Commentary Magazine


The Destruction of a Continent, by Karl Borgin and Kathleen Corbett; Development without Aid, by Melvyn B. Krauss

Development

The Destruction of a Continent: Africa and International Aid.
by Karl Borgin and Kathleen Corbett.
Harcourt Brace Jovanovich. 216 pp. $14.95.

Development Without Aid: Growth, Poverty, and Government.
by Melvyn B. Krauss.
McGraw-Hill. 208 pp. $17.95.

Some years ago Sir Keith Joseph, the British Tory politician, was addressing a local constituency meeting when a man rose and asked what his views were on foreign aid. Sir Keith gave a characteristically anguished reply. He had always been a supporter of aid as the rich man’s duty to the poor. But doubts had lately crept in. He had read the criticisms of aid advanced by Professor P.T. Bauer—that it retarded economic development and strengthened oppressive governments in recipient countries. These were powerful arguments. He was almost convinced. But he could not forget the duty of charity. What did the questioner think?

“I am Professor Bauer,” replied the man.

And for a long time it seemed that, where criticism of aid was concerned, P.T. Bauer was talking to himself. A consensus that aid is a “good thing” held almost universal sway politically and academically. Lately, however, Sir Keith’s doubts have been widely echoed. The undeniable failure of economies (like that of Tanzania) which have received lavish amounts of aid, the increasingly predatory character of Third World demands for an international transfer of resources, and the belated discovery that many recipient governments are anti-Western despotisms have induced a skeptical mood in the West. In response to this mood, books, pamphlets, and articles criticizing aid policies, and often acknowledging Bauer’s influence, have begun to appear in large numbers. Those under review are two very different examples.

Karl Borgin and Kathleen Corbett are Europeans, respectively a Norwegian scientist and an English scientific photographer, who have lived in Africa for the past twenty-five years. From this experience, they have written a passionately indignant, occasionally slapdash diatribe excoriating the “superbureaucrats” and “aid fanatics” who, in their view, have squandered large sums on futile development conferences, wasted scarce resources on ill-conceived aid projects, and imposed inappropriate models of development on African countries. To these errors they attribute such African problems as declining agriculture, expanding capital cities with huge slums, corruption, and the threat of famine. These are serious charges. Are they sustained?

A strong case is certainly made that the senior levels of bureaucracy in aid agencies and UN bodies exist in a fantasy world of grandiose rhetoric unrelated to African realities. For example, among eighty-seven contributors to four major aid studies—including the report of the highly prestigious commission headed by Willy Brandt to investigate North-South relations—there was “only one technologist and not a single agriculturalist.” It is hardly surprising, therefore, that fads take hold.

A good instance is “appropriate technology.” Who can define it satisfactorily? The German Appropriate Technology Exchange (GATE) came up with this unrevealing explanation: “By an appropriate technology we mean a technology which, in the context of development measures, is appropriate to the natural economic and social conditions prevailing locally.” Yet despite such vague and perhaps meaningless definitions, “appropriate technology” remains a serious topic of discussion at innumerable international conferences. And the one institution that actually does transfer appropriate technology to developing countries, namely the multinational company, remains the target of the hostility of aid agencies and the UN.

It is also true that aid is frequently misdirected. The authors cite the obsession of international agencies with major road-building programs and with “infrastructure” projects in general. These projects are carried on with modern imported road-building equipment which is never fully utilized, often breaks down in the tropical heat, and is finally abandoned to rust. Yet roads can be built with simple hand tools and there are millions of unemployed Africans who could usefully provide the labor.

So far, so reasonable. But what of the charge that Africans after independence were “forced” by Western politicians, international-aid organizations, and the UN to adopt an alien model of economic development? Given the attraction that such symbols of modernity as a national airline have for African elites, it seems an unconvincing argument. Surely a modern economy was seen as another attribute of national independence—and aid a short cut to achieving it. Any attempt to persuade new African leaders to follow a distinctively African path that would take hundreds of years, as Borgin and Corbett advocate, would be regarded by them as intolerable racial condescension.

Similarly, the authors claim altogether too much discredit for aid. It cannot be reasonably held responsible for all the ills of modern Africa, such as corruption, ever-growing slums, and desertification. Admittedly, aid has contributed to these problems by increasing the rewards of political activity, or by promoting an unbalanced and inappropriate development, and it has also encouraged and prolonged such misguided policies as expelling productive groups or restricting the inflow of private capital. But the policies themselves have arisen out of domestic factors, such as long-standing racial antagonisms or the need to favor tribal groups connected with the national elite, and would have been attempted even in the absence of aid.

There is one problem, however, to which aid has significantly contributed. As Borgin and Corbett rightly argue, Western medical science has added to the rise in Africa’s population (with its attendant problems of slums and the threat of famine) by prolonging life expectancy. But is this really so deplorable? If more children survive the first years of life, and adults live five or six years longer than they did a generation ago, it is surely perverse to regard that as a failure of some kind. This would remain true even if some of the survivors were to die in famines several years later. And that might not happen if, in the intervening period, either technological advances, or a change in the birth rate, or the adoption of modern agricultural methods so altered the ratio of population to resources that people could survive for a reasonable life span. Although population certainly poses problems, it is not itself a problem but a benefit.

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To attribute such dire consequences to aid is simply another variant of the familiar argument that everyone is to blame for the problems of developing countries except the peoples and governments who live there. In contrast to such arguments, Melvyn Krauss has written a fascinating book on the causes of economic development in which aid is scarcely mentioned—and then is given its proper weight as a contributory drawback. In unusually sprightly language for an economist, he reviews the comparative success of economies which have followed broadly free-market policies—notably the “Gang of Four” of Hong Kong, Singapore, Taiwan, and South Korea—versus those which have tried the more orthodox model of economic planning and state intervention. His conclusion is that excessive government in both the Northern industrialized countries and, especially, in Southern Less Developed Countries (LDC’s) is the principal cause of poor economic performance in the Third World.

In the course of this book, Krauss knocks down a number of common but fallacious assumptions. Take, for instance, the argument that public-sector investment is of critical importance to development because it sets the framework for subsequent manufacturing investment. This is wrong historically. As P.T. Bauer has pointed out, infrastructure develops in the course of economic progress, not ahead of it. The infrastructure argument also assumes that government will know what sort of development is going to occur, and where. Yet the Third World is equipped with underused airports, fine roads on which no cars travel, and new capital cities carved out of the bush which inhabitants have to be forced to visit. Such “infrastructure” is actually a drain on the private sector.

A second argument for a large public sector is that, even where capitalist policies produce economic growth, they do so at the cost of increased inequality and a decline in the standard of living of the poorest. This argument has been generally accepted in the case of the “Brazilian miracle.” But as Krauss demonstrates, an analysis of the absolute incomes of poor people and other groups in Brazil during the 60′s and early 70′s shows that: (a) the income of every income class, rose; (b) there was a small decline in the fraction of the economically active population below the poverty line; (c) the percentage increase in income for those below the poverty line was greater than the increase for those not in poverty, perhaps even twice as great; and so on. Although some measurements of inequality increased during the “miracle,” the poor became better off both absolutely and relatively.

A third common fallacy is that the need in LDC’s to boost exports, limit imports, and accumulate foreign currency justifies policies of tariff protection and import substitution. Again, however, the evidence shows that the most outstanding export performance records are enjoyed by countries with non-protectionist policies. According to a World Bank study by Bela Balassa, South Korea saw its share of exports in manufacturing output rise from 1 percent in 1960 to 16 percent in 1966 to 41 percent in 1973; Singapore’s figures went from 11 percent to 20 percent to 43 percent respectively; and Taiwan from 9 percent to 19 percent to 50 percent. On the other hand, countries like India, Chile, and Uruguay, which followed protectionist policies, saw their share of exports decline over this period.

Especially interesting here is the relationship of aid to export performance in the case of Taiwan and South Korea. Between 1962 and 1970, the U.S. cut off substantial foreign aid to these countries. They accordingly had to switch from their autarchic import-substitution policy (which aid had financed) to an outward-looking trade liberalism. The effects were remarkable. From 1962 to 1970, Taiwan’s exports rose from 13.2 percent of GNP to 31.1 percent; and South Korea’s from 5.2 to 15 percent. Would this ever have happened if aid had continued?

To complete his case against big government, Krauss makes the paradoxical point that LDC’s with the lowest marginal tax rates have also enjoyed the most rapid rises in public-sector consumption. The missing link here is that they also have had the highest growth rates, and have therefore been able to finance more public spending painlessly from a higher national income. The most striking example he gives is that of Singapore, which recently decided to reduce personal income-tax rates because the tax system was generating more revenue than was required to cover expenditures.

To counter an obvious objection, it should be stressed that Krauss does not confine his comparisons to East Asia. He points out that in West Africa, for instance, Ghana has followed policies of high taxation and protectionism, whereas the Ivory Coast has adopted low taxes and free trade. How has each fared? During the 60′s, the Ivory Coast’s growth rate averaged 8 percent, compared to Ghana’s paltry 2 percent. And, between 1970 and 1979, the comparison was still more skewed, with the Ivory Coast averaging 6.7 percent and Ghana a negative .1 percent.

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Although the progress of LDC’s rests mainly in their own hands, the West can still help. But how? The Brandt Report’s answer is that the West should transfer resources on a regular basis to the Third World. As Krauss points out, however, this assumes poverty to be a permanent and non-correctable condition of developing peoples. Since Western countries were once poor and rose to prosperity without aid, there is no warrant for this assumption. As against the transfer of income, therefore, he proposes the “transfer of prosperity,” i.e., the transfer of the ability to produce wealth.

This transfer takes place in three ways: migration, private-investment outflows, and technology transfer and trade. As wages rise in the rich countries, workers from other areas emigrate there, capital migrates to take advantage of lower labor costs elsewhere, and cheaper goods are imported. All of these processes tend to stimulate industrial development, increase employment, and raise wages in the poorer countries.

The trouble is that these same developments create problems in the richer countries. As capital shifts from declining industries to more capital-intensive ones, companies decline and unemployment rises. This gives rise to pressure for such devices as migration control, restrictions on the export of capital, and protective tariffs. Although none of these devices is effective if imposed by itself, the transfer of prosperity can be restricted if protectionist devices are simultaneously employed against all three flows of labor, capital, and goods.

A principal merit of Development Without Aid is that it unearths and displays the various disguised—or perhaps unintended—protectionist devices that the West now erects against the Third World. For example, subsidies to protect jobs in West European steel industries effectively prevent steel from Taiwan or Brazil from entering the local market. Or a shift of resources in a Western welfare state from private spending to expenditures on social services (which cannot be “imported” from abroad) means that LDC exports to that state will be lower than they would otherwise have been. Or the restrictions proposed by the Brandt Report on the multinational companies, supposedly to protect LDC’s, would effectively “lock up” capital in the West and prevent its migrating to create industry and employment. The cumulative impact of open and disguised Western protectionism on developing countries, though impossible to compute, must be considerable.

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Threaded throughout this book, however, is one questionable assumption. Krauss regards economic policies and institutions as almost the only determining factors in development. The argument that there are inherent cultural factors affecting development in some LDC’s he describes as “patronizing and, quite frankly, racist.” When asked by a skeptic how many Hong Kongs the world could have, he replied: “As many as the world will allow itself.”

In support of this, he can rightly point to the different economic performance achieved by the same peoples, presumably influenced by the same cultural factors but living under different economic regimes: West Germans outperform East Germans, and Taiwanese the Mainland Chinese. But this establishes only that sensible official policies are an important factor in development. It does not establish that they are a sufficient condition, and cultural factors nugatory. To settle that, we must examine how different groups fare under the same economic regime. We then discover that the Chinese outperform the Malays in Malaysia, despite discrimination in the Malays’ favor, and the Asians prosper in comparison with the Africans in Kenya and Uganda.

In a recent issue of Survey, Jeffrey Barrett detailed the cultural biases hostile to successful entrepreneurship in Latin American societies. These include: an unwillingness to do profitable work that denotes an “inferior” status; the “envy complex” that deters the Latin poor from accumulating a modest surplus for fear of being thought “socially ambitious”; the low status of business; a pervasive lack of trust that leads entrepreneurs to overcentralize decisions and appoint subordinates on the basis of nepotism; and risk-aversion once a modest success has been achieved. It is not surprising that Latin America’s successful entrepreneurs are drawn disproportionately from immigrants.

Actually, a clear distinction between economic policies and cultural factors is not possible, because cultural attitudes will usually influence official policies. For example, Barrett points out that Latin Americans with middle-class identities “avoid socially useful jobs in favor of prestigious but parasitic ones.” Today’s Latin American bureaucracies are notorious for being large, unproductive, and absentee.

What follows from this? Simply that obtaining economic growth in LDC’s is going to be a more patchy and intractable problem than merely demonstrating that certain statist policies do not work. The “magic of the marketplace” cannot transform every Chad into a Hong Kong. Its promise is the distinctly limited one of a better Chad.

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