to prepare them as well. The Bank there-
fore not only closely examined proposals through studies of docu-
ments and visits to the field; as cooperator and expert, it also de-
veloped the practice of suggesting modifications or further study
whenever necessary. It quickly found itself playing-and has since
continued to play-an advisory role of considerable scope and
variety, concerned with economics, engineering, administration
and other factors bearing on project execution. We discuss with
the borrower what kinds of technical services are needed, we ad-
vise on how best to obtain these services and, if necessary, we draw
up terms of reference for the consultants.
For countries least able technically to prepare projects and least
able to bring in the necessary outside help, we bear some of the
cost; and we organize and supervise similar project studies fi-
nanced by the United Nations Development Programme.We have
also established cooperative programs whereby the Food and Agri-
culture Organization of the United Nations and the United Na-
tions Educational, Scientific and Cultural Organization work with
us and our member countries to identify and prepare projects in
agriculture and education. To help meet the especially urgent
needs of African countries, we have established in that continent
two regional offices of our own to work directly with local au-
thorities in preparing agricultural and transportation projects.
At about the same time the Bank was discovering that projects
often were inadequately studied, we were also finding out that
they were planned without sufficient regard for their setting in the
economy as a whole. We early concluded that any developing
country would benefit from having some kind of program as a
framework for development, relating projects to each other, tak-
ing account of the availability of financial resources, and giving
thought to policy and administrative measures as well as to physi-
cal projects that would accelerate economic development. We
12
have therefore developed a practice of organizing expert missions
to visit individual countries and to draw up comprehensive recom-
mendations that could serve as a basis for working out a detailed
development program.
The long range solution to the need for economic expertise,
however, is for the developing countries to produce their own ex-
perts. The Bank has tried to help them do so by establishing an
Economic Development Institute for the training of senior officials
concerned with economic affairs. The Institute was set up as a sort
of staff college where these officials could come together for peri-
ods ranging from three to six months, to study, to read, and to dis-
cuss practical development problems among themselves and with
the best experts available from the Bank and elsewhere. The Insti-
tute began its work in 1956, and 700 officials have been through it.
Many have advanced to posts of critical responsibility.
What we want, in a word, is to encourage constantly improving
economic performance by our developing member countries. Not
every country can have, or even profit from, a detailed develop-
ment program, but every country can aspire to have a well-thought
J, out set of policies which will provide the conditions and motiva-
tions conducive to economic growth. This is more and more what
we find ourselves talking about with our member countries-fun-
damental policies to govern their day-to-day economic decisions.
We are able to talk about policies and policy changes not as inter-
lopers but as collaborators-and sometimes we give agreed policies
the final measure of support they need to tip the scales in their
favor in the councils of government.
* * *
In the Bank, we sometimes sum up our interests by saying, "The
"' country is the project." That being so, we take an interest in the
( total assistance effort, including what others are doing to assist de-
velopment in the country. In pursuit of this total view, we are
13
helping to conduct an experiment intended to lead to a better coor-
dination and use of external resources. This experiment brings to-
gether groups of countries and institutions, engaged in one form
or another of development finance, for the purpose of considering
jointly all the major problems in providing effective development
assistance for particular recipient countries.
So far there are coordinating groups of this kind for 1 3 recipi-
ents, and in the next few days, we expect to be establishing a group
for a fourteenth. The Bank is organizer and Chairman of ten of
them, soon to be eleven. As Chairman, the Bank assumes several
responsibilities: It periodically makes comprehensive reports on
the country's development possibilities and progress. It helps the
developing country to identify and prepare projects, or to obtain
the necessary technical assistance for doing so. It helps the govern-
ment to devise a development program, and advises on problems
of carrying out this program if it is asked to do so. It makes rec-
ommendations to the recipient government and to the members of
the consultative group about the sectors and projects that seem to
deserve priority in financing, and on the economic policies needed
to achieve agreed development objectives.
Finally, the Bank comments on the country's estimates of aid
requirements, making recommendations about the amount, types
and terms of aid that are appropriate. The consultative group,
nevertheless, is an example of what Dag Hammarskjold used to
call "freedom in unity," because actual aid commitments by mem-
bers of a consultative group are arranged directly between a donor
and the recipient.
While the consultative groups are a relatively new form of aid
coordination, they already clearly demonstrate some superiority
over uncoordinated bilateral aid. The coordinating group gains
from the services of the Bank as honest broker and expert adviser,
providing a realistic assessment of the recipient country's pros-
pects and performance, offering a guide for the amount and kind
of assistance the donor countries might render, and-by carrying
the main burden of collecting data-saving both rich and poor
countries much duplication or repetition of effort. Above all,
the process of consultation can effectively mesh external and inter-
nal resources, and can enable donor countries and the recipient to
move in consistent ways toward the same development targets. I
believe this is bound to lead to a decisive improvement in the qual-
ity both of external assistance and of economic performance by
developing countries themselves. Coordinating groups with which
the Bank is associated are now concerned with about two-fifths of
all development assistance from official sources.
One would suppose as the performance of the developing coun-
tries goes on improving, and as the techniques for development
assistance become demonstrably more effective, that the support
of industrialized countries for international development would
increase. In fact, this is not happening.
Most of the financing of development-about three-quarters of
it in fact-comes from the developing countries themselves, and it
is right and proper for them to be carrying the main responsibility
for investing in their own future. But the industrial countries are
not doing enough to enable the less developed nations to earn their
own way. The export earnings of the developing countries are
not keeping up with the general growth of world trade, and for-
midable barriers in the form of tariffs, quotas and other kinds of
hurdles stand in the way of their achieving a higher share of this
trade. The effective tariffs on imports from developing countries
are commonly from 20 to 40 per cent-a high margin in any case,
but extremely so since this protection is being afforded to mature
economies from economies which in many cases are still in their
infant years.
The seriousness of these barriers can be seen from the fact that
only six developing countries have markets larger in monetary
terms than the State of Connecticut. Almost I oo developing
15
countries have populations of less than 1 5 million, and of these,
two-thirds have less than five million. These small markets effec-
tively limit the possibility of development based on production for
the local market, yet up to now this has been the most common
policy aim, and I think the resource growth of both developed
and underdeveloped countries has suffered as a result.
Not only is the trade potential of less developed countries being
frustrated, but the amount of development finance flowing to these
countries is considerably less than they could effectively employ;
and it is considerably less than the industrialized countries could
reasonably afford-even by their own standards of what is an ap-
propriate basis for sharing a small part of their increasing wealth
with the poor countries.
Six years ago, the official net flow of financial resources from
the industrialized countries reached a level of about $6 billion a
year. Today, after five years of unprecedented prosperity in the
donor countries, the figure is about the same. Of the $200 billion
by which the production of the industrialized countries has grown
in that interval, none has been put at the disposal of the developing
countries through programs of assistance.
At a time when we should be making full speed ahead, develop-
ment assistance is in the doldrums. There is discouragement that
after 20 years of promise and exhortation, most of the world's poor
are only a little less poor. There is widespread skepticism about the
self-advantage to be had from aid; and there is a general tendency
to greatly underestimate the ability and capacity of the developed
to help the underdeveloped world. In truth, finance for develop-
ment abroad has no constituency to influence the executive and
legislative branches of governments.
Nevertheless, it is a happy and fortuitous circumstance that hu-
mans are humanitarian. As Adam Smith said, "How selfish soever
man may be supposed, there are evidently some principles in his
nature which interest him in the fortune of others, and render their
16
happiness necessary to him, though he derives nothing from it ex-
cept the pleasure of seeing it. Of this kind is ... compassion, the
emotion which we feel for the misery of others, when we either
see it, or are made to conceive it in a very lively manner ... "
But there are other strong motives for helping less developed
nations: the knowledge that more production in all developing
I
countries will mean more trade for everyone; the hope that to
:
make aid more effective now will more quickly bring the necessity
for it to an end; above all, the trust that in the long run, rising in-
come in developing countries may provide more room for the or-
'[ derly evolution of their political institutions and make more likely
the emergence of some sort of stable international order. "The
new name for peace is development."
r There is no danger that development assistance programs will
be abandoned. That is not the issue. The issue is whether the in-
dustrialized countries will do enough, do it in the right way, and
do it in time.
If the momentum of economic growth in the developing coun-
tries of Africa, Asia and Latin America is not speeded up, if leaders
,1 in these regions lose heart, then the prospect is for a rapid deteriora-
tion in world affairs that will inevitably become a matter of high-
est concern in the United States and other industrial countries.
Twenty years ago, when the crisis was faced in Europe, objectives
were jointly defined and plans were jointly made to achieve them.
In the case of the crisis in the developing world, no common plan
has yet been formulated.
What is now necessary, it seems clear, is that industrialized
I countries should give joint consideration at the highest level to
their policies of development finance. After 20 years of experience
,, -and this includes many frustrations-the time has come for a
thorough examination of the objectives they are trying to achieve
in their relationships with the developing world, of the importance
of those objectives to their own national interest, and of the ade-
11
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I
I
quacy of the resources, the mechanisms and the techniques which
are being employed to attain those objectives.
The kind of examination I have in mind would engage cabinet
ministers concerned with foreign policy and finance as well as
those more directly concerned with assistance programs. It would
seek to move the worldwide aid effort from its somewhat tenuous
and uncertain posture to a well thought-out and agreed-upon place
in the whole scheme of international affairs.
Since the beginnings of that effort, science, technology and the
means of creating material prosperity have advanced at a rate un-
precedented in history. We can say confidently that the knowl-
edge and the means exist to enlarge greatly the riches of the world,
to help many millions to escape hunger and to achieve, or at least
approach, decent living standards for the first time. What is needed
now are firm political decisions to carry out an intensive, sustained
and coordinated attack on underdevelopment, together with the
political will and stamina to stay the course.