FROM THE OFFICE OF PUBLIC AFFAIRS

I am glad to be here at the United Nations to address the issue of global development, because there is no greater challenge than global development and because the success or failure of the UN system that will be critical to ensuring that that challenge is met. This will be a central focus at the upcoming meetings in Japan of both the G7 Finance Ministers and the G8 heads - and must be the crucial long-term question for all of the world's governments in the years ahead.

• It must be the central moral question of our time, when 1.2 billion people on this planet live on less than a dollar a day.
• It must be a central global security question, when some of the greatest conflicts in the world have had their roots in economic failure and despair.
• And it must be a central global economic question, when the world is more integrated than ever before, and when the aging of the major industrial countries gives them an even greater stake in growing markets and opportunities overseas.

The "post-Cold War era" has been an era that is defined by what it follows, not what it is. But in the absence of major geopolitical conflicts, the successful integration of the poorest economies must surely be the defining challenge of the era to come.

• We saw this in the debates inside, and outside, the conference halls at the WTO meetings last year in Seattle and more recently regarding China's entry to the WTO.
• We see it in ongoing debates about development assistance and the reform of the World Bank, International Monetary Fund and other international financial institutions.
• And we see it in the unprecedented global support for the Heavily Indebted Poor Countries initiative to reduce the debts of the poorest countries in this millennial year.

These debates are not over. In many ways, they have hardly begun. But in the fire of argument we can also glean the beginnings of a new global consensus: growing areas of agreement on how to build a truly global economy, and how to make it work for all its members. Today I want to reflect on some of the framing realities for this new consensus, and some of its core elements.

This new global consensus starts from some basic realities about the world of the early 21^st century:

• First, there can be no successful economic development without economic growth. This has lately been portrayed as a question for debate. But the truth is that no serious observer doubts the centrality of growth. Experience and academic evidence point up the same conclusion time and again. In every time in history and every region, the incomes of the poorest cannot grow in a lasting way when the broader economy does not. The debate, rather, is about how best to achieve rapid and poverty-reducing growth.
• Second, the "new economy" holds out enormous potential for accelerating global convergence - when information technology could help isolated and far-flung nations overcome the barriers of time and space, and advances in biotechnology offer fresh promise for overcoming the scourge of infectious disease. But when half of the world's population has yet to use a telephone, and 40 percent of African adults cannot read, there is perhaps an equal chance that technology will speed further divergence. We will not see that more inclusive outcome without concerted public action.
• Third, the crucial factor in achieving successful global development in the years ahead will be national policies in the developing countries themselves. In this new global economy, countries will shape their own destinies. And the international community cannot want growth and reform in any country more than a nation's own government and its people do.

Achieving successful global development in this context is an immensely difficult and complex challenge, and none of us has all the answers today. But I believe that we need to form a new global consensus embracing the major elements that are essential to success.

2. Ten Elements of a New Global Consensus

Five of the core elements relate to what countries do - and five to the actions and policies of the international community.

1. Market-oriented policies

It cannot be an accident that Soviet-style communism, planning ministries in the developing world and large US corporations run by command and control all ran into a brick wall in the same decade and had to be restructured. In this new global economy, the power of open markets and market-based incentives are larger and clearer than ever before. And the failings of more centralized means of coordinating economic activity have become that much more apparent.

Globally the message has been repeated again and again: successful national economic development depends above all on the promotion of markets, and the institutions and policies that are needed for markets to function well - especially the creation of a supportive macro-economic environment. This does not mean that there is no room for variation. It does mean that innovation in public policy will achieve most by working to support the market - not supplant it.

2. Effective institutions and the rule of law

If there has been a major progression in global thinking on development in the past ten years it has been on the centrality of institutions. Whether it be the transparency of a nation's budget or the independence of its judges, the integrity of its public servants or the health of its civil society - strong institutions, good governance and a functioning rule of law can make all the difference to whether a country moves forward in a global economy, or ever further behind.

The importance of these things comes through in all of the major economic success stories, and failures, of our time: in the contrasting experience of the East Asian economies and that of sub-Saharan Africa, where it is estimated that Africans receive only $12 worth of benefits for every $100 allocated to public health; and the contrast between the transition economies of Central and Eastern Europe and those of the Former Soviet Union, where organized crime structures have too often substituted for an effective rule of law. The point is starkest, perhaps, in Amartya Sen's observation that no democratic nation has ever had a major famine.

3. Integration with the rest of the world

As growth is central to development and poverty reduction, so integration is central to growth. That is the lesson of recent US experience. It is equally the lesson of the global development experience since World War II. In the developing world, only one country, Botswana, has achieved rapid economic growth in this period without rapid growth in manufacturing exports. This has important implications for developing countries today.

In the post-war period, multilateral trade liberalization through the GATT and other mechanisms has brought enormous global benefits. But while the rhetoric would suggest otherwise, the most valuable part of the process for any country has not been the concessions they receive from others, but the concessions that they grant themselves: the opening of their own economies to the competition, goods and ideas that integration affords. While other factors have certainly played a role, domestic protectionism and discouragement of exports bear a large share of the blame for the decline in sub-Saharan Africa's global trade share since 1970 - a decline that has represented an annual loss of income of more than 20 percent of regional GDP.

4. Core investments in education

Experience in Asia and elsewhere has taught us that investments in people are central to rapid, poverty-reducing growth. Worldwide, no country has enjoyed sustained economic progress without literacy rates well over 50 percent. And there is no higher return investment that a developing country can make than investment in the education of young girls. Letting girls go to school and experience more of the world beyond their homes makes them better off immediately and enriches their families. The result is not just more productive workers, but smaller and healthier families.

The World Bank has recently estimated that if countries in sub-Saharan Africa had seen the East Asian rate of improvement in the gender gap in education since 1970, their GDP and living standards would be 15-25 percent higher than they are today. As it is, in large parts of Africa today, young girls are more likely to die before reaching the age of five than they are to learn to read. To put it bluntly, until we see substantial improvement in these figures, the dream of putting the world's poorest citizens on a fast track to technology and growth will remain just that: a dream.

5. Investments in basic health

The other crucial investment in growth and development is in basic health. This must be an even higher priority in the poorest countries when AIDS killed ten times more Africans last year than all of the region's military conflicts combined, and when it is estimated that 90 percent of the illness and death that HIV/AIDS will bring to Africa are still to come.

In southern Africa, life expectancy is now expected to drop from a high of 59 in the early 1990s to less than 45 within the next 5-10 years, a level not seen since the 1950s. In the countries worst hit, more than 1 in 4 of the adult population may now be HIV positive - and more than 10 percent of the population are AIDS orphans. Yet the total per capita health budget in many countries is often less than $5 a year.

In all of these ways, national policies will be crucial to creating a strong and truly global new economy. But the frameworks and policies that we develop internationally will also play a central role. These comprise the other five core elements of the new consensus.

6. A rule-based global economic system

We learned the importance of common rules and institutions here in the US more than a century ago, as inter-state commerce took off and the national economy began to come together. Over time, politicians in both major parties came to recognize that greater interconnectedness between states also called for common institutions and understandings at the national level, to offset the downward pressure on local rules and standards that competition could create.

Increasingly the same imperative needs to be recognized at a global level. As the President has said: "a legal framework of mutual responsibility and social safety is not destructive to the market; it is essential to its success." In that sense, the actions of the Financial Action Task Force and other groups to name and shame jurisdictions that encourage the dark side of capital mobility - money laundering, tax evasion and so forth - are examples of something we should see much more of in the future.

7. A strong and stable global financial system

At a time when the cost of a large American mall or office building exceeds the private capital flow to many developing countries, a strong and stable flow of capital from the industrial world to the developing world will be essential to a successfully integrated global economy. It bears emphasis in this context that the lesson of the Asian crisis is not that poor countries should accept less capital - it is that capital flows need to be deepened and better utilized to ensure their stability.

This is the central objective of the international community's approach to the ongoing reform of the international financial architecture, which has emphasized transparency, the improvement of domestic financial infrastructures, and the monitoring and reduction of financial vulnerabilities that are associated with leveraged national balance sheets. It will be essential to assure that the IMF continues to have a strong capacity to respond aggressively to financial crises, while at the same time becoming increasingly selective and short term in its provision of funds. And the World Bank and the other multilateral development banks will need increasingly to focus their work on countries and sectors where private capital cannot be expected to go.

In the public as in the private sector, questions of pricing in finance will be central in the years ahead: central to assuring that finance is properly used, and central to mobilizing the kind of resources that will be necessary if truly concessional needs are to be met. That is why the pricing policies of the international financial institutions will be under discussion in Fukuoka this weekend, and also at the fall meetings in Prague.

8. A realistic approach to debt

The reality that not all loans will be repaid, and provision must be made for writing off bad ones, is central to any properly functioning financial system. That is why countries have bankruptcy laws, and why private sector involvement has been an important part of discussions of crisis management. It is also why the enhanced HIPC initiative that has been agreed among the G7 in the past year is so appropriate.

Beyond good financial practice, writing off bad loans is morally right. The power of compound interest should not ever be the power to stop children from going to school or from getting necessary health care. We are committed to ensuring that unsustainable debt burdens do not stop poor countries from realizing their economic potential. But equally, we are committed to not repeating the mistakes of the past, and to ensuring that assistance provided through debt relief helps the intended beneficiaries - as part of a new framework for providing support that puts poverty reduction and popular participation at center stage.

9. Enhanced provision of global public goods

I referred earlier to the profound opportunity and challenge represented by the dramatic developments in information technology and the life sciences. There would be no Internet, no sequenced human genome, and no eradication of any major disease, without public sector action. Nor can any of these issues begin to be addressed in a purely national context - even in the US, let alone in countries that are far smaller and poorer. That is why global public goods need a much more prominent place on our development agenda than they have had to date.

We have had enough successes, with the Consultative Group on International Agricultural Research (CGIAR) and the Green Revolution, the campaign to defeat river blindness in Africa, and the eradication of small pox, to show that global public goods can be provided. But if the potential of modern science is to be realized, there is no alternative to global public institutions and actions of a kind very different from the standard country-by-country programs to which we have all become accustomed.

This is the animating idea behind President Clinton's Millennial Vaccines Initiative, with its emphasis on creating market incentives for the development of vaccines against the small number of diseases that account for more than a million fatalities each year, and on expanding the capacity to disseminate vaccines that already exist, notably through the Global Alliance for Vaccines and Immunization (GAVI). But vaccines are only one area - agricultural, educational and environmental research are just some of the others.

As always, in the provision of public goods, financing is the crucial challenge. Everyone - governments, foundations and international institutions - wants to lever the efforts of others, and no one wants to be levered. I do not have any answers to provide here. But the development banks could take small but significant steps as they review their pricing and use of net income policies going forward. And there is certainly scope for closer cooperation between the public and the private sectors at a time when the US Forbes 400 commands more than $1 trillion.

10. More and more effective official external assistance

Too often, in recent years, the debate about international development assistance has been paralyzed by a stand off between two extreme views:

• The first is the view that all that stands between the poorest countries and rapid economic growth is inadequate international financial support.
• The second is the view that the countries' problems stem only from a lack of commitment in the countries themselves - a failing that no amount of external support will fix.

It is time that we recognized that both views are right - and both views are wrong.

On the one hand, no country will succeed without the right policies in place. Tempting as it is to believe that just providing support to governments and letting them use it as they see fit is enough, the overwhelming lesson of history is that it isn't so. Indeed, the economic history of Nigeria, Venezuela, Zambia and others with abundant natural resources offer concrete examples of the dangers of external finance without good policies. All too often, natural resource windfalls have flowed into palaces, corruption, and Swiss bank accounts, producing little or no tangible benefit for a nation's people. The lesson is that support needs to be targeted to countries and policies with a proven capacity to deliver results, and that conditions are appropriate when assistance is provided.

At the same time, those who preach self-reliance need to recognize that the most committed governments in the poorest countries today face problems that they will not come close to addressing without major outside support. And we all must face up to the fact that there are high return investments in growth and poverty reduction that are not being pursued in the poorest countries today, at tremendous human and economic cost, because of a lack of official resources.

Increasing the quantity, as well as the quality, of global development assistance must be a global humanitarian imperative at a time when the average per capita health budget in sub-Saharan Africa will barely cover the cost of a tse-tse fly trap, yet net official transfers per capita to Africa are now more than one third lower, in real terms, than they were in 1990.

We recognize that this is a challenge that the world's richest country has a particular responsibility to confront. The US continues to be one of the largest contributors to the global development effort and the largest market for developing country goods. But Americans should not be satisfied with what we are now doing. Our defense budget last year was more than a $100 billion lower in real terms than it was in 1989 - but rather than reinvest a portion of this dividend in forward defense of US interests through foreign assistance, we spent 20 percent less, in real terms, on our foreign operations in 1999 than we did on average during the 1980s.

The global stake in successful economic development has never been greater. There have never been greater technological opportunities to promote convergence than there are today. And for all the arguments that rage, there is probably more agreement on the right way forward, both nationally and internationally, than ever before. The question really is whether internationally we will have the will to do what can be done. That is why I am so honored to have had the opportunity to participate in this forum of the UN today. Thank you.