Up from Underdevelopment

Reality and Rhetoric: Studies in the Economics of Development.
by P.T. Bauer.
Harvard University Press. 184 pp. $15.00.

Throughout the 1930’s the intellectual sky was gray with books predicting the doom of capitalism; then, after World War II, came the wholly unexpected “economic miracles” of Western Europe and Japan. What were deflated socialists to do? Some years ago the British economist P.T. Bauer (now Lord Bauer) described what many did do: they abandoned the West to its “stinking capitalism” and became prophets of socialism on behalf of the nations still sunk in poverty.

There was always an absurdity in this. Marx, after all, had seen no point in socializing poverty; it was capitalism, not socialism, that would produce development and prove a way out of economic misery. Nevertheless, during the years 1950-80, while the economic reality of significant parts of the Third World was being shaped by the great practical (and capitalist) work of the communications and transport industries, the trading companies, and the distributors of new technologies, the rhetoric of the Third World was being shaped by academic socialists fleeing from the successes of the West. Bauer’s new book, a collection of essays, is about this gap between reality and rhetoric.

The conventional wisdom, which dominated the field of international economics forty years ago and is today only slightly amended, Bauer states as follows:

General backwardness, economic unresponsiveness, and lack of enterprise are well-nigh universal within the less developed world. Therefore, if significant economic advance is to be achieved, governments have an indispensable as well as comprehensive role in carrying through the critical and large-scale changes necessary to break down the formidable obstacles to, and initiate and sustain the process of, growth.

Such views are simply wrong. In demonstrating how they are wrong, Bauer is able to draw not only on his formidable erudition as one of our most distinguished (and iconoclastic) economists, but on his own early experience in the rubber industry of Southeast Asia and in the organization of trade in former British West Africa, where he saw these notions being disproved time and again.

“Before 1885,” Bauer writes, “there was not a single rubber tree in Malaya nor a single cocoa tree in British West Africa. By the 1930’s rubber, cocoa, and other export crops were being produced on millions of acres, the bulk of them owned and cultivated by non-Europeans.” Rapid economic progress, including large-scale capital formation in agriculture by the local people, demonstrated the barrenness of the Western notion of some “vicious circle of poverty and stagnation” to be broken only by massive supplies of external capital. From poverty, wealth came by increments; far from stagnation, economic progress was astonishingly quick. To Bauer, watching this happen, it was “evident that the ordinary people of the less developed countries were not necessarily torpid, rigidly constrained by custom and habit, economically timid, inherently myopic, or generally deficient in enterprise.”

The evidence shows, moreover, that a developed bureaucratic infrastructure was not a precondition for the emergence of major cash crops in Southeast Asia and West Africa. Instead, large numbers of local entrepreneurs devised elaborate local solutions to problems of transport and trading facilities. No one had to be conscripted; there was no forced mobilization of resources. There as elsewhere in the Third World the “individual voluntary responses of millions of people to emerging or expanding opportunities” created a gigantic transformation of local conditions.

Thus the picture, dear to the mainstream of development thinking, of a world divided into two camps, one “rich and progressing” and the other “poor and stagnating”—the latter including virtually the whole of Asia, Africa, and Latin America—“does not bear any resemblance to reality.” Bauer insists upon doing justice to “the rapid growth of many poor countries and the prosperity of large groups there.” And he emphasizes—what many still neglect—the role of traders in bringing new ideas, raising questions, supplying inducements and incentives, catalyzing myriad new activities, and stimulating economic activism.

Economic activism in the less developed countries is inextricably linked with the possibilities of international trade, and specifically trade with the more advanced West—another piece of reality overlooked by conventional theorists of development, with their fondness for the notion that the relation of the developed to the undeveloped world is one of exploitation pure and simple. As Bauer writes, “The materially most advanced societies and regions are those with the most commercial contacts with the West. . . . This is not surprising. The spread of material progress from more advanced to less advanced is a commonplace of economic history.”

Finally, the economic activism inherent in the less developed world is something that has itself been historically thwarted by the policies of those committed to central planning and to the politicization of development. Basing themselves on the absurd and circular belief “that people in less developed countries are unable to respond to prices and market signals generally,” they have devised economic measures that reflect contempt for inarticulate rural populations and that have stifled their choices. Once again, Bauer states the hard truth of the matter:

Comprehensive central planning was certainly not necessary for economic advance and was much more likely to retard it. It did not augment resources but only diverted them from other public and private uses. It reinforced the developed countries, and it also divorced output from consumer demand and restricted people’s range of choice.



There is a tremendous fund of practical and detailed observation in this book, closely tied to its author’s pointed refutations of the false assumptions of conventional development theory. And there is a true respect, as opposed to just a pious regard, for human diversity. When Bauer began his field work, he more or less shared the view that the peoples of the world are homogeneous, except for special training. But what he actually encountered were startling “differences in economic performance and hence in achievement among groups.” On the rubber estates, “the output of the Chinese was usually more than double the output of the Indians,” despite the fact that all used the same tools and that nearly all were uneducated peasants, and despite the fact that the Chinese were subject to “extensive adverse discrimination” by the authorities. Throughout his field work, in many diverse places, Bauer could not escape the remarkable “differences in personal preferences, motivations, and social arrangements” among cultural groups.

Bauer writes that his early prejudices weighted physical resources (including capital) too heavily, blinding him to moral and cultural factors. Many Third World groups inhabit abundant and fertile land but live in dire poverty; it is “want of ambition, energy, and skill, and not want of land or capital,” that holds them back. Conventional theories—whether of stages of history or stages of economic growth—are inadequate if they do not take cognizance of such multiform cultural and human complexity.

“Success in a market economy,” Bauer observes, “requires concentration on concrete problems of production and marketing.” Unfortunately, those who make the market work “cannot readily explain why it does so.” Bauer contrasts this with “the opponents of the market order,” who are “highly articulate” and whose theories serve their own political interests. On these, Bauer is characteristically withering:

Replacement of market processes by political decisions provides power, influence, jobs, and money for politicians and civil servants. There are also bored, disillusioned, and ambitious academics who expect to benefit from such criticism, and from plans and proposals for restricting the scope of the market system. Churchmen manifestly seek a new role for themselves in the face of the erosion of their traditional functions. Increasingly they seem to regard themselves as social welfare officers rather than the spiritual leaders that once they were and still purport to be.

Fortunately, evidence from around the world, even from within the dark bowels of the socialist world, speaks louder than words about what actually works. By concentrating his mind on what works, as opposed to what ideologues say, P.T. Bauer has constructed a powerful counter-theory of development that has already won the admiration of many and is likely to attract even higher esteem in future generations than in his own, of whose conventional wisdom he has been so effective a demolisher.



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