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Aid, Trade and
Development
Second Edition
The Future of
Globalization
Constantine Michalopoulos
Aid, Trade and Development
“This is a very well written book, technically sound, and a great source of
material for anyone who wants to understand the factors that have shaped
much of international economics for the past half century. This new edition
adds useful perspective on the implications of the new challenges facing
developing countries as a result of the pandemic and increased unilateralism
and protectionism in the North. More tellingly, Michalopoulos writes with
passion on developments that he knows very well and cares deeply about.”
—K.Y. Amoako, President of the African Center for Economic
Transformation, Ghana
“In this new edition, Michalopoulos adds valuable new insights on critical
current issues, making his panoramic overview of the global economy even
more incisive.”
—Danny Leipziger, Professor of International Business and International
Affairs, George Washington University, United States
“As its predecessor, this book is coolly realistic and solidly grounded on empir-
ical evidence. But it also offers a vision of the policies required to reverse the
troublesome changes of the last few years, while at the same time recognizing
the imperative of greater inclusiveness of groups and countries left behind by
the earlier globalization waves. Both the analysis and the vision outlined by
Michalopoulos will contribute substantially to the international debate and
actual initiatives on international trade and on development prospects of poor
countries.”
—Salvatore Schiavo-Campo, former Senior Adviser at the Asian Development
Bank, Philippines, author of Running the Government
“Getting aid and trade policy to support sustainable development is not easy.
Michalopoulos’ new book tells the story of past progress and failures over
the last half century. In recent years we have gone backwards. The author
argues that the global community should live up to its commitments to help
end global poverty and that we cannot prevent disastrous climate change and
ecological collapse without a renewed commitment to multilateral coopera-
tion. Developing countries must receive the support promised in Glasgow at
COP26. The book is readable and authoritative. If we are to do better, we
must build on the lessons of the past and this volume will help enormously.”
—Clare Short, former Secretary of State for International Development,
United Kingdom
Aid, Trade
and Development
The Future of Globalization
Second Edition
Lusby, MD, USA
ISBN 978-3-030-96035-3 ISBN 978-3-030-96036-0 (eBook)

https://doi.org/10.1007/978-3-030-96036-0
1st edition: © The Editor(s) (if applicable) and The Author(s) 2017
2nd edition: © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer
Nature Switzerland AG 2022
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To Eveline whose unwavering commitment to a just economic order and
democratic institutions is a continuing inspiration
Preface
The idea of writing this book first came to me about a decade ago. At
that time, I had written Migration Chronicles, a semi-autobiographical
volume, and several friends had said: “Nice book, but what did you actu-
ally do in those jobs you had?” So, I thought that at some point I would
write something which focused on the various development policy issues
involving aid, trade, and development with which I grappled in various
positions with the World Bank, USAID, and WTO.
I was lucky that I was involved in a small way in policymaking on the
major issues of the period from the late 1960s to the early twenty-first
century: addressing the impact of the OPEC oil price rise in the early
1970s, the development of a basic human needs aid strategy in the late
1970s, the debt crisis, the “Washington Consensus” and “Adjustment
with a Human Face” of the 1980s, the collapse of the Soviet Union and
the birth of the WTO in the 1990s; and later in the decade 2000–2010
with continued involvement on these issues as a consultant to European
aid agencies like the UK’s DFID, Sweden’s SIDA, and Germany’s GTZ.
In the fall of 2015 when, after 50 years, I finished my professional
career teaching a course on International Trade and Development at
vii
viii Preface
the School of Advanced International Studies (SAIS) of Johns Hopkins

University, I thought I may take up the idea of writing a book detailing
my professional experience.
Very soon it became clear that the material I had collected plus my
own publications would not do justice to the complex issues that I had to
address. Much more research was needed. Laura Pacey, Commissioning
Editor at Palgrave/ MacMillan at the time, was extremely supportive and
I was offered a contract for the first edition of this volume in the summer
of 2016.
As I was writing the world around me continued to change: Brexit
was being negotiated but had not yet happened, populism was on the
rise in Europe and the US, and strident protectionist, anti-globalization
voices were everywhere. I felt that I should address more explicitly
the issue of globalization which the institutions in which I had been
working had actually promoted—not explicitly but implicitly, through
the encouragement of open trade and capital flows.
The resulting volume Aid, Trade and Development: Fifty Years of Glob-
alization was published in late 2017. The volume was well received. But
over the next several years a lot of the fears—which I had entertained but
was unwilling to openly admit—came to pass. Populism became stronger
on both sides of the Atlantic: Brexit occurred, the Trump Administra-
tion led the US down a nationalist, anti-democratic path, and nativist
and autocratic tendencies emerged in many parts of Europe. At the same
time, China started to turn inward and take more anti-democratic steps
both domestically and in Hong Kong.
And then in 2020 COVID-19 happened, and the world is no longer
the same. While a great deal of the historical analysis on the role played
by aid and trade in globalization and development was still valid, the last
part of the volume which talked about the future was obsolete. Palgrave
agreed that a new volume was needed which considered the momentous
changes of the last few years including those brought by the pandemic
and looked ahead to addressing climate change and the new challenges
facing humanity.
The result is this new second edition. The first half of the volume,
which discusses developments until 2008, is essentially the same as
in the first edition, with several of the tables and other information
Preface ix
updated. The middle three chapters dealing with the past decade have
been substantially rewritten to reflect more recent perspectives. The last
part of the volume is completely new: it reviews the pandemic experience
and its impact on sustainable development and makes recommendations
on how to address the challenges of the future, a future which looks
more uncertain than a few years ago: These include actions to deal with
future pandemics, addressing climate change, working to make global-
ization more just and equitable, and promoting longer term sustainable
global development. As the volume was going to print Russia invaded
Ukraine adding another great uncertainty to the future world order. The
last chapter ends with a call for a revival of multilateralism, as both
the pandemic and climate change have reminded everybody that global
problems can only be addressed through global multilateral action.
Lusby, USA Constantine Michalopoulos

Acknowledgments
This volume could not have been completed without a great deal of help
and advice from friends and former colleagues. I am grateful to very
many of them who over the years influenced my thinking about aspects
of aid, trade, and development, but were not involved in the writing of
this volume or its previous edition.
Special thanks are reserved for a group who devoted a lot of effort,
some to provide material, others to correct my mistakes, add perspec-
tives, and actually change my views by reading and commenting on one
or several chapters or the whole of the first edition of this volume whose
contribution continues as this edition contains a good deal of material
from the old one. These include Masood Ahmed, K. Y. Amoako, Michael
Crosswell, John Eriksson, Ruth Jacoby, Hilde Johnson, Danny Leipziger,
Ira Lieberman, James Michel, John Nellis, Donal Donovan, George
Papaconstantinou, Salvatore Schiavo-campo, Alexander Shakow, Clare
Short, David Tarr, George Tavlas, and Heidemarie Wieczorek-Zeul.
And then there was a somewhat smaller very special group who perse-
vered and continued to help with this second edition. Clare Short
read and commented on the whole volume, while K. Y. Amoako,
xi
xii Acknowledgments
Danny Leipziger, Salvatore Schiavo-Campo, and Maureen Lewis read

and commented on the new and rewritten chapters. Ron Keller and
Marina Ponti provided comments and speeches
This book could not have been done without the contributions of
Zhangrui Wang, who did an excellent job in developing all the statis-
tical work and tables for the first edition but whose work is still included
in this version; as well as Nicholas Papoulias who did an equally great
job in updating the old tables and preparing several new ones for this
edition. Loukas Tsoukalis and Dimitris Katsikas of the Hellenic Foun-
dation for European and Foreign Policy have also provided help in this
project including organizing a seminar on the first edition of this volume.
I reserve my greatest thanks for Eveline Herfkens, my long-time
partner in life and work who has read and commented on all my recent
books and has been an important influence on my thinking about the
role of aid and trade on sustainable development. She has contributed her
own valuable experience, speeches, publications, and research materials
that were critical to developing the story about aid and development in
the two decades 1990–2010, which she and her soul mates in the Utstein
group had a hand in making. And she influenced greatly the sections on
climate and the environment, an important addition to this new edition.
Thanks are also due to the IMF for permitting me to reproduce
certain passages of my article “World Bank Programs for Adjustment
and Growth” in Vittorio Corbo, Morris Goldstein and Mohsin Khan
Growth Oriented Adjustment Programs; to the World Bank for letting me
reproduce Table 1.8 from Global Economic Prospects 2002; to FAO, UN
and the World Bank for letting me reproduce a table that they prepared
which was published as Table 2.7 in the World Bank’s 1988 Report on
Adjustment Lending Ten Years of Experience; to Oxford University Press
for permitting me to reproduce certain passages from my book Ending
Global Poverty: Four Women’s Noble Conspiracy. All remaining errors are
my responsibility.
Contents
1 Introduction 1
2 Growth Constraints, Aid Targets, and Basic Needs 9
3 Export Pessimism and the Neoclassical Revival 35
4 Debt and Adjustment: Muddling Through 55
5 The Collapse of Planning and the Troubled
Transition 97
6 The Birth of the WTO 133
7 The Many Faces of Globalization 173
8 Millennium Aid, Trade, and Development 217
9 Liberalism in Retreat 251
10 Sustainable Development Goals 295
11 The Rise of Populism and Anti-Globalization 313
12 The Plague Years 341
xiii
xiv Contents
13 Toward an Equitable Re-Globalization 359

14 Reviving Multilateralism 393
Index 419
About the Author
Constantine Michalopoulos has worked on and written about

economic development for more than half a century. Between 1982–
2001 he was a senior official at the World Bank. Before that he was Chief
Economist of the US Agency for International Development. Between
1997–1999, he served as Special Advisor at the WTO. Following his
retirement from the World Bank he served as a development advisor
to governments and international organizations including the IMF,
UNCTAD, the EU Commission, GTZ and the UK DFID on interna-
tional trade, finance, and development. Most recently he was appointed
Senior Advisor at the Hellenic Foundation for European and Foreign
Policy, in Athens, Greece. He has also taught economics at several US
universities, and is the author of several books and over 100 articles and
monographs. Dr. Michalopoulos is a graduate of Athens College and
holds a PhD in economics from Columbia University in New York City,
USA.
xv
Also by Constantine Michalopoulos
Aid, Trade and Development: 50 Years of Globalization (1st Edition, 2017)

Emerging Powers in the WTO (2014)
Developing Countries in the WTO (2001)
xvii
Acronyms
AB Appellate Body
ACET African Center for Economic Transformation
ACFTA African Continental Free Trade Area
ACP African Caribbean and Pacific
ACWL Advisory Centre on WTO Law
ADB Asian Development Bank
AFT Aid for Trade
AGOA African Growth and Opportunity Act
AHDI Adjusted Human Development Index
AHF Adjustment with a Human Face
AID Agency for International Development
AIIB Asian Infrastructure Investment Bank
AITIC Agency for International Trade Information and Cooperation
AMS Aggregate Measures of Support
ASCM Agreement on Subsidies and Countervailing Measures
BHN Basic Human Needs
BRICS Brazil, Russia, India, China, South Africa
BWI Bretton Woods Institutions
CCRT Catastrophe Containment and Relief Trust
CEE Central and Eastern Europe
xix
xx Acronyms
CFC Common Fund for Commodities

CGD Center for Global Development
CIEC Conference for International Economic Cooperation
CIS Commonwealth of Independent States
CMEA Council for Mutual Economic Assistance
COMESA Common Market for East and Southern Africa
COVAX Vaccines Global Access
CSO Civil Society Organization
DAC Development Assistance Committee
DFQF Duty Free, Quota Free
DSB Dispute Settlement Body
DSM Dispute Settlement Mechanism
DSSI Debt Service Suspension Initiative
EAC East African Community
EAEU Eurasian Economic Union
EBA Everything But Arms
EBRD European Bank for Reconstruction and Development
ECB European Central Bank
EDME Emerging and Developing Market Economies
EFF Extended Fund Facility
EIF Enhanced Integrated Framework
EMENA Europe, Middle East and North Africa
ESM European Stability Mechanism
EU European Union
FAO Food and Agriculture Organization
FCDO Foreign, Commonwealth and Development Office
FCO Foreign and Commonwealth Office
FDI Foreign Direct Investment
FSU Former Soviet Union
FTA Free Trade Agreements
GATS General Agreement of Trade in Services
GATT General Agreement on Tariffs and Trade
GAVI Global Alliance for Vaccines and Immunization
GPEDC Global Partnership for Effective Development Co-operation
GSP Generalized System of Preferences
HDR Human Development Report
HLPF High-Level Policy Forum
ICT Information and Communications Technology
IDA International Development Association
Acronyms xxi
IDB Inter-American Development Bank

IDS International Development Strategy
IDT International Development Targets
IFAD International Fund for Agricultural Development
IFC International Financial Corporation
IFI International Financial Institution
IFPRI International Food Policy Research Institute
ILO International Labor Organization
IMF International Monetary Fund
IPO Initial Public Offering
ITA Information Technology Agreement
ITC International Trade Center
LDC Least Developed Country
MDBs Multilateral Development Banks
MDG Millennium Development Goals
MDTF Multi-Donor Trust Fund
MEBO Management–Employee Buyouts
MFA Multi-Fiber Arrangement
MFN Most Favored Nation
MNC Multinational Corporation
MPIA Multiparty Interim Appeal Arbitration Arrangement
MSA Most Seriously Affected
NAFTA North-American Free Trade Agreement
NAMA Non-Agriculture Market Access
ND New Democracy
NGOs Non-Governmental Organizations
NTBs Non-Tariff Barriers
NTMs Non-Tariff Measures
ODA Official Development Assistance
OECD Organization for Economic Cooperation and Development
OOF Other Official Flows
OPEC Organization of Petroleum Exporting Countries
OPIC Overseas Private Investment Corporation
PEPFAR President’s Emergency Plan for AIDS Relief
PFP Policy Framework Paper
PPE Personal Protection Equipment
PRSPs Poverty Reduction Strategy Papers
PSI Private Sector Involvement
PTAs Preferential Trade Agreements
xxii Acronyms
RCEP Regional Comprehensive Economic Partnership

RTA Retroactive Terms Adjustment
SADC Southern Africa Development Community
SAL Structural Adjustment Loan
SDG Sustainable Development Goal
SDR Special Drawing Right
SDT Special and Differential Treatment
SECALs Sectoral Adjustment Loans
SOE State Owned Enterprise
SPS Sanitary and Phytosanitary Measures
SSA Sub-Saharan Africa
STRI Services Trade Restrictive Index
TBT Technical Barriers to Trade
TFA Trade Facilitation Agreement
TPP Transpacific Partnership
TPRM Trade Policy Review Mechanism
TRIMS Trade Related Investment Measures
TRIPS Trade Related Intellectual Property Rights
TTIP Transatlantic Trade and Investment Partnership
UN United Nations
UNCTAD United Nations Conference on Trade and Development
UNDP United Nations Development Program
UNECA United Nations Economic Commission for Africa
UN ECOSOC United Nations Economic and Social Council
UNESCO United Nations Education Scientific and Cultural
Organization
UNICEF United Nations Children Fund
USAID United States Agency for International Development
USMCA United States Mexico Canada Agreement
USSR Union of Soviet Socialist Republics
VNR Voluntary National Review
WHO World Health Organization
WTO World Trade Organization
List of Tables
Table 2.1 ODA Performance of DAC Countries 1970–2020

(in $ million and %GNI) 17
Table 3.1 World merchandise exports by country group
and region, 1970–2020 43
Table 4.1 GDP per capita annual growth (in percent per annum) 62
Table 4.2 Social indicators in the 30 adjustment lending
countries 78
Table 5.1 World Bank projects in Russian Federation
1992–1998 111
Table 5.2 Scope of privatization 1999, 2014 and method used 115
Table 6.1 Bound and applied tariffs in developing countries 145
Table 6.2 Sectoral Service Trade Restrictiveness Indices (STRI)
in developing countries 151
Table 7.1 Poverty in developing countries 1990–1999 178
Table 7.2 GDP annual growth 1970–2020 (in percent
per annum) 182
Table 7.3 Total net flows from DAC countries by type of flow
1970–2019 (in $million and percent of total) 199
Table 9.1 Total net flows from DAC countries by type of flow
2003–2019 255
xxiii
xxiv List of Tables
Table 9.2 Poverty in the twenty-first century in millions of poor

and percent 287
Table 12.1 Global GDP growth 2019–2022 348
1
Introduction
Developing countries have made tremendous progress in reducing

poverty in the last fifty years. More open societies and more open
economies have contributed to this progress as has international coopera-
tion in support of economic development. In the aftermath of the 2008
financial crisis, however, nationalist and populist movements in devel-
oped countries have introduced policies that reduce the effectiveness of
aid programs, increased trade protectionism and hindered international
migration, thereby undermining the prospects for sustainable global
development. These developments, combined with an increasing US-
China rivalry and the Russian invasion of Ukraine have weakened multi-
lateralism and the institutions set up in the post-World War II period
to promote peace and address global problems, such as the Covid-19
pandemic, climate change, and persistent poverty and inequality.
This volume analyzes foreign aid and international trade policies and
their impact on economic development and poverty eradication in the
last half-century. This is followed by a review of the emergence of anti-
globalization forces, their causes, and implications. The last part discusses
the impact of the COVID-19 pandemic on the global economy, the
future of globalization, and the challenges faced by the international
© The Author(s), under exclusive license to Springer Nature 1
Switzerland AG 2022
C. Michalopoulos, Aid, Trade and Development, Second Edition,
https://doi.org/10.1007/978-3-030-96036-0_1
2 Constantine Michalopoulos
community in assisting developing countries achieve the Sustainable

Development Goals (SDGs) and in particular poverty eradication and
sustainable development.
The policy review is by necessity selective in coverage, and broad-
brush in approach. The enormity of the task prevents many details
and nuances. The focus throughout is on poverty eradication (SDG1),
although, education targets are frequently addressed and the later chap-
ters also discuss problems of the environment and climate change. Some
important issues such as gender and the recent advances in artificial intel-
ligence are largely left out. Long-term demographic changes also have a
bearing on patterns of development and migration but are discussed only
briefly. In this broad canvas, there will be a few light sprinkles of paint
reflecting my own writings and work as I was fortunate to have been
involved in a small way in many of the important events that shaped
sustainable development until the Millennium.
The narrative is roughly chronological but with many recurrent
themes. In the mid-to-late 1960s, the world was in the middle phase
of globalization of the modern era, with the sum of exports and imports
around 20% of world Gross Domestic Product (Baldwin 2016). Devel-
oping country attitudes toward international trade and foreign invest-
ment, were mostly negative. Demand prospects for primary commodities
that constituted the bulk of developing country exports were dim.
The predominant view was that development required import substi-
tution and industrialization behind strong protective walls of tariff and
non-tariff barriers. Many developing countries viewed foreign direct
investment with suspicion. Other private capital flows were virtually
non-existent. The US and the Soviet Union were using foreign aid in
competing for the hearts and minds of the public in the so-called Third
World, while Europeans were channeling most of their aid to former
colonies. The World Bank was only financing infrastructure projects and
UN assistance was in its infancy.
Chapter 2, which follows this introduction, discusses the early
thinking about the role aid can play in development, including the idea
that aid increases investment and contributes to growth by providing
access to foreign exchange, which was thought to be in scarce supply
at early stages of development. The popularity of the latter notion is
1 Introduction 3
explained in part by the pessimism about the prospects for developing

country exports, the topic of Chapter 3.
Over time there was a reaction to both early notions. On the aid
side, there was increasing concern that the focus on aid volume ignored
questions of aid effectiveness and, in particular, questions about who
benefited from the assistance programs. In turn, this led to a discussion of
how to use aid to address more explicitly the needs of the poor. On the
trade side, Chapter 3 discusses evidence that developing country trade
policies played a significant role in bringing in foreign exchange and
that countries whose trade policies did not discourage exports tended
to have a stronger growth performance. These considerations led many
developing countries to reevaluate their trade policies and adopt more
outward-looking strategies resulting in greater integration into the global
economy in later periods. Chapter 3 also raises for the first time the issue
of incoherence between developed country aid and trade policies as they
affect development.
The oil price increases in the 1970s led to increasing debt burdens for
many oil-importing countries combined with demands for the establish-
ment of a “New International Economic Order” based on the increased
economic power of commodity and energy exporters joined through
international agreements. Little came of the latter efforts. But the oil
price increases left a large debt burden for many developing countries,
which, combined with a lack of international action to provide relief,
doomed their economic prospects in the 1980s. Chapter 4 addresses the
impact of the successive oil price increases of the early and late 1970s
on developing country prospects and their implications in raising their
international debt burden, another less attractive aspect of globalization.
The chapter then discusses the so-called “Washington Consensus” and
analyzes the long and tortuous efforts of the international community to
come to grips with the problems of two sets of countries: highly indebted
middle-income countries whose international indebtedness was primarily
to commercial banks in the developed world and the highly indebted
low-income countries (HIPC) whose debt was primarily to official bilat-
eral and multilateral donors. This muddling through approach, in the
end, produced the “Brady bond” and HIPC debt forgiveness schemes
which, however, did not prevent extended stagnation for many countries.
The following three chapters address three key developments of the

1990s: Chapter 5 analyzes the breakup of the Soviet Union and the
troubled transition from plan to market which resulted in more open
societies and economies both in the fifteen new states and in Central
and Eastern Europe (CEE), but also created great short-term costs. The
fifteen new states that emerged from the former Soviet Union had to
become members of World Bank and the IMF as did some of the CEE
countries (while others had to reactivate their membership) in order to
receive much needed assistance. A new international economic order did
come about in the 1990s but of a very different kind than that sought
by the developing countries in the 1970s.
Chapter 6 discusses the birth of the WTO, a new multilateral trade
organization whose establishment has had significant implications for the
conduct of international trade in both goods and services as well as intel-
lectual property rights and other “behind the border” regulations that
impact all countries’ trade. Over time, stronger growth performances of
export-oriented developing countries, especially in Asia, led to a more
active developing country participation in the new organization and a
generally more positive view of the impact of trade on development,
though concerns continued to linger about its impact on poverty.
Chapter 7 addresses issues of poverty and globalization. The end of the
Cold War permitted a greater focus of economic assistance on develop-
ment, as well as on ways of making assistance more effective in addressing
poverty. The chapter also assesses the performance of different developing
country groups in reducing poverty and the attitudes of their public
toward the onset of globalization. At the time, discourse about global-
ization was mostly fearful: with the exception of East Asia, there was a
general unease that globalization will benefit only a few countries, or a
few elites while moving forward at a faster pace than most of humanity
can cope with. In the developed world increases in inequality fueled
the discontent with globalization. At the same time, there was aware-
ness that exogenous forces involving technological change are pushing
globalization inexorably forward, and hence there was fear of being left
behind—of becoming further marginalized.
1 Introduction 5
Rapid technological change combined with expansion of trade and

private capital flows in the 1990s and the early years of the twenty-
first century resulted in the massive spread of globalization throughout
the developing world with trade reaching and exceeding 50% of global
GDP. Chapter 8 looks at aid and trade at the turn of the century, a
period of rapid growth of trade and GDP, large reductions in poverty,
the emergence of China as a global power, and many new international
agreements aimed at improving the effectiveness of economic assistance
and liberalizing trade. Most notable of these agreements was the Millen-
nium Declaration and the subsequent global commitment to achieve the
Millennium Development Goals (MDGs).
The overall theme that emerges from this retrospective is that both
trade and aid can benefit development and poverty eradication, but
whether they do depends very much on the presence of other coherent
supportive policies in both developed and developing countries. In
particular, there is a need for coherence between developed country aid
and trade policies; there is a need for overall coherent domestic strate-
gies for development in developing countries for trade and aid to have a
beneficial impact on reducing poverty and promoting sustainable devel-
opment, and there is a need for effective international collaboration to
achieve these objectives.
Following the 2008 financial crisis, attitudes toward globalization
shifted. In the 1990s, the developing world was much more fearful.
In the aftermath of 2008, reactions have been mostly negative in the
developed world. Anti-globalization sentiment has given rise to populist
movements with agendas to raise trade protection, reduce foreign aid,
and limit migration. These movements have emphasized bilateral rela-
tionships and undermined the principles of multilateralism that are
fundamental to the operation of global institutions. Chapter 9 points to
a worrisome trend of increasing protection, only modest achievements in
further trade liberalization, backtracking on commitments to increase aid
and its effectiveness; and, most disturbing, the rise of anti-globalization
populism in the US and Europe which threatens the core principles on
which international cooperation on trade and economic assistance had
been based for the past half century.
The post-2008 slowdown in trade, finance, and growth of the world

economy decelerated but did not stop developing country progress.
Building largely on the momentum gained in the early 2000s, devel-
oping countries achieved considerable progress in reducing poverty and
achieving the other MDGs. In the fall of 2015, there was sufficient
momentum left in multilateral cooperation to permit the UN to adopt
a new set of goals for the world community to achieve by the year 2030.
Chapter 10 discusses the Sustainable Development Goals, their design,
and progress and challenges in their attainment until 2019, just before
the pandemic.
By 2016, the clouds of inward-looking populism and nativism had
already darkened the prospects for global cooperation. Chapter 11
assesses the merits of the anti-globalization arguments as they relate to
international trade, immigration, and capital flows, including aid. The
last part reviews the experience of two populist take-overs, in the UK
and Greece, and their broader lessons and implications for sustainable
development.
Chapter 12 discusses the impact of the Covid-19 pandemic on the
global economy and the prospects for achieving the SDGs. The analysis
discusses the sharp short term economic contraction which re-enforced
anti-globalization attitudes, the strong but very uneven rebound that has
increased inequalities both within and among countries, as well as the
attendant uncertainties about the near-term future. It also presents some
preliminary considerations on the pandemic’s longer term effects both on
the lives of individuals and the broader sustainable development goals.
Chapter 13 looks ahead at the future of globalization and presents
recommendations on the global actions needed to establish a more just
re-globalization. These involve actions in several fields to (a) strengthen
the social safety nets in both developed and developing countries; (b) deal
with the effects of rapidly changing technology; (c) reduce the monopoly
power and establish a system of more equitable and uniform taxation
of MNCs; (d) cope with the refugee crisis; and (e) restore the effec-
tive functioning of the WTO. Russia’s invasion of Ukraine has created
new uncertainties about future developments in trade and finance, the
prospects for globalization and an emerging new economic world order.
1 Introduction 7
The last chapter focuses on the steps the global community has to
take to provide economic assistance to developing countries to meet
the challenges of achieving longer term sustainable development. These
include short-term assistance to offset the pandemic’s economic disrup-
tion, including measures to deal with the mounting debt problems of
HIPC, and strengthening global institutions such as the WHO, to enable
it to anticipate and cope with future pandemics. Additional actions
are needed by developed countries to honor their existing commit-
ments to help developing countries with climate change as well as take
any further steps needed to promote decarbonization and address the
emerging climate crisis. Finally, it is important to refocus the inter-
national community on the continuing developing country needs for
assistance to eradicate poverty, reduce inequality, and achieve the SDGs.
Taking all these actions requires intensive international collaboration
and a revival of multilateralism. The pandemic has reminded everybody
that global multilateral action is needed to deal with global problems
irrespective of the economic systems that prevail in different countries.
International collaboration must take into account the new economic
reality of a large and dynamic China, a territorially aggressive Russia and
the political reality that in the absence of effective systems to support,
those left behind by globalization and technology will continue to be
vulnerable to protectionist, isolationist movements. The experience of
the last fifty years strongly suggests that only a vibrant, multilateral
system provides humanity with the best chance of meeting the chal-
lenges of tomorrow, achieving the SDGs and building a more resilient
and inclusive world.
Reference
Baldwin, R. (2016) The Great Convergence: Information Technology and the New
Globalization, (Cambridge, MA: Belknap).
2
Growth Constraints, Aid Targets,
and Basic Needs
Introduction
Government-to-government economic assistance programs on conces-
sional terms that aim to promote the development of the recipient is
a post-World War II phenomenon, although there were occasional offi-
cial loans and other assistance in earlier periods. Most consider that
aid started with the US Marshall Plan in 1947.1 In 1960, the Devel-
opment Assistance Group of the Organization for European Economic
Co-operation (OECD, which included European recipients of Marshall
Plan aid and the US) was set up to exchange information on members’
aid activities in developing countries. In 1961, upon the establishment
of the OECD, the Group became the OECD Development Assistance
Committee (DAC). Its mandate is “to consult on the methods for
making national resources available for assisting countries and areas in
the process of economic development and for expanding and improving
the flow of long term funds and other development assistance to them”
(Fuhrer 1996, p. 10).
During these early years, the US provided the bulk of foreign aid
from the OECD countries, about 55% of $3.8 billion in 1957. But 15
© The Author(s), under exclusive license to Springer Nature 9
Switzerland AG 2022
C. Michalopoulos, Aid, Trade and Development, Second Edition,
https://doi.org/10.1007/978-3-030-96036-0_2
other OECD countries were also providing assistance in the late fifties
with France and the UK being the major other donors primarily to
former colonies and territories. The Netherlands also launched a tech-
nical assistance program early, in 1949. But for a long time, it provided
assistance only through the UN or other multilateral agencies. The Soviet
Union and other socialist countries were also providing economic assis-
tance to developing countries during this period, whose amount was hard
to quantify but was estimated at roughly a tenth of the OECD total
(OECD 1969, p. 294).
Aid comes in different forms and on different terms. The definition
used in this book includes Official Development Assistance, (ODA)
which is defined to include assistance from the donor’s public sector
for developmental purposes, net of repayments of capital with a grant
element of at least 25%.2 It will also include flows from the World
Bank’s International Development Association (IDA) and other Multi-
lateral Development Banks (MDBs) “soft” windows which are extended
on ODA terms. Other official flows (OOF) from these institutions which
are on harder terms (interest rates and maturities) than ODA but softer
than what can be obtained in the private capital markets as well as other
official flows from bilateral donors which do not qualify as ODA are
measured separately and exclude credits from the IMF.
Developed country aid objectives have always been very complex.
Political/security objectives and pursuit of domestic economic and
commercial interests, sometimes very narrowly defined often combine
and dominate the promotion of development or global humanitarian
objectives. In earlier periods, the objective of US agricultural commodity
assistance under the so-called Public Law 480 was as much disposing
of US agricultural surplus commodities as helping feed poor people in
the developing world. New donors’ assistance, especially from China is
often closely linked to projects aimed at increasing China’s access to raw
materials. And even today about 20% of bilateral aid programs are tied
to procurement in the donor reducing substantially their value to the
recipient.
Multilateral assistance which is usually untied by source tends to
be less dominated by narrow commercial considerations of the major
donors. Some donors nevertheless include procurement staff among their
representatives at the World Bank in order to help them obtain a “fair

share” of the procurement. Political/security objectives were explicitly
paramount in certain bilateral US programs until the collapse of the
Soviet Union, but also today in the Middle East and elsewhere. The allo-
cation of bilateral aid in the UK and France has been tilted in favor of
former colonies. And the Dutch aid program, though originally chan-
neled through the UN technical assistance program was viewed as an
“excellent source of employment for the many tropical experts who risked
losing their jobs as a result of decolonization” (Nekkers and Malcontent
1999, p. 12). Albert Hirschman in a classic early paper called “Foreign
aid as Janus-faced an institution as can be found. In a world of sovereign
nations, rich and poor, it is an instrument of national policy which can
be used by the rich to acquire influence and to increase their power. At
the same time, foreign aid redistributes income from the rich to the poor
and can thus serve to speed the latter’s development” (Hirschman and
Bird 1968, p. 3).
The complexity of donor policy objectives and the multiplicity of
actors make an assessment of the effectiveness of aid in promoting devel-
opment extremely difficult. A great deal depends on the individual donor
and recipient. Still, over the last half century enough experience has
been accumulated on what works and what does not to develop some
consensus about the basic principles of aid’s development effectiveness.3
This chapter will attempt to trace the evolution in this thinking starting
with the very simple notions of the 1950s and 1960s to about 1980.
Considerable attention will be paid to US and World Bank assistance
programs partly because of my greater familiarity with the programs of
these two institutions and partly because of their relative importance in
the early years both in the evolution of thinking about aid and in the
volume of their assistance: in 1970, US net ODA was still about 40% of
total ODA. In 1980 World Bank Loan and Credit Commitments were
more than 60% of total multilateral commitments.
Development Constraints
Early thinking about economic development stressed the role of accu-
mulation of physical and human capital. Thus, the role of aid focused
on its potential in helping recipients address constraints on capital accu-
mulation that inhibited their development. In terms of physical capital,
aid could help countries break the vicious circle of poverty: their low
real incomes were thought to result in a low capacity to save; “their
low real income is a reflection of low productivity, which in turn is
due largely to the lack of capital. The lack of capital is a result of the
small capacity to save, and so the circle is complete” (Nurkse 1967, p. 5).
There was also an awareness that weaknesses in institutions and infras-
tructure create limits in the capacity of the recipient to absorb capital
efficiently (Nurkse 1967, p. 95). Thus, the absorptive capacity constraint
and its impact on the productivity of investment and, hence its relation
to the savings constraint, was identified as an important issue (Little and
Clifford 1966).
On the human capital side, aid could help developing counties
strengthen educational systems as well as set up institutions that would
develop and adopt appropriate technologies that would enhance produc-
tivity, especially in sectors such as health and agriculture. Very little
attention was initially paid to recipients’ policies, how the aid will be used
or who will benefit from it. Most support was devoted to financing indi-
vidual projects or the provision of bilateral technical assistance through
experts usually provided by the donor.
In the early sixties, continued pessimism about developing country
export prospects (see below Chapter 3) and recognition of the impor-
tance of imports needed to finance additional domestic capital forma-
tion, led to the development of the so-called two-gap model. In the
basic Harrod–Domar model (Hicks 1965), growth depends on the rate
of savings and a measure of capital productivity. Hollis Chenery his
colleagues in the US Agency for International Development (USAID)
and others (Chenery and Strout 1966; Adelman and Chenery 1966;
McKinnon 1964) showed that under assumptions of fixed production
coefficients, a fixed supply of foreign exchange inadequate to meet a
technologically given volume of capital and intermediate goods imports
will subject the growth of a developing economy to a constraint arising

from the structure of its foreign trade (Michalopoulos 1968, p. 296).
This constraint could be more or less limiting a developing country’s
growth than a constraint arising from the availability of domestic savings.
Foreign assistance can address both of these constraints—whichever is
more limiting and thus enhance the recipient’s growth.
These so-called two-gap models were used to project foreign aid needs
in a number of developing countries—first in connection with AID
programs and later at the World Bank. Indeed, the attractiveness of the
model for projecting foreign aid needs made it almost indispensable to
international organizations such as the UN and the World Bank. Partly
because developing countries felt that their trade concerns were not being
effectively addressed in the GATT (see below Chapter 3), partly because
of the perceived link between trade performance and financing needs,
they successfully lobbied for the establishment of a separate organization
to deal explicitly with problems of trade, finance, and development. This
organization, the United Nations Conference on Trade and Develop-
ment (UNCTAD) came into being in 1964 and was the main institution
through which developing countries pursued their international trade
and finance agenda during the next 15 years or so. UNCTAD produced
several early studies using a variety of foreign exchange constraint models
to determine developing country foreign assistance needs under different
assumptions about desirable growth objectives (see UNCTAD 1966,
1967a, b, 1969). The World Bank used variants of this model for country
aid projections well into the 1990s (World Bank 1996).
I used such a two-gap model to explore constraints to the growth
of the Greek economy in the period 1952–1962 and concluded that a
foreign exchange constraint was limiting growth in the earlier part of the
period and less so later; and that foreign official and private transfers were
important in helping raise Greek growth substantially during the period
(Michalopoulos, 1968).
I spent the years 1965–1969 teaching and doing research exploring
the policy implications of the rigid assumptions underlying the two-
gap models, especially the assumptions regarding the fixed supply of
foreign exchange, as it appeared unreasonable to assume that the balance
of payments could not be affected by government trade and foreign
exchange policy (Michalopoulos 1970). In early 1969, I applied to AID

for a research grant to continue this research. I was turned down, but
instead was offered a position with the Agency in its Policy and Program
Division, which I accepted in the fall of that year.
When I arrived in Washington, the IMF had just established the
Special Drawing Rights (SDR), Chenery had left for the World Bank
and AID was still burdened with supporting the continuing war in
Vietnam. But Ernest Stern, the new Assistant Administrator for Policy
and Program Co-ordination was keen to continue the analytical and
research work of the Agency and quite relaxed about his staff taking
positions at variance with official US policy.4
Stern was fresh in this job from a position as Deputy Staff Director of
the Pearson Commission, a high-level group appointed by World Bank
President Robert McNamara and headed by former Canadian Prime
Minister Lester Pearson to make proposals to the international commu-
nity on aid and development. As developed countries dominated the
decision-making of the World Bank, the McNamara initiative could be
seen as their response to emerging pressure from developing countries
to develop international targets for the volume of assistance provided by
developed countries.
Aid Targets
At the first Ministerial meeting of the Group of 77 developing countries
(G-77) in Algiers in 1967 they called for “a separate minimum target…
for the official component of aid flows, net of amortization and interest
payments” (OECD 2002). At the second ministerial UNCTAD meeting
in 1968 its Secretary General, Raul Prebisch, proposed that “a minimum
figure of 0.75% of GNP of developed countries could be established
for net official aid” (OECD 2002). This was based on work by Jan
Tinbergen who, using a foreign exchange constraint model, came up
with estimates of foreign aid needed to achieve the desired GNP target
of 6% per annum for developing countries until 1975 (OECD 2002).5
The target grew out of an earlier suggestion first made by the World
Council of Churches in 1958 to transfer 1% of donor country incomes
to developing countries. But as private capital flows could not be the

subject of government commitments, the focus was shifted to official
assistance. The Pearson Commission Report recommended that ODA
be raised to 0.70% of donor GNP by 1975 and in no case later than
1980. But interestingly, its first recommendation had nothing to do with
aid. Instead it proposed to “To create a framework for free and equitable
international trade.” Many of its recommendations were clearly ahead
of its time and became issues with which the international community
would have to grapple many decades later. Included in these were the
problems of mounting developing country debts, improving the coher-
ence of aid efforts and the effectiveness of aid administration, as well as
addressing population growth and increasing aid to education.
Partners in Development
Recommendations
1. Create a framework for free and equitable international trade
2. Promote mutually beneficial flows of foreign private investment
3. Establish a better partnership, a clearer purpose, and a greater
coherence in development aid
4. Increase the volume of aid
5. Meet the problem of mounting debts
6. Make aid administration more effective
7. Redirect technical assistance
8. Slow the growth of population
9. Revitalize aid to education and Research
10. Strengthen the multilateral aid system
Partners in Development (1969, pp. 14–22)
The aid volume question became central to UN discussions in 1970 in

connection with the International Development Strategy (IDS) for the
Second UN Development Decade. The UN General Assembly adopted a
resolution calling inter alia for “each economically advanced country will
progressively increase its official development assistance to the developing
countries and will exert its best efforts to reach a minimum net amount
of 0.7% of its GNP at market prices by the middle of the decade.” Prac-
tically all developed countries, with the exception of the US have, over
time, accepted this target, although very few have consistently achieved
it (See Table 2.1).
In the US, the Nixon administration also commissioned a task force
on international development whose report to the President on March 4,
1970 echoes many of the same themes as the Pearson Commission (Task
Force 1970). For example, it recommends: (a) a more sensible approach
of coping with debt than rescheduling only when a country is in immi-
nent default; (b) the establishment of a high-level council within the US
government to promote greater coherence of aid programs; (c) greater
reliance on multilateral aid; and (d) the coordinated untying of bilateral
aid from donor country procurement. The report pays the same tribute
to the importance of private investment flows as the Pearson Commis-
sion and recommends the establishment of a new US government agency
(Overseas Private Investment Corporation—OPIC) to promote such
flows.
With the exception of the establishment of OPIC and a relative
increase of the role of multilateral institutions, none of its other institu-
tional recommendations was followed at the time. Eight years later, the
Carter administration killed an effort to untie procurement of bilateral
aid on a coordinated basis (see Chapter 3) but implemented the recom-
mendation to establish a high-level council to co-ordinate aid which,
however, was undone by Reagan in 1980. The task force report is also
very interesting because unlike the Pearson Report it contains a very
explicit statement on an issue that would be central to aid programs in
the next decade. It states: “Development is more than economic growth.
Popular participation and the dispersion of the benefits of development
among all groups of society are essential to the building of dynamic and
healthy nations. US development policies should contribute to this end
(Task Force 1970, p. 4).” At about the same time the role of “social
factors” as explanatory variables of economic growth started to receive
recognition (Schiavo-campo and Singer 1970, p. 79).
In retrospect, these international discussions highlight the many links
between North and South, the developed country commitment to
Table 2.1 ODA Performance of DAC Countries 1970–2020 (in $ milliona and %GNI)
DAC $ million % of GNI
Countries
1970 1980 1990 2000 2010 2015 2020 1970 1980 1990 2000 2010 2015 2020c
Original
DAC
Australia 1565.5 1724.9 1725.0 2021.9 3366.9 3566.3 2563 0.62 0.48 0.34 0.27 0.32 0.29 019
Austria 99.1 445.9 259.3 742.2 1196.1 1418.3 1268 0.07 0.23 0.11 0.23 0.32 0.35 029
Belgium 830.9 1220.6 1375.1 1372.5 2928.1 2060.4 2299 0.46 0.50 0.46 0.36 0.64 0.42 0.47
Canada 1783.8 2722.1 3756.2 2812.1 4657.5 4413.3 5031 0.41 0.43 0.44 0.26 0.34 0.28 0.31
Denmark 476.5 1151.3 1774.0 2765.5 2623.8 2659.1 2649 0.38 0.74 0.94 1.06 0.91 0.85 0.73
Finland 51.2 249.3 984.1 609.3 1316.3 1356.9 1275 0.06 0.22 0.65 0.31 0.55 0.55 0.47
France 4676.1 5579.5 9772.1 6422.5 11,799.7 9419.6 14,139 0.52 0.44 0.60 0.31 0.50 0.37 0.53
Germany 4163.4 7515.3 8995.0 7899.9 12,710.9 19,319.3 28,405 0.32 0.44 0.42 0.27 0.39 0.52 0.73
Italy 1157.3 1831.6 4690.5 2317.2 2790.2 4187.5 4186 0.15 0.15 0.31 0.13 0.15 0.22 0.22
Japan 3399.6 7422.0 11,062.5 12,095.1 9042.2 10,265.6 16,266 0.23 0.32 0.31 0.28 0.20 0.20 0.31
Netherlands 1562.7 3422.0 4020.2 5248.1 5997.6 6199.8 5359 0.62 0.97 0.92 0.84 0.82 0.75 0.59
New 128.1 235.3 184.8 252.0 369.1 454.1 531 0.23 0.33 0.23 0.25 0.26 0.27 0.27
Zealand
Norway 293.7 1229.5 2114.6 2226.1 3599.0 4263.8 4198 0.33 0.87 1.17 0.76 1.05 1.05 1.11
Sweden 587.1 1567.3 2204.0 2427.2 4028.7 6888.9 6348 0.35 0.78 0.91 0.80 0.97 1.41 1.14
Switzerland 383.6 752.4 1282.1 1631.7 2361.0 3406.7 3560 0.14 0.24 0.30 0.32 0.39 0.51 0.48
United 3467.6 3662.5 3532.0 5579.3 12,680.2 16,846.0 18,560 0.39 0.35 0.27 0.32 0.57 0.71 0.70
Kingdom
United 16,329.0 18,956.5 20,089.8 14,313.8 34,641.0 33,248.3 35,475 0.32 0.27 0.21 0.10 0.20 0.17 0.17
States
Later DAC
(continued)
2 Growth Constraints, Aid Targets, and Basic Needs
17
Table 2.1 (continued)
18
DAC $ million % of GNI

Countries
1970 1980 1990 2000 2010 2015 2020 1970 1980 1990 2000 2010 2015 2020c
Czech Rep. – – – – – 232.9 300 – – – – – 0.12 0.13
(2013)
Greece – – – 344.5 413.7 240.6 238 – – – 0.20 0.17 0.12 0.13
(1999)
Iceland – – – – – 47.0 62 – – – – – 0.24 0.29
(2013)
Ireland – – 101.1 393.1 899.6 762.6 972 – – 0.16 0.30 0.52 0.32 0.31
(1985)
Korea – – – – 1303.0 1930.0 2249 – – – – 0.12 0.14 0.14
(2010)
Luxembourg – – – 243.4 415.7 397.8 450 – – – 0.70 1.05 0.95 1.02
(1992)
Poland – – – – – 461.8 803 – – – – – 0.10 0.14

(2013)
Portugalb – – – 477.0 611.9 332.3 385 – – – 0.26 0.29 0.16 0.17
Slovak Rep. – – – – – 90.4 140 – – – – – 0.10 0.14
(2013)
Spain – – – 2044.4 5273.4 1469.6 2969 – – – 0.22 0.43 0.12 0.24
(1991)
Slovenia – – – – – 68.3 90 – – – – – 0.15 0.17
(2013)
Total DAC 40,955.2 60,453.4 79,775.3 74,650.7 125,855.5 136,180.3 161,172 0.33 0.35 0.32 0.22 0.31 0.30 0.32
Countries
Explanation:
a At current prices and exchange rates
b Portugal joined DAC in 1961, withdrew in 1971 and re-joined in 1991
c 2020 figures are not comparable to the previous years as they are based on the OECD’s new ODA grant equivalent
methodology
Source OECD (https://data.oecd.org/oda/net-oda.htm#indicator-chart)
promote development in the South, as well as recognition of rising inter-

dependence, where events in one part of the world are central to the
welfare of many in distant places—whose distance is rapidly diminishing
by technological progress in communications. Increasing trade, capital
flows and aid for development, combined with increased access to infor-
mation are key elements of a process which later was called globalization
but whose essential elements were present in the late 1960s and early
1970s.
Soon after the Pearson Commission report and the adoption of the
IDS, the world was hit by a number of events that had little to do
with the lofty objectives of the IDS but changed the picture of inter-
national finance and aid through much of the following decade and
underscored the rising importance of global interdependence. First, in
1971 came the US decision to float the US dollar followed in 1973 with
the establishment of a floating exchange rate system for the major curren-
cies—which modified the fixed rate system adopted in Bretton Woods
almost thirty years earlier. Then later in 1973, following the Arab-Israel
war, the members of the Organization of Petroleum Exporting Countries
(OPEC) cartel colluded to raise the price of crude oil by about 400%.
The Oil Crisis and Its Aftermath

The OPEC action had two main impacts on developing countries: on the
one hand, it emboldened them politically to emulate OPEC and attempt
to organize commodity agreements aimed at regulating supplies and
raising primary commodity prices; on the other, it resulted in significant
balance of payments difficulties for oil-importing countries. A number of
low-income countries, the so-called most seriously affected (MSA) faced
increasing difficulties to import essential fuels and foodstuffs.
To address these difficulties a variety of proposals surfaced, in partic-
ular proposals to link the allocation of the newly established SDR with
development aid. The SDR was originally conceived as a new reserve
asset aimed at expanding global liquidity and distributed on the basis
of IMF quotas. The motivation for the SDR link was to augment the
amount of resource flows to the developing countries at a time when
tight budgets limited prospects for regular aid appropriations to meet

increased developing country financing needs.
Many felt that linking SDR creation to development assistance would
have changed its role and undermined its value as a reserve asset (Johnson
1972). Some thought that it would be inflationary. Others thought it
would not result in additional resources. On the other hand, there was
nothing sacrosanct about the distribution formula used by the IMF
which resulted in 69% of the new reserve asset being allocated to
developed countries, while the 93 developing countries that were then
experiencing greater balance of payments problems only received the
remaining 31%.
I wrote several papers advocating an SDR link. A paper, jointly
done with R.W. Warne from the State Department, (Warne and
Michalopoulos 1971), explored various alternative link proposals and
suggested that providing for a different SDR distribution formula that
favored the developing countries was the simplest solution. In another
paper, I came out in favor of a link designed to support food imports
to low-income food-importing countries. There was little novelty about
these papers except for the fact that I was permitted to present positions
contrary to the official US position on SDRs as determined by the US
Treasury (Michalopoulos 1973).
In April–May 1974, the UN Sixth Special Session endorsed a Declara-
tion and Program of Action on the establishment of a New International
Economic Order calling for, inter alia, increased prices for commodity
exporters, greater food aid, and food reserves, establishment of the SDR-
aid link, achieving the ODA/GNP target and special programs for the
least developed countries (LDCs). The developing countries efforts to
establish a New International Economic Order culminated in the convo-
cation of a Conference on International Economic Co-operation (CIEC)
in Paris in 1975. The Conference was intended to reflect the emerging
tripolar global power structure: the developed countries, the developing
countries, and OPEC. Developing country demands focused on setting
up a Common Fund to finance commodity trade agreements, increased
aid flows from both OPEC and the developed world, and generalized
debt relief. The developed countries and OPEC were willing to discuss
commitments on energy supplies and pricing.
In the end, very little came of these efforts. At the conclusion of

CIEC in 1977, there was agreement to establish a Common Fund but
the Fund was not established until much later without significant effect
on commodity trade (see Chapter 3). There was also agreement in prin-
ciple to provide $1 billion of additional aid to the most seriously affected
developing countries, but with no concrete mechanisms to make it
operational. Four bilateral donors (Denmark, Netherlands, Norway and
Sweden) however, were able to exceed substantially the 0.7ODA/GNP
target by 1980.
There was no agreement on generalized debt relief or on energy. In
practical terms the only concrete international action taken during this
period was to establish several new facilities in the IMF, including the
Buffer Stock Facility, the Oil Facility, the Extended Fund Facility and
the Trust Fund as well as liberalize the IMF’s Compensatory Financing
Facility—all of which were intended to provide additional financing to
developing countries on improved terms but all on a case by case basis
and subject to the usual IMF conditionalities. The main contribution
of the OPEC members came in the form of the establishment of a
new International Fund for Agricultural Development (IFAD) that oper-
ates much like an MDB and funded to a significant extent by OPEC
members.
But the effects of the oil price increase and the balance of payments
difficulties would linger. Developing countries were able to run very large
current account deficits by increasing borrowing from the private sector
especially commercial banks, often on hard terms. The debt burden of
oil-importing developing countries increased four-fold from 1972 to
1976 and led to subsequent debt servicing difficulties which will be
discussed in Chapter 4.
Aid Effectiveness
What is most remarkable about the late 1960s was the very strong devel-
oping country and international focus on the level of aid as a determinant
of developing country growth. There was little discussion of the use aid
was being put to, who would benefit from it, or its relationship to other
donor or recipient policies.
There were always opponents of aid from both the left and the right.
P.T. Bauer (1972) was an early and persistent opponent from the right.
His early criticism was that aid tended to strengthen the role of the
public sector and to support public sector enterprises which were inef-
ficient. Later, he would argue that “External donations have not been
necessary to achieve development for any country anywhere” (Bauer and
Yamey 1981). Others argued that aid tended to tilt recipients’ invest-
ment patterns toward sectors with longer term or lower payoffs, thus
reducing the productivity of investment (Griffin and Enos 1970). On the
left, Teresa Hayter argued that “aid can be explained only in terms of an
attempt to preserve the capitalist system in the Third World…But insofar
as it is effective its contribution to the well- being of peoples of the Third
World is negative, since it is not in their interest that exploitation should
continue” (Hayter 1971, p. 9).
Cross-country statistical analyses to explore various aspects of the
aid-growth relationship yielded mixed results. Griffin and Enos (1970,
p. 318) using analysis from fifteen countries in Latin America in 1957–
1964 concluded that the greater the capital inflows the lower the rate
of growth of the receiving country. Similar conclusions were reached
by Weisskopf (1972) using a two-gap model for seventeen countries.
Papanek (1973a, b) on the other hand, while finding a negative relation-
ship between aid and domestic savings, also found a strong link between
foreign capital inflows and GNP growth.
There are both conceptual and statistical problems with many of these
studies (Cassen and Associates 1986; Krueger et al. 1989). For example,
it is not appropriate to use the current account deficit as a proxy for
foreign aid as Weisskopf did. The savings-capital inflow relationship in
a cross-country sample may reflect simply donor allocation decisions
that favor lower income countries with lower savings rates. Absorptive
capacity is difficult to define. Similarly, the two-gap model is difficult to
test in practice, as ex post there is equality in the observed savings and
foreign exchange gaps. Country studies are needed in order to explain
the role of aid in GNP growth. In some cases, such studies have shown
foreign aid to have made an important contribution as in the case of
Greece as well as Korea and Taiwan. Asian countries appear to have made
better use of aid than Latin America (Cassen and Associates 1986).
Aid is typically a small portion of domestic capital formation, savings
and other macroeconomic variables in many countries. Domestic policies
and institutions and, in some cases, exogenous factors such as develop-
ments in the international economy, are likely to be far more important
determinants of long-term sustainable growth. Thus, it is not surprising
that cross-country analyses produce inconclusive results. But, as expe-
rience with aid giving increased, another more serious criticism of aid
started to gain acceptance in the early 1970s. The problem was not, some
argued, that aid was not contributing to growth. Rather that whatever
growth occurred did not “trickle down.” The problem with aid was not
so much its lack of impact on growth but that such growth did little
to alleviate poverty. This criticism had a lasting effect on aid programs
of the major donors in the 1970s and formed the basis for assessing aid
effectiveness for the next several decades.
Who Benefits
The lead in addressing the question of the impact of aid on poverty
was taken by the World Bank and USAID in 1973. Before that, in
1969—perhaps following the Pearson Commission report- McNamara at
the World Bank, started to have concerns that rapid population growth
would undermine development prospects. “Population control was a
likely first approach to poverty alleviation” (Kapur et al. 1997, volume
1, p. 235). Over the next few years, McNamara focused increasingly
on problems of absolute poverty and income distribution in developing
countries and in finding ways that the World Bank could help address
them. In 1973, he announced a drastic expansion of the Bank’s program
of lending to small farmers as the main World Bank instrument of
attacking poverty. From $2.2 billion or 19% of total lending in FY
1970–1973 it grew to $13.2 billion or 31% of total lending in FY 1978–
1981 (Focus on Poverty 1983, p. 10). The Bank also started to increase
the poverty focus of urban projects, provided about 5% of its lending
to education—mostly benefiting primary schools—and started a small

program of health, nutrition, and population.
In 1974, following Hans Singer who had developed the theme of
redistribution with growth in work he did for the International Labor
Organization (ILO) in Kenya, Chenery and World Bank associates in
collaboration with the Institute of Development Studies at the University
of Sussex produced a path-breaking study on a development strategy that
would combine redistribution with growth (Chenery et al. 1974). While
the main novelty in the book was the argument that it would be possible
to develop a strategy that would result in both growth and income redis-
tribution, a lot of proposals focused explicitly on programs and policies
that would raise employment and incomes of the absolutely poor in rural
and urban settings. “Our rural strategy therefore focuses on increasing
the productivity of the small farmer and the self- employed farm through
better access to land, water, credit market and other facilities” (Chenery
et al. 1974, p. xviii).
In 1983, a Task Force on the World Bank’s Poverty Focus concluded
that “The evidence suggests that poverty oriented projects met their
primary objective of increasing the incomes and productivity of the small
farmers,” though they did little to help and in some cases may have
hurt the landless poor (Focus on Poverty pp. 12–13). Whatever the actual
results may have been, by the middle of the decade the World Bank took
steps to reorient its overall priorities to address concerns about poverty
alleviation and not simply focus on project efficiency and overall growth
of the economies it was assisting.6
The US aid programs shifted in the same direction. In 1973, the US
Congress based on an initiative of the House Foreign Affairs Committee
but having bipartisan support in a Congress controlled by the Demo-
cratic Party, passed new aid legislation which, inter alia, required the
following:
Future United States bilateral support for development should focus on

critical problems in those functional sectors which affect the lives of the
majority of the people in the developing countries: food production;
rural development and nutrition; population planning and health; and
education, public administration, and human resource development.
United States bilateral development assistance should give the highest

priority to undertakings submitted by host governments which directly
improve the lives of the poorest of their people and their capacity to
participate in the development of their countries. (US Congress 1976)
This new thrust of the US assistance program reflected in part

growing dissatisfaction with the continued drain of resources to support
the Vietnam War but also the influence of writers like Edgar Owens
(Owens and Shaw 1972) who stressed participatory processes for devel-
opment and wanted to reduce the use of aid to achieve foreign policy
goals. The Nixon administration initially complained that this so-called
“New Directions” legislation reduced flexibility, but over time USAID
responded with the establishment of a policy that concentrated aid in
three key sectors: food and nutrition, population and health and educa-
tion and human resources aiming “to help developing countries increase
their capacity to meet the basic needs of their people” with “projects
and programs especially directed toward reaching the poor majority” (US
AID 1978). To be sure the projects and programs involved only about a
third of total bilateral US aid, as the Economic Support Fund continued
to provide aid in support of foreign policy objectives to countries like
Vietnam and Israel; and the PL 480 programs continued to serve US
agricultural policy objectives. But at least for about a third of the projects
and programs the key question of “who benefits” was being asked.
In 1976 concerns about poverty and income distribution were height-
ened by the publication of the ILO report on Employment Growth and
Basic Needs: A One World Problem (ILO 1976). The Report argued that
the way to address poverty is to develop ways that address basic human
needs (BHN) in food, shelter, health, and education. The World Bank
and several developed countries including the US the UK, the Nether-
lands, and Sweden moved quickly to support the principle that aid
should focus on addressing BHN. McNamara in his 1976 and 1977
annual addresses to the Board of Governors of the World Bank stressed
that “developed and developing nations alike establish as one of their
major goals the meeting of the basic human needs of the majority of the
absolute poor within a reasonable period- say by the end of the century.”
The Bank’s work was spearheaded by Mahbub ul Haq, head of the Bank’s
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followed closely by a second volley, both accompanied by the crash
of glass.
“Ah-h,” groaned William, “they have not the manhood even to spare
that;” for through the clinks of the shutters could be seen the glare
and smoke of an ascending fire. The Capitol was in flames.
CHAPTER XVIII.
A Time of Dreadful Night.
The night grew darker and darker. Not one of the three in the house
thought of sleep, for from time to time the crackle and blaze of some
new fire, the roar of the devouring element, announced that one or
another building had been sacrificed to the revengeful lust of the
enemy. Up and down the streets swarmed the redcoated soldiers,
ransacking, shooting wildly, without reason or conscience, at any
who dared venture forth not uniformed as were themselves.
With the advancing hours the gathering of a storm became more and
more apparent. Sharp lightning vied with the rollicking flames. Deep
growls of thunder drowned the sound of carousals, and the wind,
rising to a fury, lashed and whipped the trees, tore away roofs, and
shrieked as if in defiance. Soon down came the rain in torrents, in
floods, and the flames, so eagerly mounting higher and higher,
became less and less aggressive. In the battle between the two
elements fire was vanquished. Save for the raging of the storm,
there was now little noise in the streets, and the occupants of more
than one closely shut house ventured to open the windows to let in
the cool air which was sweeping away the intense heat of the day.
“It is a merciful interposition of Providence,” declared William
Hopkins. “I think we can take some rest and feel no alarm while the
storm continues. Go to bed, Lettice.” And Lettice, feeling suddenly
heavy-eyed and weary, now that the strain was relieved, obeyed and
soon sank into a deep slumber.
She awoke early, for the sun was shining in at the window which she
had left open. She sat up in bed, for a moment bewildered. “Patsey,”
she called; then suddenly she remembered, and she sprang up,
venturing to peep out into the street. As she looked she saw an
officer on a white mare galloping up the avenue; a little colt trotted
behind; it seemed an incongruous sight in that scene of desolation.
The streets were full of bits of paper, some charred and soaked with
rain; there were further evidences of the work of plunder, of tempest,
and of destruction, but Lettice did not dare to look long, for groups of
soldiers were becoming more and more numerous, and she did not
know what moment a chance shot might come her way.
She closed the shutters softly, dressed herself, and ran downstairs.
“I must try to get up some sort of breakfast,” she said to herself, as
she rummaged through closets and pantry. She was fortunate in
finding coffee, bacon, corn meal, and some sour milk. With deft
fingers she kindled a fire, and then discovered that the water buckets
were all empty. “Water I must have,” she said, “and I will have to go
and fetch it from the pump. It will be better for me to go than one of
the men, for I’m what Brother Tom calls a non-combatant. Poor Tom,
I wonder is he safe?”
She sighed, and picking up a bucket, sallied forth into the street.
More than one person had ventured out. There were no soldiers
near enough to inspire fear, and she felt quite safe as she ran along
toward the old wooden pump which stood before the house occupied
by her friends, the Ingles. A little girl was sitting on the doorstep. “It’s
plain to see you’re not afraid, Mary,” said Lettice, as she vigorously
worked the pump-handle up and down.
“No, I’m not,” returned Mary. “I came out to see the soldiers.”
Lettice, having filled her bucket, lifted it and set it on the sidewalk. At
that moment a British officer, attended by an orderly, came riding up
the street. He paused before the pump, and drawing out a silver
goblet, summoned his orderly. “Here, bring me a drink of water in
this goblet of old Jimmy Madison’s,” he said.
Then up spoke Mary Ingle. “No, sir, that isn’t President Madison’s
goblet, because my father and a whole lot of gentlemen have got all
his silver and papers and things and have gone—” From the
doorway some one reached forth a silencing hand, which was placed
over Mary’s mouth, and the little maid was drawn within doors.
Fortunately the officer had been drinking freely and did not notice the
candid statement. He quaffed his draught of water and rode off.
Lettice did not tarry either, but lifting her bucket, which weighed down
her slender arm, she made ready to carry it home. She noticed that
fires were again starting up in every direction, and she felt a quiver of
fear for the safety of herself and her friends. What if the whole city
should be swept by flames?
Setting down her heavy bucket, she stopped a moment for rest.
From across the street stepped a young officer, gay in his red
uniform. “Let me carry that for you, my pretty maid,” he said. “It’s
good water; I have tasted it, and I’ll carry your bucket home for you
for a kiss.”
“Oh, no.” Lettice shrank back.
“Oh, yes, I say.” He drew nearer, and, picking up the bucket, held it,
laughing. “No kiss, no water.”
“Then no water.” And Lettice turned and fled, leaving the soldier
laughing at his own defeat.
The girl hurried on and entered the gate, which she securely
fastened, but behind which she stood for a moment, peeping through
the chinks, determining that water she must have as soon as there
seemed a chance of getting it. But at that instant she noticed that the
sky had again begun to darken, and almost before she could reach
the safety of the kitchen, a hurricane swept the city. It suddenly
became as dark as night; the wind, which had been high enough the
night before, now arose to the violence of a cyclone. Roofs were torn
off, trees uprooted, and the air was full of flying particles. Even things
ordinarily supposed to be secure were wrenched from their
fastenings and went hurtling through the air as if the law of
gravitation had suddenly become naught. The rattle of thunder, the
sharp lightning, the tremendous downpour of rain—all these were
terrifying, and Lettice dared not go on with her preparations for a
meal.
Before many minutes down came her brother and Mr. Baldwin. “Up
already?” they said.
“Already? Do you think it is still night? It is long past breakfast-time,
and I did hope to have it ready for you, but I was so scared I could
not go on with it, and besides, I have no water.” Then she related her
encounter with the redcoat.
“You perverse child, will you never learn prudence?” said her brother,
shaking his head.
“I am afraid not,” returned she, so earnestly that her brother smiled.
“Anyhow,” she said triumphantly, “I saw Admiral Cockburn on his
white mare, riding up the avenue this morning. It was when I first got
up, and it was so funny to see the little colt trotting on behind.”
“How do you know it was he?” her brother asked.
“Mary Ingle told me when I was talking to her this morning. Dear me,
I wish I had Lutie here.”
“I am glad you haven’t,” returned her brother. “Lutie is a perfect baby,
and afraid of her own shadow; she’d be worse than no one at all in
all this.”
“Gracious!” exclaimed Lettice, “what a report that was! The lightning
has struck somewhere very near, but it shook the whole house.”
“That was no lightning stroke,” Mr. Baldwin declared; “it was an
explosion of some kind.”
“Oh, I hope nothing has happened to our friends at the Arsenal.”
“It seemed to come from that direction.”
There was no cessation of the terrible storm, and Lettice finally
declared that water they must have. “If I only could have brought my
bucket safely home,” she said wistfully.
“There is water enough,” Mr. Baldwin said quietly, “when it is coming
down in sheets like this. Just set something outside to catch it. Here,
I will do it.” And he picked up a water bucket and placed it where it
would soon fill.
“What a goose I am!” said Lettice. “Why didn’t I think of that? Did you
get very wet?”
“Nothing to speak of. May I help you get breakfast? What can I do?”
“You may set the table, if you will. Brother William is bringing
candles; I am glad of that, for I could scarcely tell meal from sugar in
this light.”
The three busied themselves in preparing the simple meal and ate it
with a heartiness which long fasting supplied. “There are more fires
lighted; I believe every building of any importance has been set fire
to,” said Lettice, dolefully. “And to think of being in the midst of all
this dreadful time! I am so thankful for this rain; maybe it will put out
the fires. It does seem as if a special providence had sent it. Isn’t it a
terrible storm! Why, I even saw feather beds go flying through the
air.”
Mr. Baldwin laughed. “Those feathers probably flew higher than they
ever did before,” he remarked.
They were feeling quite cheerful since their meal and were now
sitting at one of the back windows watching the steadily descending
rain. William had left the room, saying he meant to go in to see the
Ingles and hear if they had any news to give. “We have shared more
than one danger,” said Lettice, after a while. “I feel now as if when
this war comes to an end, there must be a few of my friends who will
be linked to me by stronger bonds than those of an ordinary
friendship.”
“I am glad then that I have been of the privileged few, though I would
rather have spared you these sad experiences. I wish I could have
borne them for you,” her companion said.
“Have you not borne enough?” Lettice gave a glance at the
bandaged arm.
“A trifle, compared to that which some suffered, yet sufficient to dash
some bright hopes.”
“I don’t see why,” Lettice looked down.
“A man who has nothing but his chosen profession, and who has lost
his chances of promotion in that, must stand aside and let others win
what neither fortune nor honor will permit him to ask for,” he replied
steadily.
“But everything is not to be won by fortune and honors.”
“Would a man be justified in seeking the love of a woman to whom
he can offer nothing but a very uncertain future?”
“If a woman loves a man, does she care to give any one else the
right to win her?”
Just then, with a shriek and a wail, a gust of wind arose, and hurled
against the window a branch wrenched from a tree. It came with
such terrifying force as to shiver the glass, and almost
simultaneously came a vivid flash of lightning and a terrific crash of
thunder. Lettice, stunned and frightened, staggered against the wall
and slid helplessly to the floor, affected by the lightning which had
struck a tree near by. In an instant Mr. Baldwin was by her side. He
lifted her head to his shoulder, murmuring, “My love, my darling, are
you hurt?”
She raised her head, half dazed, and looked at him without
speaking; then her head dropped heavily on his shoulder again, and
he held her thus, till in a few moments this sudden dash of the storm
had abated. Then both rose to their feet.
“I wonder where William is?” Lettice said faintly, and suddenly feeling
shy. “He—” She did not finish her sentence, for her brother entered
the room.
“I’ve been out,” he said, shaking the drops from his hat. “I went first
to the Ingles and heard some news there, and then I thought I would
look around a little for myself.”
“In all this fearful gale?” Lettice said.
“Yes, I knew there would be little danger from the redcoats while this
storm lasted. Fires are smoldering in every direction. That explosion
we heard was caused by the throwing of a lighted torch into an old
well where part of our powder was secreted. Twenty-five Britishers
were hurled into eternity by the explosion, and many were badly
wounded. I think this experience, on the whole, has been too much
for Cockburn, for I was told that he is getting ready to leave.”
“Oh, I am glad!” said Lettice. “Did none of those flying boards hit
you?”
“No, I managed to dodge them, and I didn’t go very far. I see you
have had an accident here. We must stop up that window; the rain is
pouring in.”
“Yes.” Lettice looked down, and the color which had left her cheeks
came slowly back again.
“Miss Lettice narrowly escaped being struck by lightning,” Mr.
Baldwin said unsteadily. “She was sitting near the window when that
tree there was struck, and she was stunned. A heavy branch torn
from the tree did the damage to the window.”
“And you were not hurt, Lettice? You are sure?” Her brother looked
alarmed.
“No, I think not. I felt dazed, and my head still feels queer, but I was
only a little stunned, I think. I am beginning to feel all right again.”
“The wind is dying down, though it is still raining hard. I think the
worst of the storm is over.”
The rain continued for the rest of the day, but evening brought the
tramp, tramp, of retreating feet. Orders had been given that no
inhabitants should appear in the streets after eight o’clock; this that
the enemy might escape unnoticed. The city, devastated as it was,
received final destructive touches from the outgoing enemy, who set
fire to every important building still unharmed, as the retreat was
being made. The departure of the foe seemed also to be the signal
for the cessation of the tempest, for the setting sun shone forth, and
the mutterings of thunder died away with the echoing tread of
marching feet.
“Free, at last!” cried Lettice, when it became known that the redcoats
had really gone.
“Yes, but not safe. We’re not out of the woods yet,” her brother told
her. “Every man of us must fight those fires, or the little that’s left will
go. Run in and stay with the Ingles, Lettice. Mr. Baldwin and I must
go.”
“Oh, but—but he is not well enough.”
“I can carry a bucket of water,” said the young man, smiling down at
her.
“And ask no reward?” she said in a whisper.
He turned around and looked at her searchingly, so that a soft pink
overspread her face. “Would you give it?” he whispered back. Then
he bit his lip and turned away before she could answer, leaving her
half abashed at her own words, and half sorry that she had let him
go.
She ran out of the gate to her good neighbors and found them
rejoicing at the departure of the enemy, but still in alarm lest the
surrounding fires should break forth and destroy the dwellings still
standing. However, many willing hands were ready to stifle the rising
flames, and forlorn, miserable, wretched-looking as the poor little city
appeared, its season of trial was over.
The despoiled capital was a poor abiding-place, but as soon as
Patsey and her sister returned, they urged Lettice to stay, rather than
to go back to Baltimore, whither her brother was bent on hurrying; for
it was said that General Ross had his eyes turned upon that place.
“And they will not come here again, for they have taken all there was
to take. Bad as it is, there is one consolation—if there is one place
above another that is absolutely safe, it is Washington,” said Patsey.
“You would better stay with us, Lettice; I should think you had seen
about enough of this war.”
But Lettice shook her head. “It is dreadful to think of anything
happening to Betty and the baby, and my brother will be there. I must
stick by my family through thick and thin.” And she set forth, to arrive
in Baltimore, there to find every one apprehensive of an attack from
the British.
Betty hugged and kissed her, and declared it was dreadful to think of
the scenes she had witnessed; and then she ran to her husband and
cuddled in his arms, putting her hand over his lips when he
attempted to tell her of the defeat. “I won’t hear it,” she cried. “I don’t
care if they all did run. I’d a thousand times rather that, than to have
you brought home to me dead or wounded. I am tremendously
thankful you didn’t give them a chance to shoot you. I am so thankful
that I cannot consider anything else.”
“I believe I agree with you,” Lettice joined in. “What do you think of it,
Aunt Martha?”
“I think he could do no less, under the circumstances. It was not his
fault that there was a retreat, and he would have been foolish to
stand up alone and defy the entire British army.” At which they all
laughed and settled down composedly to hear Lettice’s story. Danny
curled himself up in one corner, all alert for thrilling adventures, and
Mrs. Flynn stood in the doorway, one hand on her hip and the other
thoughtfully manipulating her chin as she listened.
“An’ now tell ’em your bit o’ news, ma’am,” she said, turning to Mrs.
Tom Hopkins, when Lettice had finished her tale.
“We’ve heard from Joe,” Aunt Martha told them.
“Oh!” Lettice sprang to her feet. “Where is he?”
“In Dartmoor Prison, poor fellow; and that is almost worse than to
hear of his death, for it is doubtful if he will ever get out alive.”
“How did you hear?”
“Through a fellow-prisoner, who made his escape, and who
promised, should he succeed in getting away, that he would get word
to us of Tom’s whereabouts. We are all working, and my brother is
using his influence to get an exchange.”
“Would you tell Patsey?”
“I think I would not, just yet—not till we are a little surer that our plans
can be carried out.”
“Have you anything to tell me?” asked Betty, as she came into
Lettice’s room that night at bedtime. “William has told me that you
saw much of Mr. Baldwin, and that you left him but yesterday.”
“So we did—but, oh, Betty, he cannot go back into the service,
because he has lost his left hand with a part of his arm, and he has
no money; and, besides, he wouldn’t ask me if he had, for he doesn’t
think a man maimed and without a profession of some kind would
have a right to do it.”
“Neither would he. But never mind, my love, I wouldn’t make myself
unhappy over it; love finds a way. And would you take your Yankee
lad single-handed?”
“Now, Betty, you will joke. Yes,”—she hid her face on Betty’s
shoulder,—“I would, I really would.”
“I said you would be a New Englander yet. I shall have to hand you
over to Aunt Martha to-morrow and let her teach you how to bake
beans.”
“But there’s no need. You see, he’ll not ask for me.”
“Nonsense; wait till the war is over. What about Robert Clinton,
Lettice?”
“What about him?”
“Yes; you don’t care one wee little bit for him?”
“No, no, no!”
“Does your—what is his name?—Ellicott know that?”
“I don’t know. I wouldn’t be likely to take him by the lapel of his coat
and say, ‘Mr. Baldwin, I want you should know I don’t care for Robert
Clinton.’” Lettice imitated Rhoda’s tones so exactly that Betty
laughed.
“No, you couldn’t do that,” she agreed. “Now I have something to tell
you. He, like an honorable gentleman, has told William that in a
moment of excitement, when he thought you were in danger, he
declared his love for you, and—”
“And—oh, Betty, what? He has never referred to it since; and tell me,
what did William say?”
“He requested him not to see you or communicate with you till your
father’s permission could be obtained.”
Lettice heaved a deep sigh. “And what did he say?”
“He promised, but asked that you might know; so, as William had no
liking to tell you himself, he asked me to do it. So there—my
disagreeable task is over. Do you forgive me for my part in it?”
“I thank you for your gentle way of telling me, and I would rather
have heard it from you than from William.”
“Thank you, dear. Now, never mind, my honey, just bide your time.
For myself, I like Mr. Ellicott Baldwin mightily. Don’t you miss poor
Lutie, when it comes to a matter of toilet?” she asked, to change the
subject.
“Yes, poor Lutie, I do miss her. Ah, Betty dear, you are truly like my
own sister. You understand so well, and I like better to be with you
than any one. Alas, where will be our home?”
“I wouldn’t bother over that. Let the future take care of itself.
‘Sufficient unto the day is the evil thereof,’ you know. You have seen
evil enough, poor Letty. Good night and sweet dreams;” and she left
Lettice to think over all this new situation.
Volunteers were tramping into the city; preparations were going
forward for a brave defence, and when Lettice laid her head upon
her pillow, it was to dream of future alarms and start up more than
once with a little cry. Once Betty heard her and came in to bend
gently over her. “She is only dreaming, poor little soul,” she
murmured. “What a peck of trouble she has had, to be sure.”
The morning seemed to realize Lettice’s dreams, for Danny came in,
his eyes rolling around in excitement. “M-m-miss Letty, dey done
comed, dey done comed!” he stammered.
“Who?” cried Lettice, looking up from the flowers she was arranging.
“De redcoats. Dey ships in de ribber; dey is, fo’ sho’. I ain’ tellin’ no
sto’y, Miss Letty.”
Lettice knew danger was near, for her brother, who had gone out the
night before, had not returned, and she saw that vigorous measures
were being adopted for the defence of the city. She thought of
Washington and sighed.
“Is yuh skeered, Miss Letty?” asked Danny, who was watching to get
his cue from her.
“Not scared, but very anxious. Where is Miss Betty?”
“She puttin’ de baby ter sleep. Miss Marthy, she fussin’ roun’ lak a
ole hen.”
“Sh! You mustn’t talk that way,” Lettice chided, in a severe tone.
“Aunt Martha,” she said, stepping to the window which looked out
upon the porch where she was, “do you suppose it is really true that
the British are here?”
“Don’t ask me, child. I am distracted. Ought we to stay or go? I do
want to do my duty.”
Lettice smiled. “I don’t see that anything will be gained by going; at
least, not yet. I think we are about as safe here as anywhere. Oh,
Aunt Martha,” she clasped her hands closely, “we’ll conquer or we’ll
die. I am sure this time we must drive them back. We have good
defences; Mr. Key told me so last night, and he said, ‘We are in
earnest this time; they’ll not find it so easy to get into Baltimore as
into Washington.’”
Aunt Martha stood considering the situation.
“Where would you go, if you did leave?” Lettice asked.
“Somewhere out of town; but as you say, no doubt we are as safe
here as anywhere we might hit upon. It doesn’t seem a very fitting
time to be arranging flowers, Lettice. You’d better be scraping lint;
there probably will be need of it.”
“But the flowers don’t stop blooming, battles or no battles,” Lettice
returned. Yet she bore her bowl of China asters indoors, and, taking
a roll of linen from her aunt’s hand, she sat down to scrape lint.
CHAPTER XIX.
The Star-Spangled Banner.
From time to time during the day came news of a possible
engagement. Frigates, bomb-ketches, and small vessels were
reported to be ranging themselves in position to cannonade the fort
and the town. Off North Point lay the ships of the line. In the night
began the debarkation of the British, and by noon the next day a
battle was imminent. It was an anxious time for those within the
town, whose brothers, husbands, sons, or lovers had gone out to
meet the enemy. Aunt Martha religiously refrained from idleness, and
vigorously scraped her lint when she was doing nothing else. Lettice
and Betty helped her by fits and starts. “But I cannot keep my mind
on anything,” said Lettice. “I am so nervous, so anxious.”
“You’d much better be occupied,” returned her aunt, patting a soft
pile of her linen scrapings. But Lettice did not respond; she went to
the window and looked out. Few persons were to be seen on the
street. It was raining, and she wondered how those on their camp
ground were faring.
All day Sunday there came reports of the further movements of the
British, who had by this time landed their troops at North Point; and
what might be next expected no one knew, though all feared ill news.
“I shall not stay at home from church,” Aunt Martha declared, “for if
ever there was a time when one should attend to her religious duties,
it is to-day. You will come with me, Lettice?”
“I suppose I might as well, for I shall be just as miserable if I stay at
home, and I shall at least have the satisfaction of knowing I am doing
the right thing by going.”
“That is not the right spirit,” Aunt Martha objected. “It should be a
privilege, and I think you should feel it so.”
“Well, I will try to; but I know I cannot keep my mind on the sermon
for one instant. I shall be thinking of what is going on outside the
city.” Yet she accompanied her aunt without further words, and
announced at the dinner-table that she believed it had done her
good to go.
Shortly after noon of the following day came flying reports that a
battle was in progress. Next came the news that the British general,
Ross, had been killed. After this were various reports, and,
throughout the night, stragglers brought in accounts of the day’s
action. The next morning early came a sudden, ominous sound.
Lettice jumped from her bed. It was six o’clock. She ran to her sister
Betty’s room. The baby, terrified by the sudden noise, was crying
with fright. “Isn’t it a hideous sound!” said Lettice, placing herself at
the foot of the bed. “Hark! it gets worse and worse; it fairly shakes
the house to its foundations. Oh, Betty, do you suppose they will get
near enough to bombard the city?”
“If they can get past the forts. Pray Heaven they do not!”
All day the sombre sound of the cannonading continued. At three in
the afternoon it grew fiercer, and those who waited in terror, now
feared that their beloved town would share the fate of Washington.
From the windows Lettice and Betty watched the ascending rockets,
and as night came on and the fearful booming continued, becoming
louder and fiercer, it seemed as if every brick in the house must fall
about their ears.
Suddenly the noise increased in volume. It sounded nearer. What did
it mean? Betty and Lettice, with one accord, rushed out into the
street. Throngs of anxious people, with pale faces and terror-stricken
eyes, were gathered there. “What does it mean?” they whispered
one to another.
All at once, as suddenly, a stillness fell. It was an awe-inspiring
silence. Betty clung to Lettice, crying, “Oh, Letty, we are lost!” But the
bombs and rockets again began to illumine the sky, though now at a
greater distance, and when the morning broke upon those who had
sleeplessly kept their vigil in the streets of the threatened city, the
danger was over. Baltimore was saved.
That night the British sailed away, and then those who, so short a
time before, had appeared a sadly anxious company, driven by fear
from their homes, now gayly paraded the streets, cheering and
shouting as the triumphant troops marched by.
“I am glad we stayed. I am truly glad, for all that it was so terrible. I
am glad to get rid of my recollections of Washington,” Lettice
exclaimed. “They have gone, Aunt Martha! They have gone, Betty!
Do you realize that it was a victory?” And, seizing the baby, she
danced him up and down till he screamed with mirth and excitement.
They had hardly recovered from their joy at the victory, and the
delight in welcoming home the ones who had done so much toward
winning it, when other glad tidings came to them. Weak, miserable,
fever-wasted though he was, it was a day of rejoicing for them all
that brought Joe home again. Big Pat Flynn and William lifted the
wasted figure from the carriage to the house, and Lettice, who was
on the lookout for him, ran to the door. She burst into tears as she
saw the mournful, hollow eyes, and Aunt Martha, close upon her
heels, chid her with:—
“That is a pretty way to welcome the boy! Why, Joe—” And then she,
too, lost control of herself, and, leaning on Lettice’s shoulder, began
to weep.
“That’s a pretty way to welcome the boy!” laughed William. “Here,
Betty, can’t you do better than that?” And Betty, whose chin was
quivering, gulped down a rising sob and smiled, saying: “You dear
Joe, how glad I am to see you! Welcome home, Joe! Welcome
home!”
“Heigho, Mars Joe!” came a small pert voice. “Fo’ de Lawd, but yuh
look lak a ole rooster what los’ he tail fedders.”
“Halloo, Danny! Where did you pop from? If I look like a scarecrow
now, how do you think I looked when I started for home, before I had
a good lot of fresh air and something to eat? Why, I’m a good-looking
fellow to what I was,” said Joe, laughing weakly.
Danny snickered, and Aunt Martha turned, saying severely: “Danny,
leave the room, and don’t let me hear another word from you. Bring
Joe into the sitting room, boys, and we’ll make the dear child
comfortable;” which, indeed, they did, so that within twenty-four
hours he was looking better.
Lettice’s first thought was of Patsey, and she despatched a letter to
her as quickly as possible, and there were at least two perfectly
happy persons under that roof when Patsey responded in person.
But on top of this came a sad letter from Lettice’s father. “Our dear
Tom, my brave first-born, has gone from me,” he wrote. “He died to
save my life, for in a hand-to-hand fight, he threw himself between
me and my enemy, shouting, ‘I’ll save you, father,’ and he received
the blow that would have finished me. I trust that I yet have one son
left, and though I would not have him serve his country less well than
those that have been taken, I pray he may be spared to us, and I
beseech him not to expose himself to unnecessary perils.”
“Dear old Tom,” Lettice murmured, with softly falling tears, “it seems
as if he returned simply to retrieve himself and to leave behind a
loving memory of him. We can be proud of him, now. But oh, Jamie
has gone, and Tom has gone, and all I have left is Brother William.
Even Lutie is taken from me.”
But a few days after this came a surprise for Lettice. Danny, with
dancing eyes, and ducking his head as he gave frequent smothered
bursts of laughter, appeared at the sitting room door where Lettice
sat with her Cousin Joe and Patsey.
“Somebody out hyar ter see yuh, Miss Letty,” Danny announced, and
then he ran.
“Come back here, you rascal,” called Joe. “Haven’t you any better
manners? Tell Miss Letty who it is.”
Danny rolled his eyes toward the door. “She say I isn’t to tell, suh.”
“Oh, well, never mind, I’ll go,” Lettice said. She opened the door and
stepped out upon the porch. In one corner stood a figure in blue
sunbonnet and checked gingham frock; it looked strangely familiar.
With the sound of the closing of the door the figure started forward,
and a soft voice said: “Praise de Lawd, dat mah Miss Letty. I is got
back.”
“Lutie!” cried Lettice, running toward the girl and throwing her arms
around her. “Where have you been all this time?”
“’Deed, miss, I doesn’t know. Dem Britishers done tek me off an’ ca’y
me somewhars, I dunno whar nor wha’fo’, an’ when de man what
say he own me gits killed in dat battle yuh-alls has, I gits a chanst to
run away, an’ I tu’ns mah face todes Baltimo’, an’ I keeps a-inchin’
along, a-inchin’ along twel I gits hyar, an’ hyar I is. Law, Miss Letty,
yuh nuvver thought I done run away mahse’f? No, ma’am, I ain’ no
such notion. I yo’ own gal, an’ I don’ nuvver want no other mistis.”
Lettice, in sheer delight, gazed at her as if she could not believe her
eyes. “I skeered yuh git ma’ied, Miss Letty,” Lutie went on, “an’ go off
yonder wid dat Mars Clinton.”
“You need never be afraid of that,” said Lettice, decidedly.
Lutie twisted her bonnet strings around her finger. “Miss Letty, is yuh
know what become of Jubal?” she asked miserably.
Lettice shook her head.
“I knows,” said Lutie, solemnly; “de po’ mizzible sinnah is gone to
glory, an’ I see him go. Yass, ma’am; dey blow him into kingdom
come, ’cause he such a sneakin’ varmint, an’ he try to do dem
redcoats lak he done yuh-alls, an’ dey don’ stan’ no such wucks, no
ma’am, an’ dey ups an’ shoots him. Miss Letty, Danny say young
Mars Torm done gone to glory, too. Is dat so?”
“Yes,” replied Lettice, “he died bravely, Lutie; poor dear Tom. Come
in, now, and pay your respects to Miss Betty and the rest. Aunt
Martha will have to let me keep you this time, for I don’t intend to
have you out of my sight till we are rid of the British for good and all.”
Lutie willingly sought Miss Betty, and Lettice reëntered the room she
had just left. She saw her Cousin Joe quietly sleeping, one cheek
resting on Patsey’s hand, which she would not withdraw from its
position. Although the lines of suffering were still apparent upon
Joe’s face, a happy smile played around his mouth, and Patsey’s
eyes wore a look of supreme content.
That evening, when Lettice’s brother William came in, he drew from
his pocket a small printed paper in handbill form. “Here, Lettice,” he
said, “your friend, Mr. Francis Key, has distinguished himself. It
seems he was on board one of the British ships the night of the
bombardment—”
“A prisoner?” Lettice interrupted.
“Yes; he went to try to gain the release of Dr. Beanes, of Upper
Marlborough, and was detained during the engagement. You can
imagine his feelings; uncertain as to the result of the battle, and
anxiously waiting through the long night for some sign to relieve his
doubts and fears. The occasion, however, has given us a beautiful
ode. Mr. Key, after being kept some time on board a British vessel,
the Surprise, was at last returned to his own cartel ship, the Minden,
and there, on the back of a letter, he wrote the song I have just
handed to you.”
“What is it called?” Betty asked.
“The Bombardment of Fort McHenry,” Lettice read from her paper.
“Read it out, Lettice,” said her Cousin Joe, and she began:—
“‘Oh say, can you see, by the dawn’s early light,

What so proudly we hailed by the twilight’s last gleaming?’”
She read it through to the end to a group of attentive listeners.

“Fine! Beautiful! A noble production!” came the comments.
“It is not generally known that Mr. Key wrote it,” William went on to
say, “but his uncle, Judge Nicholson, told me that it was a fact, and
that Frank had showed it to him, and that he, being vastly pleased
with it, took it to the office of the Baltimore American and had a
number of copies printed, one of which he gave to me. Every one is
singing it, and it promises to become very popular. The tune is that of
‘Anacreon in Heaven.’ You know it, Joe; come, join in. Come, Betty,
come, Lettice, let us try it;” and the Star-Spangled Banner was given
with spirit and fervor. Several passers-by, catching the tune, started
up the air and went singing on their way, so that after the song
indoors was ended, from the distance could be heard, lustily
shouted:—
“‘’Tis the Star-Spangled Banner! Oh, long may it wave

O’er the land of the free, and the home of the brave!’”
It was toward Christmas that Lettice, coming into her aunt’s room
one day, found the good lady pondering over two letters which she
had been reading. “Your father and your uncle are on their way
home,” she announced abruptly.
“Oh, how very glad I am!” cried the girl. “There are some good things
left for us, after all, Aunt Martha; though sometimes, when I think of
this war and all it has cost me, I feel as if it had stripped me of
everything.”
“This war, indeed; yes, I don’t half blame my brother for calling it an
unrighteous proceeding.” She tapped the letter she had just been
reading; then she burst out again: “But we would have been cowards
not to have fought for our rights. New Englander as I am, I must
confess that the Federalists are going too far. What does this
convention at Hartford mean but an attempt to dissever the Union?
For all that Edward excuses it on the ground of an effort to thwart an
incompetent government, it means nothing more nor less than an
ugly word—secession.”
“Oh, Aunt Martha, really?”
“That’s what it looks like. However, let us hope it will not come about.
Here, you may read the letter; there is one enclosed from Rhoda
which will give you her news, such as it is.”
Lettice read the two letters and returned them without a word; then
she went to the window and looked out. “I am very fond of Rhoda,”
she remarked after a little while. “Her letter did not show that she
was in very good spirits, Aunt Martha.”
“Rhoda is not one to show great enthusiasm,” Aunt Martha replied.

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Aid, Trade and Development : The

Future of Globalization (Second

Local Economic Development: Analysis, Practices, and

The Sons of Constantine, AD 337-361: In the Shadows of

Development Delusions and Contradictions : An Anatomy

Trade, Development and Structural Change 1st ed.

Development Aid and Adaptation to Climate Change in

The Future of the Greek Economy: Economic Development

Trapped: Brides of the Kindred Book 29 Faith Anderson

A Sketch of the World After the COVID-19 Crisis: Essays

ISBN 978-3-030-96035-3 ISBN 978-3-030-96036-0 (eBook)

Cover illustration: kenkuza_shutterstock.com

the School of Advanced International Studies (SAIS) of Johns Hopkins

Lusby, USA Constantine Michalopoulos

Danny Leipziger, Salvatore Schiavo-Campo, and Maureen Lewis read

13 Toward an Equitable Re-Globalization 359

Constantine Michalopoulos has worked on and written about

Aid, Trade and Development: 50 Years of Globalization (1st Edition, 2017)

CFC Common Fund for Commodities

IDB Inter-American Development Bank

RCEP Regional Comprehensive Economic Partnership

Table 2.1 ODA Performance of DAC Countries 1970–2020

Table 9.2 Poverty in the twenty-first century in millions of poor

Developing countries have made tremendous progress in reducing

community in assisting developing countries achieve the Sustainable

explained in part by the pessimism about the prospects for developing

The following three chapters address three key developments of the

Rapid technological change combined with expansion of trade and

The post-2008 slowdown in trade, finance, and growth of the world

representatives at the World Bank in order to help them obtain a “fair

will subject the growth of a developing economy to a constraint arising

exchange policy (Michalopoulos 1970). In early 1969, I applied to AID

to developing countries. But as private capital flows could not be the

The aid volume question became central to UN discussions in 1970 in

DAC $ million % of GNI

Poland – – – – – 461.8 803 – – – – – 0.10 0.14

promote development in the South, as well as recognition of rising inter-

The Oil Crisis and Its Aftermath

tight budgets limited prospects for regular aid appropriations to meet

In the end, very little came of these efforts. At the conclusion of

to education—mostly benefiting primary schools—and started a small

Future United States bilateral support for development should focus on

United States bilateral development assistance should give the highest

This new thrust of the US assistance program reflected in part

“‘Oh say, can you see, by the dawn’s early light,

She read it through to the end to a group of attentive listeners.

“‘’Tis the Star-Spangled Banner! Oh, long may it wave

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