A Strategy for Economic Growth
2. Growth in Developing Countries is in the U.S. Interest
Development is critical for national security
Development is a pillar of U.S. national security. The 2002 National Security Strategy identified development – along with defense and diplomacy – as fundamental to U.S. foreign policy. It called for the United States “to actively work to bring the hope of democracy, development, free markets and free trade to every corner of the globe.” U.S. policy since then has reaffirmed this message. The 2006 National Security Strategy emphasizes that “Development reinforces diplomacy and defense, reducing long-term threats to our national security by helping to build stable, prosperous, and peaceful societies.”
Economic growth is essential for development
Economic growth provides the material basis for progress in all other dimensions of development. Rapid growth – as in South Korea and Taiwan since the 1960s, and in China, India, and Mauritius more recently – can lift a country from grinding poverty to relative affluence in a few generations. It is key to reducing and eventually eliminating extreme poverty, and an essential part of the solution to almost all other development challenges – from poor health and education to gender inequality and vulnerability to crisis. Growth also provides the only means for countries to generate the public and private resources they need to address these and other development challenges on their own, and thus to emerge from further dependence on foreign aid.
The benefits of economic growth are not only material. The Nobel Prize-winning economist Dr. Amartya Sen points out that the ultimate value of growth lies in expanding freedom: giving people greater choice over what they can do with their lives, from the material dimension at one extreme to the spiritual at the other. Similarly, Benjamin Friedman emphasizes the intangible, moral benefits of growth: “The value of a rising standard of living lies not just in the concrete improvements it brings … but in how it shapes the social, political and ultimately the moral character of a people.” Prosperity tends to make people more tolerant, more willing to settle disputes peacefully, more inclined to favor democracy; as political scientist Michael Mandelbaum observes, “Many studies have found that the higher a country’s per capita output, the more likely that country is to protect liberty and choose its government through free and fair elections.” 6 Economic stagnation and decline are associated with intolerance, ethnic strife, and dictatorship – complex relationships that can run in both directions.7 Recent research points to the positive impact of economic freedom on peace, concluding that economic freedom significantly reduces violent conflict.8
Economic growth promotes other U.S. interests
Economic growth and development promote U.S. interests on many fronts:
- The broad political interest of the United States in a prosperous, well-functioning community of nations that cooperate to address global issues and concerns;
- Our humanitarian interest in reduced poverty and suffering, including those caused by man-made and natural disasters. Countries that grow experience a decline in the prevalence of poverty, while gaining greater capacity to care for those who remain in need, whether chronic or transitory.
- Our economic interest in an open and expanding world economy. Growing economies offer better markets for U.S. goods and services than those that are stagnant or declining.9 Projecting recent trends, developing countries will become a larger market for U.S. products than industrial countries by 2011.
- The improved living standards we experience from imports of goods and services that can be produced at lower cost abroad; and
- Our economic security interests in having reliable sources of supply for key resources, for which growing economies with stable, accountable, and representative governments are much preferable to corrupt or potentially unstable sources of supply.
Poor countries that fail to grow can pose serious problems for the U.S. and the world. They are prone to political crises, including state failure and recurrent civil wars – especially in countries experiencing a “bulge” of young people who find few opportunities in a stagnant economy, making it easy to recruit them into rebel armies. Economically stagnant countries can also harbor terrorist activity, are more vulnerable to the impact of natural disasters, and make large claims on U.S. and international resources. Countries that stagnate or decline are less able and sometimes less willing to help address global and transnational issues – issues that often originate within their borders, including illegal migration; trafficking in narcotics, weapons, and persons; health threats such as HIV/AIDS and avian flu; and environmental problems such as deforestation and loss of biodiversity.
For all these reasons, achieving more rapid, more sustained, and more broadly based economic growth is important to help developing and transition countries secure more prosperous, peaceful, and healthy futures, and to help the United States secure its own future in turn. This Strategy focuses on how USAID can best contribute to these outcomes.
7 Friedman (2005), Collier (2007).
8 Fraser Institute (2005).
9 Since 1984, the share of exports in overall U.S. GDP has doubled; and the share of developing countries in U.S. exports has risen from 36% to 45%.
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