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Capital Ideas That Can Best 'Isms'

05/20/2015 10:14 am ET | Updated May 20, 2016

The victorious nations of World War II emerged from their searing experience with several conclusions about how the world worked.

Most of these proved accurate. Their implications informed how advanced nations approached peace and prosperity, and they worked well in countless ways. However, not all the postwar insights were fully realized, and it is time to revisit them.

The world is a different place today. It is time to reform the institutions and instruments of America's global economic engagement.

The first conclusion was plain to see. Never again could advanced nations, especially the United States, accept the risk of isolationism. What happened "over there" would forevermore have consequences here at home. In just over one generation--across World War I and II--more than half a million Americans had lost their lives in military conflicts abroad.

The second insight was that economic instability raises the odds of conflict. This was one lesson of the Treaty of Versailles. Since then, voluminous research across nations, regions and decades has validated it. Extreme poverty and economic instability do not ensure violence will ensue, but they dramatically raise the odds.

The third conclusion was that military and economic preparedness by individual nations are necessary but not sufficient to sustain stability. To create political resilience, the world needed global institutions and significant economic engagement.

So, in the summer of 1944, when the tragic loss of American lives along the Normandy beaches was still in the headlines, officials met at Bretton Woods, New Hampshire. The Allied nations set about planning the post-war reconstruction of infrastructure, a plan that relied heavily on economic development and investment.

Harry White, one of the U.S. Treasury Department's architects of the postwar economic institutions, argued: "There is nothing that will serve to drive these countries into some kind of 'ism' -- communism or something else -- faster than having inadequate capital." This view prevailed and set into motion the creation of the International Monetary Fund and the World Bank.

A fourth crucial issue, however, was half-formed and largely disregarded among the Allied leaders at the time. Should the plans and programs for postwar investment in Europe extend to the poor, developing nations of other continents? Was such proactive economic engagement with other countries necessary?

When White's deputy asked whether the word "development" should even be part of the official title of what would become the "World Bank" White said offhandedly, "Let's have it there for after." The general consensus was to stand up Europe again, and after that, consider turning to Asia, Africa and other parts of the globe.

With the onset of The Cold War, of course, a long political, economic, and military chess match began, using proxy nations in the developing world. Yet compared to the amount of military and political might exerted in these regions, economic investment was scattered and fitful.

Today, investment in developing nations is undoubtedly in America's enlightened self-interest. It can help to forestall, and even stave off, conflicts. And it purchases diplomatic goodwill for use during times of national and regional crises.

In the Middle East alone, our generation faces multiple nations with entrenched poverty, extremely high youth unemployment rates, contested borders, stressed natural resources, and terrorist activity.

No government of an advanced nation or collection of such governments has enough capital to fully, rapidly and unilaterally "solve" the economic dimension of these challenges. But it is without question in our national interest that they be addressed.

The volatile and unstable nations and regions of the Middle East, South Asia and Africa need not only our aid but sustainable growth created from the bottom-up in a manner that enables broad-based opportunity.

Private sector investment is clearly the vehicle best-suited to deliver on this imperative. In the decades since Harry White and other prescient statesmen argued for the creation of institutions to guide the economic redevelopment of war-torn nations, the role of the private sector has continued its inexorable rise.

In 1971, when the U.S. government spun its development finance institution, the Overseas Private Investment Corporation, out of the U.S. Agency for International Development, private capital flowing into developing nations was dwarfed by "official development flows" - low-interest loans and grants from multilaterals and the governments of advanced economies to poorer nations.

Today, for every $1 in official flows, $7 in private investment goes into developing nations. It is a powerful lever for good and stability.

There are dynamic, leading American companies ready to invest their capital and know-how throughout the developing world. Such investments will provide employment for youth in these regions while also boosting growth and employment at home.

Comparatively small amounts of capital and public insurance can catalyze the durable economic dynamism that only private sector companies can bring. And that capital and insurance can be provided on a commercial basis, thus generating revenue for the taxpayer, as OPIC has done for 37 straight years.

What is needed is a collaborative, long-term approach that uses existing institutions and comparatively small amounts of public capital to catalyze the durable economic dynamism that only private sector companies can bring.

After World War II, the victors were deeply convinced of the link between economic stability and enduring peace, and generations in advanced economies have prospered as a result of their far-sightedness.

Hundreds of millions of youth across the developing world now aspire to a similar life of stability and thriving prosperity that extends from one generation to the next, a pathway to peace.

This time, however, we must redouble our efforts to achieve our aims investment by investment, company by company, and market by market.