Commentary Magazine

Problems of Capital Formation in Under-developed Countries, by Ragnar Nurkse; The Progress of Underdeveloped Areas, ed. by Bert

The Problem of Backward Countries

Problems of Capital Formation in Underdeveloped Countries.
by Ragnar Nurkse.
Oxford. 160 pp. $3.00.

The Progress of Underdeveloped Areas.
by Bert F. Hoselitz.
University of Chicago Press. 283 pp. $4.75.

The War on World Poverty.
by Harold Wilson.
Gollancz (London). 228 pp. 14 sh.


The ancient urge to make two ears of wheat grow where one (or none) grew before has in our days been powerfully reinforced by the impact upon the poorer countries of the example held out by the better-off ones. It is to this “demonstration effect” that we are indebted for so much of the unrest now stirring in the West’s agricultural back yard, and perhaps the historian of our epoch will eventually judge that the United Nations Organization has been important chiefly for having focused world attention on this problem. Indeed, the very fact that there is now an official world organization, and consequently a forum for complaints brought by Abel the farmer against Cain the industrialist, has something to do with the power of the “demonstration effect.” Backward countries no longer live in isolation; the Japanese accomplishment in industrializing a whole society while holding living standards down and shutting it off from the cultural impact of the West has become difficult to emulate this side of the Iron Curtain. We still have a long way to go before One World becomes a political reality, but meanwhile the movies and the radio are seeing to it that Western—and especially American—consumption habits exert their pull in the remotest villages of Asia. And overshadowing all there is the East-West split, itself in part a consequence of the unequal distribution of the world’s goods among the world’s inhabitants.



Each of the three books here under review makes a contribution to this inescapable topic, though their value is somewhat uneven. Mr. Wilson is a politician and, like others of his breed, in a tearing hurry. He resigned from the British Labor government, together with Mr. Aneurin Bevan, in April 1951, and ever since then has made it his special mission to persuade his countrymen, and the world at large, that we shall all get into serious trouble unless some drastic international leveling is undertaken. His book is subtitled “An Appeal to the Conscience of Mankind”—reminding us that the British Labor party, as its spokesmen so frequently proclaim, owes much of its deeper inspiration to John Wesley. But there is a fair amount of statistical information in his volume, and some arguments to which it will be necessary to return.

In the meantime, Professor Ragnar Nurske, of Columbia University, and the sixteen learned participants in the University of Chicago symposium, are there to see to it that our feet remain on the ground. Should we nonetheless be carried away, there are the population experts to remind us that “economic development” may simply mean making a somewhat larger cake available to a rapidly growing number of paupers.

The more technical contributions to this discussion do not deal with this, or any other, social factor. Professor Nurkse, who is a leading economist, quite deliberately stops short on the borders of sociology: “the advancement of the backward countries is far more than an economic problem.” So indeed it is. But it does not follow that at this point the economist can simply hand the job over to the politician or the anthropologist. A unified approach is needed—this is where Communism scores. It has been remarked that the Soviet bloc straddles the rift between industrial and agrarian countries; Communist ideology does the same, at its own level, which is that of human motivations, opinions, and beliefs. In the West we tend to remain content with anthropological “field studies” at one end of the scale, and economic abstractions at the other. There is a missing link in this chain—unless one happens to believe, with some Indian democrats, that it is to be found in Gandhi’s spinning wheel.



Still, even at the purely economic level important progress in understanding the needs of backward countries has been made in recent years. The concept of a vicious circle peculiar to stagnant societies has emerged; the real problem is how to break the chain of economic factors: low productivity, hence low income, hence small capacity to save, etc. In even plainer terms, poverty is largely caused by—poverty. If that seems trivial, one has only to watch governments and experts struggling to discover the point where stagnation can be broken. Is it health, education, technical training, transfers of capital, the emergence of an entrepreneurial class, or political mass movements and dictatorships? Every group has its own panacea, and the economist can only register his conviction that, whatever the starting point, all subsequent advance must occur on a fairly large scale, if it is to have any effect at all. The point is well made by Professor Alexander Gerschenkron in the introductory essay to the University of Chicago symposium, consisting of lectures delivered in June 1951:

As likely as not, the period of stagnation (in the ‘physiocratic’ sense of a period of low rate of growth) can be terminated, and industrialization processes begun, only if the industrialization can proceed, as it were, along a broad front, starting simultaneously along many lines of economic activities. This is partly the result of complementarity and indivisibilities in economic processes. But railroads cannot be built unless coal mines are opened up at the same time; building half a railroad will not do if an inland center is to be connected with a port city. Fruits of industrial progress in certain lines are received as external economies by other branches of industry whose progress in turn accords benefits to the former. In viewing the economic history of Europe in the 19th century, the impression is very strong that only when industrial development could commence on a large scale did the tension between the pre-industrialization conditions and the benefits that may be expected from industrialization become sufficiently strong to overcome the existing obstacles and to liberate the forces that made for industrial progress.

The author makes it clear, a few pages further on, that this process, to become really effective, must take place at all levels, and he significantly cites the importance of Saint-Simonian utopianism in stimulating industrial development in 19th-century France. Even there “a laissez-faire ideology was altogether inadequate as a spiritual vehicle of an industrialization program. To break through the barriers of stagnation in a backward country, to ignite the imaginations of men, and to place their energies in the service of economic development, a stronger medicine is needed than the promise of better allocation of resources or even of the lower price of bread. . . .What is needed to move the mountains of routine and prejudice is faith—faith, in the words of Saint-Simon, that the golden age lies not behind but ahead of mankind.” No wonder most academic economists boggle at this conclusion. Yet it arises remorselessly from their careful analyses of economic data, as any reader of Professor Nurkse’s impeccably orthodox work can discover for himself. It is true that the author stops precisely at the point where economics itself ceases to be relevant. His solitary concession to sociology is a reminder that the mores of a community are decisive in the long run. “Capital formation can be permanently successful only in a capital-conscious community, and this condition, which is just as important for the continued maintenance as for the initial creation of capital, is promoted by a wide diffusion of investment activity among individuals. Nothing matters so much as the quality of the people.” And if private entrepreneurial activity is lacking? Then the state may have to step in, to fill the gap until enough individuals have learned to save and to invest, as has been done in Japan and in modern Turkey. Professor Nurkse is safely on the side of orthodoxy.



But in all probability this type of industrialization is today no longer practicable, except in a few countries directly controlled by the West or living, as it were, in its shadow. For the bulk of mankind it does not seem to provide the necessary mystique. Nor must the time factor be forgotten. Mr. Harold Wilson may be a shade alarmist, but in his book, and in his earlier pamphlet, War on Want, he has performed a service by conjuring up the specter of “a world disaster in the 1960′s at the latest, and a casualty list of some 250 million people,” unless overpopulation and agrarian underproduction are tackled rapidly on a massive scale. This is a more urgent problem than industrialization, but the two are linked by the fact that a rise in food output is itself to some degree dependent on a concurrent program of improving industrial and transport equipment.

What makes the time factor so dangerous is the way it operates to the disadvantage of countries forming the great majority of the world’s population. This subject troubles both Professor Nurkse and Mr. Wilson, and it explains—though it does not excuse—the occasional shrillness of authors like Dr. Josue de Castro, on whom Mr. Wilson tends to rely for his argument. According to Professor Nurkse, who is not given to exaggeration, “it appears that two-thirds of the world’s income goes to the top eighteen per cent of the world’s population.” The high-income countries in 1949 (since when there has been no great change) averaged $915 per inhabitant, while the middle-income group (including Russia and her satellites) had to make do with $310, and the low-income countries could provide only $54 annually for each of their inhabitants. When it is borne in mind that this last group accounts for exactly two-thirds of the world’s population, and that it includes the whole of east and southeast Asia and the Middle East—apart from Japan and Israel—the current political cleavage suddenly takes on a new meaning.

Moreover, there is clearly a tendency for the poor countries to get poorer, not only relative to the wealthy group (North America and Western Europe) but in some cases in absolute terms as well. This, of course, is mainly due to the effect of the birth rate. We have all had the relevant figures drilled into our heads: the world population of roughly two and a half billion is increasing at a rate of 25 million annually, and most of the increase falls on the poorest countries who can least afford the newcomers. Hence Mr. Wilson’s urgent “appeal to the conscience of mankind” to provide annual capital transfers, amounting to several thousand million dollars, from the richer to the poorer countries, in order to close the gap, at least in food production.

The stock answer to this plea is that the immediate effect of such humanitarian measures—assuming the funds were made available—would simply be to hasten the growth of population in the more backward countries. The point has been made, in what seems to this reviewer an unanswerable fashion, by Professor Jacob Viner, in his contribution to the University of Chicargo symposium—incidentally one of the two papers in this volume (the other is Professor Gerschenkron’s historical introduction) which raises the whole discussion to something rather above the customary level. He writes:

Economic growth which is merely the result of growth of a population which was and remains miserably poor, ill fed, ill housed, ill governed, unwashed, untutored, and unhealthy seems to me a menace to be avoided, rather than an objective ardently to be pursued. That many do not share this view, however, is only too apparent. Take a look at even the sophisticated literature on economic development, as issued by the United Nations, by governments (including our own), and by learned men from the universities, and see how much of it neither presents nor seeks statistical evidence or criteria of desirable economic development which could not be fully met by a country swarming with an ever more crowded and ever more miserable population, provided only its national indexes of total production, or aggregate income, or total exports, continued to rise.

The humanitarian approach, he thinks, is quite likely, “in the absence of Communist ruthlessness and discipline,” to promote a race between technological progress and population growth which will be won by the latter. Here is another vicious circle, for not only do backwardness, poverty, and overpopulation go hand in hand, but economic progress is most difficult to generate precisely where it is most needed.



This is cold water on the humanitarian approach, but Mr. Wilson and his friends need not despair altogether. If social and cultural change goes hand in hand with economic advance—a very large “if”—it is just conceivable that family limitation may come in time to prevent a catastrophe. There is some comfort to be extracted from the anthropologists on this point, for it would seem that poverty and uncontrolled fertility do not necessarily go together in all cases. There have been examples of relatively poor communities which have made strenuous and quite successful efforts to control their population. Infanticide and abortion are not uncommon in primitive societies and were apparently widespread in 17th- and 18th-century Japan (abortion still is). There is no reason why less crude and barbarous practices cannot be adopted in time, even in the overpopulated countries of southeast Asia. As a matter of fact there is evidence that significant numbers of women in India are responding favorably to the Indian government’s campaign for birth control. In Japan apparently a similar campaign was halted for some time by the theological obstruction offered by certain American occupation officials, but this factor no longer operates.

In the West, of course, the problem hardly exists: voluntary parenthood has come to be taken for granted. There is evidence that in France, family size was already falling in the late 18th century—before Malthus produced his Essay ; in Britain the fall came a century later. Even in Catholic Ireland, the desire to control population growth has been a major preoccupation since the potato famine in the mid-19th century, though control has been through emigration or postponement of marriage. The decisive point of difference is that the West had one hundred and fifty years in which to experiment with this problem, while living standards were going up all the time. In Asia, by contrast, a “population explosion” threatens to wreck all the well-meant humanitarian schemes which are now being recommended as an economic stopgap. Hence the crucial importance of politics—in the broadest meaning of the term.

Professor Viner is lucid and sensible on this subject, though he naturally refrains from pressing any particular solution. His colleagues in the Chicago symposium range over a fairly wide area, and for the most part manage to impart specialized information in language that is neither abstruse nor unduly academic. The exceptions include a paper read by Marion J. Levy which, to a non-American, sums up everything that is wrong with American sociology, and perhaps with science in the United States generally. Instead of lengthy analysis, here is a typical quotation:

A society for present purposes will be considered more or less industrialized to the extent that in the allocation of goods and services (i.e., in their production, consumption and distribution) the members of the society utilize (1) tools that multiply, in however complex a manner, the effects of their applications of energy and (2) inanimate sources of power (or energy). Given this definition, there are probably no societies totally devoid of industrial factors, since even the use of a sailboat or a waterwheel could constitute such a factor. However crudely it may be done, it is possible to distinguish very highly industrialized societies from relatively nonindustrialized ones in these terms. . . .The scale of variation in these respects may be continuous, or it may be radically discontinuous in certain portions of the scale, as I suspect it is. Nevertheless, a superficial examination of different systems (e.g., modern United States, modern England, Imperial, or even present-day China, and the Trobriand Island system) certainly reveals enormous differences in this respect. Furthermore, it would seem a plausible hypothesis [my italics], at least, that some of these units are very highly industrialized (e.g., modern United States and modern England) as compared with others (e.g., Imperial, or even present-day China, and the Trobriand Island system). It would even seem that a further reasonable hypothesis can be made that, whatever the differences in these respects between the systems of one of the extremes on this scale, their differences from one another are not so great as the differences between systems taken from opposite extremes of the scale.

It would seem a plausible hypothesis that this is meant to convey more than a set of tautologies. It would even appear a reasonable hypothesis that it represents another of those unfortunate attempts to turn sociology into something resembling the exact sciences. The result can only alarm and depress anyone who believes that the science of society (in the widest sense of the term) has become part of the education of modern man, and in particular of modern statesmen. Fortunately most of the contributors to this symposium have retained their sense of humor, as well as their sense of reality; but a passage like the above leaves a small sediment of doubt in the mind of an inquirer seeking proof that academic learning in our kind of society is really coming to grips with present-day problems.



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