Overcoming World Poverty
Equality, the Third World, and Economic Delusion.
by P.T. Bauer.
Harvard University Press. 293 pp. $17.50.
In an attempt to account for the rather disappointing economic performance of so many poor countries, some scholars have suggested that there must be forces at work within the “world system” which perpetuate poverty. Indeed, there are—but these are hardly ever identified correctly. The great obstacles to material progress today are neither physical nor financial: they are intellectual. Dozens of regimes in the poorer regions of the world neither understand the causes of their countries’ poverty nor recognize the means by which material advance could be expedited. These failures of intellect have proved to be very costly.
Policies obstructing the poor in their attempts to escape from poverty would not achieve legitimacy quite so easily if there were a reliable body of economic thought with which to oppose them. One might expect “development economics,” the study of the means by which national poverty may be overcome, to supply this body of thought, but on the whole it does not. Some would even argue that it cannot. As the rough art of colonial administration evolved into the modern science of “development economics,” analytical rigor and intellectual integrity were increasingly replaced by imperfect substitutes: mechanical reflex and wishful thinking. As a result, development economics today is eerily reminiscent of 18th-century medicine: many of its methods of examination are elaborate and pretentious, its verification of results is often haphazard, and its patients stand less than an even chance of benefiting from the expert advice it offers them.
But if there is any doubt about the level of excellence that can be maintained in the field, one need only turn to P.T. Bauer’s latest book, Equality, the Third World, and Economic Delusion. One of Britain’s leading economists, Bauer may be the only one in that select group to have a real first-hand understanding of the economic and administrative problems of everyday life in different areas of the poor world.
Bauer, who teaches at the London School of Economics, has become perhaps the foremost critic of conventional “development theory.” His first volume of collected essays, Dissent on Development, advanced a whole series of iconoclastic arguments: that the Third World was not hopelessly mired in poverty, that income differences between rich and poor nations were in fact much smaller than international comparisons usually suggested, that foreign aid generally did more to impede economic growth than to advance it, and that central economic planning could not be relied upon to accelerate material progress.
For making and defending arguments like these Bauer has found himself, over much of the past thirty years, cast in the unhappy role of a Cassandra, dispensing unheeded but consistently accurate warnings to colleagues and administrators charting their course to disaster. In his latest book, Bauer contends that there is now a “conspicuous and disconcerting hiatus between accepted opinion and evident reality in major areas of academic and public economic discourse.” The fifteen essays in this volume illuminate that gap, and in the process demonstrate how powerful honest economic thinking can be.
Bauer is at his best when he is rescuing basic economic concepts from degradation. In “The Investment Fetish,” he shows how one of the crucial ideas in economics has been effectively stripped of meaning. Indeed, he writes, “advocates of any form of spending [can now] call this investment, regardless of whether it yields an economic return, and regardless also of alternative uses of the money.” Exaggerated faith in the powers of “investment” and self-serving definitions of productive spending, he warns, will make for policies which perpetuate or even intensify poverty.
Bauer believes that “investment” has been greatly overrated as an instrument of economic growth. British auto workers, he observes, produce half as many cars as their counterparts in Belgium and West Germany, even though the factory equipment at their disposal is just as modern. Growth, efficiency, and productivity all depend less on sheer investment than on “technical advance, changes in habits, changes in occupational and geographical distribution of the labor force, advances in education,” and other, essentially human, factors.
This means that even under ideal circumstances, the gains from government manipulation of the volume of investment would be distinctly limited. But government investment policies are far from ideal. In the rich countries, misapplied Keynesianism has blurred the distinction between “spending to increase demand . . . and spending to increase the stock of productive assets or to improve their quality,” thus making it easier to pass off make-work projects or subsidies to inefficient industries as “investment.” In the poor countries, things are even worse. Sports stadiums, prisons, bribes to local fixers, and patently uneconomic prestige projects all figure in the “capital investment” column of “development” plans. This may help explain why the aggregate rate of economic growth in the poorer regions of the world does not seem to have improved over the past generation, even though the rate of “gross domestic capital formation,” as conventionally measured, has approximately doubled.
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If a regime is convinced that investment is the key to the future, and finds itself unable to secure voluntary financing, it may conclude that it must enact coercive policies in the interest of “national progress.” But as Bauer explains it, such enforced austerity is inimical to material advance:
The habitual references to the Industrial Revolution [in England] and the Soviet experience as examples of austerity necessary for material progress often reflect a misreading of history. But they are also attempts to rationalize or explain away a decline in living standards . . . , lack of simple consumer goods, or even recurrent famine in the contemporary Third World. However, these conditions are usually brought about by such policies and circumstances as persecution of productive people, expulsion of minorities, suppression of external commercial contacts, neglect of basic transportation facilities, special taxation of farmers, or sheer official ineptitude. Inept, inappropriate, and even brutal policies are spuriously justified by the supposed capital requirements of development, even when the policies have nothing to do with productive capital formation, and even evidently obstruct it.
Another of Bauer’s reclamation efforts is directed at the study of population growth, which has come to be the single most perverse area of economic thinking. His essay, “The Population Explosion: Myths and Realities,” may be the best short exposition on economic demography to have appeared in a generation. It demonstrates that population growth is not a threat to poor nations or poor people, that population theory currently “registers as deterioration changes which are in fact improvements in the conditions of people,” and that fertility-reducing policies sponsored or encouraged by Western experts may actually lower the standard of living of the people they are meant to help.
The notion that rapid population growth must impede the attainment of prosperity, Bauer notes, has not been borne out by history. Europe’s population, for example, quadrupled during the continent’s economic ascent. To presume that an increase in human numbers should reduce opportunities for progress is to believe that the generation of wealth depends primarily on natural rather than human resources, and this, Bauer holds, is patently invalid. He reminds us of Holland, Japan, Hong Kong, and Singapore, all of which are rich, densely populated, and almost bereft of natural resources; and, conversely, of the poverty of North American Indians before the European conquests, even though their land was shown to have fantastic mineral wealth and great agricultural potential. If economic output is a result of human response to challenge and opportunity, it is critically dependent on effort and talent, not birth rates.
This self-evident truth is obscured, in part, because the conventional economic calculus cannot properly measure the costs and benefits of population growth. When a calf is born, a nation’s per-capita wealth rises; when a child is born, per-capita wealth declines. Other things being equal, a rise in infant mortality will increase a nation’s per-capita income, but a drop in infant mortality will tend to skew or “worsen” the distribution of income. Economic demography somehow ignores the fact that today’s population explosion is powered by a revolution in health: population levels have risen because death rates are no longer so murderously high. By any impartial standard, this would seem to constitute an enormous improvement in the human condition—yet economic demography registers it as a threat to human well-being.
Such notions are a troubled basis for policy. If one believes that poor people are basically irrational in the way they determine family size, and that children and old people are nothing more than burdens on their societies, one is likely to view with equanimity, or enthusiasm, efforts to penalize parents for “excessive” childbearing (as are currently under way in China), or to sterilize them against their will (as was done in India). Such indecent assaults on the families of the poor have been praised, and even promoted, by the World Bank and other Western organizations. The tragedy of such policies is not only personal: a theory of government rooted in a distrust of human choice and a confidence in inanimate forces, such as the supposed providence of natural resources, is unlikely to accelerate progress.
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Bauer’s writings seem to touch exposed nerves in the “development community.” Whereas other authors may be criticized, Bauer is often denounced. In the heat of passion, his opponents sometimes brand him a racist—a most puzzling charge, considering Bauer’s consistent and uncompromising criticism of racial prejudice in the Third World. Others dismiss him as a throwback, a Social Darwinist extolling a doctrine of survival of the fittest.
There are indeed places in Bauer’s writing that make one wonder what is to become of the weak: a discussion of the consequences of European political and economic expansion which ignores the present, pitiable condition of the original inhabitants of Australia, New Zealand, Canada, and the United States is an example. Nevertheless, Bauer’s critics are off base, for Equality, the Third World, and Economic Delusion is imbued with a compassion which is noticeably absent from today’s development thinking.
Unlike most development economists, Bauer rejects foreign aid, the stabilization of commodity prices, and many other schemes for manifesting Western concern with the world’s poor, but he does so after persuasively arguing that such policies do more to prevent progress in poor regions than to promote it. Most development economists prefer to ignore the virulent racial prejudice which blights life in so many poor countries; Bauer explicitly denounces it. Where most development experts seem to sympathize with the aspirations of oppressive Third World governments, Bauer is outspoken in defense of their victims. And Bauer, almost alone among development economists of repute, has insisted that man be placed squarely in the center of the economic tableau, that individuals be held responsible for their actions and credited with their own successes. This may be regarded as Old World morality, but poor peoples will reject it at their own expense.
Equality, the Third World, and Economic Delusion is more than good economics: it is first-class political economy, and its publication is a most welcome event.
