The Poverty of Economics

DR BALOGH AND THE THIRD WORLD By P. T. BALER THE vicious circle of poverty and stagnation. the responsibility of privileged classes and of rich countries for mass backwardness and poverty in the underdeveloped world, and their duty to help it; the need for development plan- ning to be comprehensive; these are the major themes of the latest book* from the Prime Minister's Economic Adviser.

The book is difficult to summarise because of the wide diversity of its topics and the extreme vagueness and frequent contradictions in the writing. There are also many meaningless or highly misleading statements. For instance, the terms of trade of manufacturing countries are said to have improved by some 30 per cent (p. 21) without specifying the relevant countries or period; the West African export monopolies are said to have brought producer prices nearer to market prices, which is the re- verse of the truth (p. 67). And there are references to landlord merchants' in West Africa (p. 67), where they do not exist, and to the 'feudal- aristocratic' countries of South America, the 'colonial-aristocratic' areas of British Africa, and the littdrateur-colonial' areas of French Africa (p. 97). These and many other expressions in the book recall the Nazi references to Jewish- Bolshevik-capitalist conspiracies, or the familiar Communist references to monopoly-capitalism- imperialism.

Indeed, Dr Balogh often seems more con- cerned with evoking responses than with present- ing an argument. But the major themes stand out clearly enough, and they reflect the most influen- tial ideology of current official and academic de- velopment literature, and of the UN agencies at whose invitation many of these essays were writ- ten. The publication of the book is an appropriate occasion for a discussion of the main strands of this ideology, of which Dr Balogh is a prominent and extreme exponent.

'The vicious circle of poverty' is the most familiar theme of contemporary development literature and is prominent in Dr Balogh's book. It suggests that poverty sets up insurmountable obstacles to its own conquest. This is obviously unfounded, as is evident from the existence of countries which are now developed and were naturally once underdeveloped. It is evident also from the rapid material progress of many under- developed countries since the end of the nine- teenth century Japan. Hong Kong, Malaya, Thailand, Nigeria, Gold Coast-Ghana, Mexico and Brazil, among others. To put it in more tech- nical language, the vicious circle argument con- fuses a low level (poverty) with a zero rate of change (stagnation). This obviously untenable (though often politically effective) notion is to be found in the writings of many prominent aca- demic economists in influential advisory posts. It is an example of the discrepancy between the standing and the standards of economics; the former is too high, and the latter too low.

This argument also obscures many problems, often calling for government action, which arise not from stagnation but from rapid and uneven change, such as the personal and social problems

P. T. Bauer is Professor of Economics (with special reference to economic development and underdeveloped countries) at the London School of Economics.

of the emergence of a cash economy, of detri- balisation, and of the disintegration of the ex- tended family and traditional customs and values.

In many poor areas, of course, there has been comparatively little material ad- vance, and much of the advance that has occurred has been taken out in the form of an increased population. The lack of progress re- flects the absence of attitudes, qualities, motiva- tions and social and political institutions favour- able to material advance. It does not mean that poverty is practically insurmountable without coercion or external help.

There are great differences between the economic achievements of different peoples, as between those of individuals, and they largely reflect differences in economic qualities. Interest in material progress, industry, thrift, self-reliance, readiness to perceive and exploit economic opportunity, a questioning turn of mind and an experimental outlook—these are some of the qualities behind material success, though not necessarily behind contentment, dignity, harmony or happiness. Little is known of the various his- torical, physical or institutional factors behind these differences. Neither they nor their deter- minants (including the factors which modify the differences) are readily susceptible to formal economic analysis.

The social and institutional background is probably important. This background has for centuries been less authoritarian in the West than in Africa and Asia, and thus more conducive to experimentation, a questioning turn of mind and an interest in material advance. The sub- jection of the individual in Africa and Asia to political authority and tradition has discouraged these qualities; and so has the lesser respect (com- pared with Europe) for action as against the contemplative or spiritual life. Economic ad- vance, notably a rise in living standards, requires a change in the attitudes and values of the authoritarian tradition, a liberation and a modernisation of the mind.

The material backwardness of most peoples in the underdeveloped world has not been caused by privilege, inequality or exploitation in any meaningful or accepted sense. The inviolability of animal life or the sanctity of cattle in India, deeply embedded in Hindu life and culture for many centuries, and well recognised as major causes of material poverty, cannot be explained in terms of privilege, inequality or exploitation. Nor can the extreme backwardness of the primi- tive tribal peasants of Africa, most of them iso- lated for many centuries from the outside world.

It is most misleading to refer to backward people as exploited, and to ascribe their material backwardness to external causes and sinister in- terests. 'Underprivileged' in particular is a self- contradiction, a nonsense word. like 'underover- fed.' Privilege is a special favour granted officially to restricted individuals and groups to the exclu- sion of others 'Underprivileged' is now used to denote people who are poor or technically back- ward or unsuccessful, a practice which, though emotionally and politically appealing, is mislead- ing or meaningless.

Many, perhaps most, of the pronounced ex- amples of financial inequality in poor countries are unrelated or inversely related to privilege. Former penniless immigrants and their sons who

received no financial favours are now the richest people in South-East Asia (Chinese), in East Africa (Indians) and in N'■ est Africa (Lebanese).

There is nothing new in this, as is shown by the material success of the II uguenots in seventeenth-

century Europe, of the Jews in eighteenth- and nineteenth-centurN. Europe. and of noncon- formists in Britain since the seventeenth century. Nor are the rich countries responsible for the poverty of the underdeveloped world. Through- out the underdeveloped world the most rapidly advancing areas have for decades been those with which the developed countries have established contacts, while the poorest and most backward are those with few external contacts or none.

Comprehensive development planning, that is, state control of the composition and direction of economic activity, is to Dr Balogh, as to other exponents of the current orthodoxy, indispen- sable for material progress. This is the reverse of the truth. It played no part in the early history of the developed countries, nor in that of the many underdeveloped countries which have progressed rapidly in recent decades, among them Japan, Hong Kong, Malaya and Thailand. And conversely, in many poor countries, notably India, Indonesia and the United Arab Republic, there are acute economic difficulties, after years of comprehensive planning. The large- scale expansion of a heavy capital goods industry was, for example, the core of India's second and third plans, whose professed aim was to raise living standards and achieve economic independence : the country now depends on large-scale gifts of food and foreign exchange from abroad.

This is not surprising, since comprehensive planning neither augments resources nor modern- ises the minds of peoples, but merely enlarges and centralises power. This is likely to retard material progress, especially in poor countries, because it goes counter to that liberation of the individual from subjection to authority which encourages the qualities behind material success. Moreover, comprehensive planning restricts the external contacts and the internal mobility which usually stimulate new methods and ideas, and which, without coercion, often undermine attitudes ad- verse to material progress. The great extension of state power also provokes political tension, and diverts the interests and energies of ambitious men from economic to political life.

Thus comprehensive Planning is unlikely to increase total output. Even if it did, the greater output would be unrelated to consumer demand and thus to general living standards. The meagre living conditions in centrally-planned economies are best explained in these terms. Naturally these economies have often produced massive displays of military power, or impressive industrial monu- ments. Wide and pervasive controls make it easy for the government to expand particular activi- ties by diverting resources from elsewhere.

But this has nothing to do with general living standards, as the people of Eastern Europe know only too well.

These criticisms of comprehensive planning do not in the least deny that there is a very extensive range of essential government tasks in poor countries. Although the list should be familiar, it still bears spelling out. It includes the manage- ment of external affairs to the best interests of the country; the maintenance of law and order; the effective management of the monetary and fiscal system; the promotion of a suitable insti- tutional framework for the activities of indivi-

• THE ECONOMIC'S OF Povt RTY. By Thomas Balogh. (Wcidenfeld and Nicolson, 50s.)

duals; the provision of basic health and educa- tion services and of basic communications; and instruction in farm techniques. In fact, pre- occupation with development planning and especially with the establishment of closely con- trolled economies has brought about widespread neglect of these essential tasks. The governments seem anxious to plan, but unable to govern. One reason, perhaps, why the traditional and well- recognised functions of government are so widely neglected is that, although they are generally necessary for economic progress, they do not involve close and intensive government control over the lives of individuals.

Advocacy of mobilisation, universal labour service, austerity, compulsory saving, forced marches and so on constantly recurs in current de- velopment literature—see, for instance, the writ- ings of Professors Myrdal, Dumont and Raj. They convey the drastic policies and large-scale compulsion envisaged. For what purpose? The sacrifices are not borne by those who so warmly advocate their imposition. What right or justifica- tion have they to destroy the institutions and values of whole societies and to impose their will on those who do not wish to give up their modes of living, attitudes and beliefs? Sir Arthur Lewis wrote in 1955: 'The advantage of economic growth is not that wealth increases happiness, but that it increases the range of human choice.'

But development policy is discussed without reference to consumer demand, living standards and individual choice, as is obvious, for instance, from the adulatory references to Soviet and East European performance; the low living standards in the Soviet Union half a century after the revo- lution are rarely mentioned. It is evident also in the frequent suggestions for the establishment of labour armies. Dr Balogh, for instance, while at times renouncing massive coercion, envisages nevertheless (p. 84) the necessity for 'a new or- ganisational and educational effort on completely new lines, embodying some sort of universal national service for labour-intensive rural in- vestment'—which, if it means anything, means conscription of labour for civilian purposes.

Liberation of the mind is both an instrument and a goal of material progress. Mass compul- sion will not bring about a general rise in living standards. Indeed, its methods and results may prove so traumatic that large numbers of people may become listless because they find that their lives have become empty. Massive subjection of the population to state control often coupled with extensive confiscation of property may reduce the people of poor countries or even larger areas (Dr Balogh and many others advocate supra- national comprehensive planning) to malleable clay. If institutional change involves massive and forcible destruction of accepted beliefs and modes of living, and the removal of freely accepted authority, it may, besides bringing about bitter strife, also lead to a loss of purpose and meaning in life. By contrast, modernisation of attitudes without enforced destruction of tradi- tional ways of life may well have been a major factor in Japanese progress.

The principal policies of the current ortho- doxy, notably comprehensive development plan- ning and large-scale foreign aid, do not tackle the root causes of poverty. But they are likely to bring about societies and systems utterly re- pugnant to many of their supporters. In politics ends and means are frequently inseparable. As is so often the case, policies advocated as means imperceptibly come to be regarded as ends, especially when enthusiasm tends to stand in the way of detachment.