The Development Frontier, by Peter Bauer
Against Foreign Aid
The Development Frontier: Essays in Applied Economics.
by Peter Bauer.
Harvard University Press. 241 pp. $24.95.
To anyone already familiar with Peter Bauer’s influential books and essays (including in COMMENTARY), there will not be much that is startlingly new in this volume. We have here Bauer’s attacks on the literature of economic development, his assaults on the Malthusians who see population growth as an unmitigated disaster for less-developed countries (LDC’s), and his derisive attitude toward the efficacy of so-called “foreign aid.”
But that is not to say this work by the distinguished British economist can safely be passed over. It cannot, if only because some of its most important propositions, though perhaps not so controversial as they once were, nevertheless have yet to sink into the consciousness of policy-makers. Bauer’s brain-clearing strictures on foreign-aid programs are a major case in point.
The recipients of these huge transfers of funds, Bauer stresses, “are always governments. They are not the poor, destitute, or starving people shown in aid propaganda.” This would be a trivial point were it the case that the governments of poorer countries act as conduits to their unfortunate subjects. Not so, shows Bauer, with example upon example of the fallacy of a “facile identification of governments with the population at large.” The wonder is that we—or, more precisely, aid proponents—need reminding of this fact in a world in which Johnny Walker is the drink of choice in Iraqi ministries while Saddam Hussein seeks international aid for starving, disease-ridden Iraqi children.
The wonder, too, is that we should have gone so far down the path toward a massive aid program to the Soviet Union’s central regime without first considering Bauer’s warning that such aid increases the power of governments over their people, and defers market-based reforms. Equally important, says Bauer, is that such aid will have the counterproductive effect of inhibiting the development of an entrepreneurial trader class, the only rock on which an advancing economy can be built.
My summary of these points may suggest that Bauer indulges merely in sweeping generalizations. True, he sometimes seems to do so. But the categorical nature of Bauer’s conclusions, his apparent preference for a chisel and tablets over pen and paper, mislead. Bauer is an empiricist, or at least a skilled anecdotalist, building his work from the bottom up—studying the cocoa and palm-oil markets in Nigeria, the pattern of groundnut buying in that country, the effect of low labor costs on Southeast Asia’s rubber-growing industry and on Hong Kong. This is consistent with his injunction, set down in a chapter criticizing Sir John Hicks’s A Theory of Economic History: “Construction of a general theory of history to cover all ages and all mankind is a will-o’-the-wisp. It generally diverts attention . . . from . . . the patient . . . methodical examination at some depth of evidence drawn from the actual record of history.”
One can naturally quarrel with a number of the points made in these seventeen essays. Thus, it is not as certain as Bauer would have it that population growth in LDC’s is always the result of conscious choice by parents fully aware of contraception devices but eager to have children. Or that the willingness of people in LDC’s to plant slow-maturing trees is convincing evidence of their “readiness to take the long view.” But that is part of Bauer’s charm: his ability to play the provocateur without descending to the level of gadfly. And, in broad, he has been proven right.
He has been proven right preeminently—to repeat—on the subject of foreign aid. For although we know somewhat less than we would like to know, and much less than development economists think they know, about what causes the process of development to take off, we do know that aid does not. Consider the fact that between 1950 and 1989, real income per capita rose at an annual rate of 3.6 percent in Asia, which received little aid; at 1.2 percent in Latin America, which received some; and at 0.8 percent in Sub-Saharan Africa, which received lots.
Bauer has been proven right, too, in emphasizing that disparities in rates of economic development are explained more by government policies than by aid flows. According to a new World Bank study (World Development Report, Oxford University Press, 1991), governments that rely on markets, not ministers, to set prices; that avoid manipulating exchange rates; and that concentrate their efforts on education and preserving a stable macroeconomy will preside over flourishing economies. Those that rely on aid-infested, command-and-control economies will not. Score another one for Peter Bauer.