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Economist portrays a new Democratic moment

Alice Amsden sounds like a latter-day New Dealer, or maybe a Kennedyesque New Frontierswoman, when she talks about the foreign policy options facing the new Democratic Congress.

All eyes may be on Iraq right now. But Amsden clearly hopes the new Congress will move to foster the kind of economic growth in the developing world that will fight terrorism by depriving it of oxygen. That means allowing developing countries to deviate, in some instances, from free-market orthodoxy in order to protect and support fledgling industries.

She's calling on the Democratic Party to "redefine laissez-faire," from "do it our way" to "do it your way" and stand up to the banking industry, whose interests U.S. economic policy generally serves, she maintains.

She also suggests that African countries band together into a cartel--or something very much like it--to get better, fairer prices for the minerals that make up so much of their wealth. If the nations of Africa can't come up with something like OPEC to stand up to foreign owners of mines and plantations, political instability and violence there are bound to get worse, she projects.

Amsden is professor of economy and Ph.D. chair in the Department of Urban Studies and Planning. She is also the author of the forthcoming book, "Escape from Empire: The Developing World's Journey Through Heaven and Hell."

She describes two approaches to international economic development Washington has taken over the past several decades.

Only one of them has actually helped develop international economies, according to Amsden.

She contends that what has really worked to lift countries out of poverty is the "get smart" approach taken by Franklin Roosevelt and his political heirs through the Kennedy-Johnson years.

The other approach is the "get tough" stance of Ronald Reagan and the free-market absolutists around him, always eager to force foreign markets open to American goods.

"It's funny how free trade comes with so many strictures," she observes in an interview. "'You must do this! You must do that!'"

To buttress her argument that the earlier approach was more effective, she produces a very simple bar chart based on World Bank data and labeled "Growth in Income 1950-1980 and 1980-2000." As a whole, economies, both developing and developed, grew much faster in the earlier period, the chart suggests.

"No one wants to know about these early growth rates," Amsden says.

Some might see simply the effects of the postwar reconstruction boom playing out, but Amsden sees policy choices at work.

In that earlier period, the United States was "a country for experiment," Amsden says, borrowing a phrase from President Kennedy's close adviser, Arthur Schlesinger Jr.

During that period, "Washington funded research for a Green Revolution that raised farmers' rice yields from the Philippines to Pakistan," she says. The United States supported land reforms in Japan that were emulated in Korea and Taiwan. This helped equalize national incomes and encourage higher savings, she explains.

Successive Washington administrations were so focused on the Cold War that reliably noncommunist allies were allowed a little slack--even by President Nixon--on development policy.

One of the policies they pursued was one she champions today as a development tool: import substitution. This enabled former colonies to start producing their own versions of products they once imported, and "upskill" the jobs of their workers.

All these policies, and Washington's support of them, add up to what Amsden calls a "get smart" approach.

It led to a global boom that abruptly shut down at the time of the global debt crisis of 1982, she says. She calls Paul Volcker, chair of the Federal Reserve at that time, "a great guy," but says that he "pulled the plug on prosperity" around the world.

The three developing countries that survived this shock--China, India and Taiwan--were countries that had notably not opened their financial markets, Amsden says.

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