Dissent on Development

Dissent on Development, by P.T. Bauer, Cambridge: Harvard University Press, 1972, 550 pp., $15.00.

Two-thirds of the world's population lives in countries which may be classified as "underdeveloped." This means that the income received by each individual averages less than $500 per year. Compared with a country like the United States in which income per capita is above $6000 per year it is easy to see why there is a great deal of concern about the underdeveloped countries. For many years there have been efforts on the part of leaders of these underdeveloped countries to raise living standards. Advice has been sought from the more developed countries and many "experts" have come to the fore.

The experts, who are mainly economists, range from pure socialists to advocates of the free market. It is safe to say that most of the advisors and formulators of development strategies lean toward some degree of central planning. (Some even go so far as to advocate the simple transfer of wealth from the developed to the less developed countries.) Happily Peter Bauer is not a member of this group. He is an advocate of the free market. Thus, Dissent on Development represents a significant departure from much of the prevailing literature.

While this book is essentially a reproduction of some of the best works of one of the world's leading economists in the field of economic development, it is not merely a collection of his past articles. Most of the papers reproduced in the volume have been revised significantly. Furthermore, the book has a major purpose that could not possibly be suggested and analyzed in a short review. Professor Bauer seriously questions many of the major concepts of accepted development theory.

The volume is divided into three parts. The prevailing theme throughout the entire book, emphasized and examined in great detail in Part I, is that certain ideas that are prominent in the literature are by no means accepted by all those concerned with the economic development of underdeveloped countries. These ideas, however, have had a great deal of influence on policy decisions. Part II is a series of case studies and Part III consists of reviews of some of the major contributions to the literature in economic development.

DEBUNKING MYTHS

Most of the ideas that prevail in the literature have little or no theoretical or empirical validity. The first one questioned by the author is that of the vicious circle of poverty, discussed by the late Ragnar Nurkse. (In short, countries are poor because they are poor.) Professor Bauer shows that empirical evidence and theoretical analysis simply do not support this thesis, and cites the rapid growth of Malaya, West Africa, and Hong Kong. The idea is, in short, simply a way of rationalizing failure.

Professor Bauer next argues against the need for central planning, continually advocated by Nobel prize winner Gunnar Myrdal. Central planning does nothing to the resource base of the country; it merely concentrates economic and political power in the hands of a few. The need for extensive foreign aid, also favored by Professor Myrdal, is discussed. Foreign aid by no means helps the masses in an underdeveloped country. The aid may be, and often is, used to benefit only the upper class which has set itself up as political and economic decision makers.

It is frequently argued that underdeveloped countries suffer from a decline in their terms of trade over time. That is, exports of the underdeveloped countries will buy less and less from the more developed countries. Since underdeveloped countries are primary producers (producers of raw material and agricultural commodities) and because the terms of trade are presumably deteriorating, balance of payments problems are also created. In short, the thesis is that the more developed countries are making life miserable for the underdeveloped. However, the facts are that when difficulties in using the concept of the terms of trade are overcome (for example, when appropriate years for comparisons are chosen) no consistent conclusion can be reached. Furthermore, balance of payments problems usually are the result of incorrect domestic monetary policy. Again, West Africa, Malaya, and Hong Kong are cited as examples of countries that are growing rather rapidly without balance of payments problems. Malaya and West Africa, of course, are primary producers. Finally, it would be difficult to argue that the terms of trade are moving against the oil producing countries today and that they are having balance of payments problems. It seems that prevailing thought has been contradicted. Indeed, developed countries are having their problems today.

In any case, because of the alleged (there has been no real investigation) deterioration of the terms of trade there is a movement toward industrialization in the underdeveloped countries. Resources are plunged into the industrial sector where productivity is low and at the same time, modernization of agriculture is ignored because of the scarcity of resources. The development process is thus impeded.

MISTAKEN EMULATION

The above is indicative of a widespread problem: as Bauer argues, correctly, most countries use little economic theory in striving for development. For example, they take a clue from the more developed countries and establish minimum wages. As in the United States, the minimum wage rate is established at too high a level. This has a negative effect on the rate of development, the prospects for development, and the level of employment. In fact, it creates a great deal of unemployment. Costs and prices too often do not even enter into the development arguments raised by those like Myrdal. In his Asian Drama, for example, Myrdal talks about exchange problems in India without any reference to the exchange rate. Clearly, many who are influencing the underdeveloped countries do not even know what information to look for. They seem to be merely politicizing the development process.

The case studies of Part II, for the most part, reflect how the faulty thinking examined in Part I is put into practice. The section on the development of Nigeria (Chapter 11) is of particular interest when the author tells us that the World Bank Report on Nigeria discusses the use of supply and demand analyses—without any reference to price as a factor affecting demand and supply! Significant lessons can be learned from the case studies presented by Professor Bauer. His now classic work on West Africa is presented in Chapter 12.

In the final section of the book, Professor Bauer takes on some of the big names in the field of economic development, analysing works of Myrdal, Lewis, and Higgins among others. The reviews are enlightening and they clearly point out the diversity of views offered by development economists.

After reading the book, one is convinced that it is not simply a collection of earlier works. It very definitely does not fit into the growing list of "collected works." It is a book that all in the field of economic development or all those interested in the development process must read. Unfortunately, all will not read it. The book is likely to be viewed as Bauer again arguing that many in the field are incorrect. Indeed he does set the record straight, and it is valuable to have his insightful papers updated, revised, and brought together in one volume. The only weakness in the book is that the author does not address himself directly to the role of political institutions in the underdeveloped countries and how these instructions act to impede growth. Perhaps this will be the subject of a yet unwritten essay.

Richard Bilas is Reid Professor of Economics at California State College at Bakersfield. A Ph.D. graduate of the University of Virginia, he is the author of three books in economic theory and of numerous articles in scholarly journals. In 1966-67 he was a Fulbright Research Professor in the Philippines.