Jeremy Warner: US Treasury Secretary sheds no tears for poor

Poorly performing countries should be treated like loss-making companies, regardless of social impacts, says Paul O'Neill
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The Independent Online

Doubt is not an affliction that Paul O'Neill, suffers from. Firm in his free market beliefs and unwavering in his optimism about economic prospects, the US Treasury Secretary has not let the events of 11 September change in any way his views on Third-World debt, overseas aid or the relief of poverty.

Over the past four days he has been preaching his message of self-help and economic discipline anew to participants at the World Economic Forum annual meeting in New York. Even among this audience of business leaders, entrepreneurs and bankers, his uncompromising views on the causes of poverty, and its cure, seemed hardly appropriate, and in some respects, outright crass.

It was hard to know whether to laugh or cry as the US Treasury Secretary strutted his stuff, and although Mr O'Neill has said it all before, his message seemed somehow callous for a city which is still struggling to come to terms with the tragedy of 11 September . Many said so privately. Davos had come to New York, but the reconciling spirit of Davos was no part of the US Treasury Secretary's agenda.

For Mr O'Neill, debt relief and most overseas aid is a waste of money. Sure there is a desire to do something about the state of the world, the more so since the terrorist attacks, but there is also a bigger priority, which is not to waste the taxpayer's money. Not that much is "wasted" by the United States, which contrary to popular opinion about the world's richest economy, spends just one-tenth of one per cent of its budget on overseas aid, much less than any other developed country.

For Mr O'Neill, even that's too much. The problem of Third-World poverty would not get solved by throwing money at it, he insisted. Instead, he bizarrely opined, the cure would come from using the power of "human imagination".

"You can only go so far with tears", Mr O'Neill explained in a number of rambling speeches on the subject. "Don't talk to me about compassion. I've seen with my own eyes babies born into the dust and I know about Africa.

We need to understand what we are doing before we start giving out grants. Human beings everywhere without exception have the ability to achieve the standard of living we have here. We have spent trillions of dollars on overseas aid, but we have precious little to show for it." Mr O'Neill is prone to exaggeration, and this was surely an example of it.

He added: "What we need to do is create the circumstances under which societies create their own wealth. Every society needs to become a wealth-generative organisation, not a consumer of other people's money. Putting these countries on welfare won't help anyone."

So how is the Third World going to make that leap? Simple. The gospel according to Mr O'Neill requires only imagination. That's what's been lacking and it has the power to transform the world. So on your bike, Third Worlders. Just imagine the impossible and it will happen.

Only, of course it won't. Mr O'Neill's views shouldn't be wholly dismissed. There's some truth in what he says, especially when it comes to the effectiveness of overseas aid.

The trouble with Mr O'Neill is that he thinks like the businessman he was. Apply the "can do" attributes of business to policy and the world economy, and all problems will eventually go away, Mr O'Neill naively believes.

Poorly performing countries should be treated like loss- making companies, without any apparent thought for the social, political, and economic consequences of such an approach. His prescription for Argentina at least has the merit of simplicity – cut off the money and let them stew.

Likewise, he has no time for those who complain about the penal rates of interest that developing and Third-World countries have to pay for their debt, if indeed they can borrow at all. "Poor doesn't mean uncreditworthy," Mr O'Neill lectured. "What the capital markets are telling us about Brazil," he said in response to an intervention from George Soros, the billionaire speculator and philanthropist, "is that they have too much corruption and insufficient rule of law. The markets are working as they should by grinding the standards."

Mr O'Neill listened with pained intensity as Bono, the Irish rock star who is campaigning on Third-World debt, tried to convince him that forgiving debt in the Third World does help in pulling countries out of their spiral of decline. "This age will be remembered for three things," Bono said with statesmanlike gravity, "the internet, the war on terror and how the West stood around with watering cans as a whole continent [Africa] burnt in flames".

But Mr O'Neill was not to be swayed. "The reason why the spread between those with privilege and those without it is so incomprehensively large," he replied, "is that we have lacked the imagination to see how everyone can live at our standards".

Still, on one thing Mr O'Neill's optimism is proving well founded. Mr O'Neill was ridiculed when he predicted in September that the US economy would grow in the final quarter, and he took some pleasure in pointing out that recent figures had proved him right.

There seem to be real signs of a pick-up in the US economy, and although the mood at the Waldorf-Astoria in Manhattan's mid-town, where the meeting is being held, is still downbeat America's capacity for boundless optimism was thick in the air.

Never mind the burgeoning current account deficit, the overvalued stock market, rising insurance and security costs, the still exceptionally high levels of corporate and personal debt and all the rest, the American economy is on its way back.

Meetings of the World Economic Forum have long been characterised by American triumphalism, and despite all that has occurred – the bursting of the technology bubble, the business downturn, 11 September and the Enron embarrassment – this one is no exception.

Most New Yorkers would say 11 September changed the world for ever, but perhaps the most striking feature of Davos in New York is quite how little has changed, even down to the upbeat John Chambers, chief executive of Cisco Systems, the internet routers group.

After the shredding of his stock price and profits, you'd have thought he'd be feeling just a little humbled. Not a bit of it.Mr Chambers, along with Bill Gates, Microsoft's chairman, say productivity gains seen during the last half of the Nineties were just the beginning.

Don't limit your ambitions to a 5 per cent productivity gain each year, which most companies would regard as spectacular. Just give Mr Chambers a call and he can help you achieve what he's gunning for in his own company – 15 per cent. There's no doubt about it. America is open for business again.