WASHINGTON — Not long ago, the only way most poor countries could stay afloat was to beg for ever-larger amounts of foreign aid. Western governments poured billions into costly development projects. Private industry and capital were almost nowhere to be seen.
No more. Richer countries, feeling strapped for cash themselves, have cut back their foreign aid. At the same time, however, many of the impoverished nations have abandoned socialism and embraced capitalism. As a result, private capital has become the economic mainstay in many poorer countries.
By most reckonings, that turnabout is good. Not only is private investment more productive than foreign aid, but the mere fact that foreign investors are interested shows that the countries themselves are taking solid steps to get on their feet.
But the emergence of some of the world's onetime economic basket cases also presents the United States and other industrial countries with some new dangers, including widening U.S. trade deficits and increased competition for jobs.
There are also some risks for Americans who have invested in the stocks and bonds of the world's newest bastions of free enterprise--a group that includes just about everyone who has some savings in mutual funds or 401(k) retirement plans.
Moreover, Jeffrey E. Garten, a former U.S. trade official, foresees clashes between the United States and the "newly emerging markets"--as the fastest-growing developing countries are known--over trade barriers, human rights and rules governing labor and the environment.
As a result, Garten contends in a new book titled "The Big Ten," dealing with these countries--which range in size from China and India to Peru and the Czech Republic--"will be the key to our economic well-being and to our security in the decades ahead."
The surge of private capital into poorer countries has been relatively sudden. As late as 1991, net "official" capital flows--foreign aid and World Bank loans--still exceeded private investment.
By last year, however, investors in industrial countries pumped a net $244 billion into poorer countries while net official flows fell to $41 billion.
The effect has been staggering. Foreign-owned firms account for 90% of Singapore's exports. Foreign consortiums pump $12 billion a year into Poland's industry. One-third of the money in Mexico's stock market comes from abroad.
