The Study of Man: The Road to Economic Development
Precisely how does a backward peasant society transform itself into a modern, technically advanced one? This question represents a new field of investigation for social scientists, whose studies have taken on political urgency since the end of World War II. For with the collapse of the old colonial empires, some two dozen Asian and African states have acquired political sovereignty and now seek, through more or less ambitious development programs, to achieve economic independence as well. But as the history of Latin America makes clear, the possession of natural resources together with a desire for modernization are not enough to establish a modern industrial society. A host of other factors are involved; and it is these factors that economists, historians, and sociologists are trying to identify.
The literature of economic development has passed through three distinct phases since the end of the war. First came the tracts and pamphlets which were designed to arouse popular interest in the reconstruction of devastated countries. We heard proposals to spend billions of dollars on development aid; to send technical missions to the four corners of the world; to establish scholarships and training fellowships for students from the poorer countries. There was little analysis in these writings of the reasons for economic backwardness, nor was any coherent theory developed of how it could be overcome.
After the administrators, politicians, journalists, and social scientists had exhausted their energies in exhortation, a general sobering took place. In the second, more analytical phase, Western social scientists began to elucidate a variety of theories of economic stagnation and development.
The Communists already had such a theory, based on Lenin’s old ideas on imperialism. The colonial countries, said the Communists, were either pre-capitalist or had adopted features of incipient capitalism under imperial rule. But colonialism expropriated the masses and set up all sorts of barriers to the new middle classes. This sowed the seeds of anti-colonial revolts, which at first were led by the emerging middle and professional classes. The position of this native bourgeoisie was and is ambiguous. Because it exploits its own proletariat, it is “objectively” part of the imperialist camp; on the other hand, it propagates the nationalist ideas which erode imperialism. This contradiction creates political instability, paving the way for the Communist revolution which finally releases the country’s productive forces for “socialist construction.” Once in power, the native Communists can develop their countries’ economies by imitating the policies of the Soviet Union: forced-draft industrialization, with a priority for capita equipment over consumer goods, and the whole process financed largely through restriction of consumption and state exactions on the peasantry.
This theory, though it is a potent political strategy, is hardly a sufficient guide to practical economic policies. It ignores the diversity of economic endowments in different countries, and “eliminates” by definition all social and cultural complexities. Its application to Eastern Europe has, on the whole, led to dismal results. The countries which are economically soundest there today—East Germany and Czechoslovakia—were also the most advanced before the Communists took power. In the less advanced countries where Stalinist development theories were pushed to their ultimate limit—Poland and Hungary—economic as well as political chaos resulted, and the manifold departures from orthodox Stalinist ideas in those countries since 1956 are the best commentary on their validity.
Western theorists were much less sure than the Communists about the “right solution” for underdeveloped countries. Most European and American scholars felt that the economic terms and categories of the advanced countries could be directly applied in studying the poorer ones, but a minority argued that entirely new concepts had to be worked out. There was no settling the argument between the two schools of thought, chiefly because there was little empirical data on the basis of which to judge. More research was clearly required to find out just how the people in underdeveloped countries did go about gaining their daily bread, what were their incentives and motives, social and political ties, forms of economic organization and division of labor.
In the current, third phase of economic-development literature, special studies are attempting to supply the empirical data previously lacking. These facts can be ordered in two ways. The first approach is historical. Since the advanced countries were once underdeveloped, their past may reveal important aspects of the process of economic development; if we could show that economic development is basically similar, say, in 18th-century France and 20th-century India, considerable study of French economic history could be justified in our effort to tackle modern India’s problems. Not much has been achieved yet by this approach, although Colin Clark’s The Conditions of Economic Progress (3rd edition, London, 1958) provides hints of how some past patterns in advanced countries are repeated in developing ones, and William W. Lock-wood’s The Economic Development of Japan (Princeton University Press, 1954) contains suggestive analyses of Japanese history which may be relevant in other Asian countries.
The other approach is cross-cultural. By surveying a large number of underdeveloped economies, one may find some features common to all. Perhaps there are a few strategic factors which crucially affect development. Such strategic factors need not all be economic; they may include the form of family or kinship relations, aspects of social structure, and features of religious beliefs and values. One famous work on cross-cultural lines is the book by S. Kuznets, W. E. Moore, and J. J. Spengler, Economic Growth: Brazil, India, Japan (Duke University Press, 1956); another is Charles P. Kindleberger’s refreshing text, Economic Development (McGraw-Hill, 1958).
Four recent books exhibit, each in its own way, the varying approaches to the study of economic development. Albert Imlah’s Economic Elements in the Pax Britannica (Harvard University Press, 224 pp., $6.00), discusses a brief historical episode, the development of British economic relations overseas in the 19th century. Edward C. Banfield’s The Moral Basis of a Backward Society (Free Press, 204 pp., $4.00) concentrates on a contemporary backward society, in southern Italy, paying special attention to the factors which retard economic advance. A. J. Youngson’s Possibilities of Economic Progress (Cambridge University Press, 325 pp., $6.00), studies the recent history of four Western societies, and attempts to isolate common factors in all four which seem to have played a strategic role in their economic development. Finally, Albert O. Hirschman’s The Strategy of Economic Development (Yale University Press, 217 pp., $4.50), is a cross-cultural analysis of crucial economic factors in the development of backward countries today.
Imlah’s book, a straightforward economic history, first describes the extent of British foreign trade, her balance of payments, and her terms of trade in the 19th century; then Imlah attempts to analyze the underlying foreign economic policy. The first three chapters are models of research in historical statistics. The last two, dealing with the changing policies from protection to free trade, present some of the explanations for the tremendous growth of British trade. They are of special interest from the viewpoint of economic development because Imlah shows that the growth of Britain’s import trade, and the repeal of her tariffs, stimulated economic growth in the countries which traded with the United Kingdom.
By the middle of the 19th century, Britain absorbed about a third of the world’s exports; by 1913, the total volume of her trade had multiplied twelve-fold, and she still bought one-sixth of the globe’s exports. Britain’s superior manufacturing, and her willingness to buy increasing quantities of raw materials and foodstuffs from others, provided her trade partners with cheap finished goods and a market for their own surplus commodities. Although it has often been said that free trade ruined English agriculture, Imlah demonstrates convincingly that this was not so. In fact, English farming prospered during the 1860’s and experienced a gradual (not at all drastic) decline only with the world-wide fall in prices after the crisis of 1873.
There are strong similarities between Britain’s world position in the 19th century and ours now. Yet the United States today, unlike Britain then, has neither liberalized its trade nor engaged in a really broad program of private foreign investment. One cannot dismiss this point by saying that Britain chose trade, whereas we prefer aid. Such aid may be necessary; perhaps all our foreign objectives cannot be met by trade and private investment alone. But the removal of U. S. import barriers (rather than their enhancement by farm subsidies, import quotas, etc.) would surely provide underdeveloped countries with a much larger amount of dollars; and the extension of private investment overseas would considerably enhance the economic potential of the underdeveloped countries. Aid might still be given to meet political and military needs, but a large part of the economic goals of the underdeveloped countries can be met by the ordinary processes of trade and investment, which are much more efficient than governmental aid in promoting development.
Like Imlah’s, Banfield’s study is concerned with a narrow problem. Banfield has travelled to southern Italy, beyond Eboli, to study the impact of family and kinship relations on economic growth and stagnation. He is concerned mainly with socio-psychological and socio-structural, rather than historical, material. He believes that the southern Italians’ inability to cooperate, their principle of “amoral familism,” prevents their community from developing. Among Banfield’s villagers, the only group which commands a person’s loyalty is his family; he will share with and sacrifice for its members, but regards all those outside the family as competitors and potential enemies. Banfield’s central thesis is that these values, which are firmly anchored in southern Italy’s communes, explain their economic impotence.
“Amoral familism” is indeed widespread in peasant societies, but it is difficult to argue that it is the chief impediment to economic progress. Several other social and economic features exist which tend to block development—such as rigid hierarchy in social rankings, peasant indebtedness (which entails the inability to innovate), traditionalism in production techniques, and the inability to perceive economic alternatives. Economic progress is slow even in peasant societies in which “amoral familism” is not present, such as rural Java or among certain Negro peoples of West Africa.
Banfield’s study, like many such works, raises as many questions as it answers. What are the origins of this exclusive family loyalty in southern Italy? We usually note such loyalty in societies (such as India) in which the “extended family,” embracing scores of persons, is strong; in Italy this is not the case. There the loyalty is to the small, “nuclear” family. Is this loyalty a survival from an earlier day in which extended families did exist? If so, why did it survive? How long, indeed, has southern Italian society been characterized by nuclear families? What are the advantages of communal living, and how could a communal life be built in a society which is atomized into small family units? Perhaps these questions cannot be answered; yet they should at least have been explored if social atomism is held chiefly responsible for the misery of the population. In this case greater historical depth might have revealed a more coherent explanation.
Yet, historical depth is not always the answer, as we see from Youngson’s Possibilities of Economic Progress. This book is in two parts. The first restates some theoretical concepts of economic growth; the second, the more distinguished part, analyzes four case histories of economic development. Youngson studies what is commonly called the “take-off into self-sustained growth”—the period of new and rapid industrialization—in Great Britain, Sweden, Denmark, and the southern United States. He notes the following significant common characteristics: (1) increased international demand for the country’s products, (2) a long previous history of thorough-going agricultural reform, and (3) significant “inter-trade and inter-sectoral relationships” (a clumsy phrase we will explain below).
Youngson’s historical findings tally with those of Ragnar Nurkse and Harvey Leibenstein, who have analyzed today’s underdeveloped countries and who stress Youngson’s third point: the interdependence of a whole chain of industrial branches which stimulate each other. Their theory of balanced growth—the so-called “big push” theory—proposes a massive effort along many fronts to overcome obstacles to economic development.
Hirschman’s book gives a lucid illustration of this theory. If, say, a large shoe factory—and no other—is established in an underdeveloped country, the theory is that it will probably fail; its employees could not buy all the shoes it produced, and the other people in the country, caught in the vicious circle of poverty, could not afford to buy them either. If, on the other hand, the shoe factory was established simultaneously with others producing textiles, foodstuffs, and other consumer goods, the workers of the different factories could buy each other’s products and none of them would fail. Hence, a massive investment effort, a “big push,” is needed to get an underdeveloped country over the hump. This pattern is what Youngson has in mind when he speaks of “inter-trade and inter-sectoral relationships.”
Because the development of one industry undeniably stimulates others, the theory of balanced growth has achieved considerable popularity among Asian and African planners. But the theory’s handsome logic does not completely correspond to reality. It is, as Hirschman points out, “reminiscent of the paradox about the string that is equally strong everywhere and that therefore when pulled cannot break anywhere first; it either will not break at all or must give way everywhere at once.” In actual life, there is no such string, and there is no real society whose productive branches are so equally underdeveloped that one particular new industry would not provide an opening wedge. (Youngson notes such strategic branches of production in his account of the British, Swedish, Danish, and southern United States economies.)
It is difficult to see how Youngson’s over-all findings apply to most underdeveloped countries today. To begin with, the economies he examined were considerably more advanced at the time his story begins than the underdeveloped countries of our day. Backward as these four economies were, compared with what they were to achieve later, they were much less so than, say, Burma is today in relation to West Germany. Furthermore, there was less population pressure, and even when there was some, there was a safety valve in mass emigration. All this was true, incidentally, not only of the Western European countries, but also of the Soviet Union at the time of the first five-year plan: Russia had undergone very substantial industrialization over a period of four decades before the Revolution.
The advice Youngson offers the underdeveloped countries of today is largely irrelevant, since he proposes, in essence, that they should emulate the four countries he investigated. He also recommends that they create a “more tolerant and flexible social system,” because caste systems and “semi-feudal” institutions are built-in brakes against economic advance. Unfortunately, most of this is only too well known to policy-makers in under-developed countries, but they are unable to act on such advice. The government of India has learned to its chagrin that caste cannot be legislated out of existence; and, as any observer of the Western countries has learned, feudalism strongly resists its own abolition and reappears in new guises long after it is thought to be dead.
Hence, for all the scientific rigor of Youngson’s historical account, his conclusions come dangerously close to the preachments which were typical of the first phase of development literature. His book shows how some countries, whose economies enjoyed special advantages at the beginning of their “take-off” period, made these advantages pay off; but it lacks sufficient realism to serve countries which do not enjoy these advantages.
Such realism is contained in abundant measure in Hirschman’s study. A book written in a rather technical style, abounding in new terms, it has little to offer non-economists, and is probably above the heads of many persons who ought to read it (notably policy-makers in underdeveloped countries). Its great merit, however, is its lack of presumption. Hirschman has no magic formula, no pet theory to sell. He freely borrows ideas from others which serve his purposes, and they often look better as used by him than they did in their original context.
Hirschman contends that economic development is a process which, in overcoming certain tensions, unleashes all sorts of new ones. (Many of these tensions are well known by now, notably that between mass aspirations and productive results.) As a result, there is often an almost insuperable wish to overcome these tensions by “one convulsive investment effort, one large-scale expropriation, or one ‘short’ term of dictatorial rule.”
Hirschman’s book seeks to present a way out of these “sterile” alternatives. He believes that governments in underdeveloped countries must recognize that the social, economic, and political fabric of a society is inevitably strained when it is raised from a low to a high level of economic performance and social integration. Strains and tensions can never be wholly abolished, though gradual and piecemeal solutions are possible in almost all circumstances. The “sterile” expedients of dictatorship, expropriation, and forced austerity “stem from a basic disbelief in, and distaste for, the process of economic development.” Such expedients, characterized by “futility and brutality,” are in the last analysis Utopian. Dictatorship is not only brutal; it is a hindrance to genuine economic development. As we can see from Peron’s Argentina or Stalin’s Russia, dictatorship may hurdle certain immediate problems of production—it can build a dam or a steel plant—but it is incapable of creating the subtle human and social attitudes which are the surest guarantee of economic progress in the long run.
Hirschman recognizes that underdeveloped countries have most of the basic skills, and even some of the capital, needed for economic progress. Their backwardness is due to their inability to combine skills and capital in the most productive manner. This optimum combination is, of course, the key to the mysteries of economic progress. A number of very critical choices must be made in the development process—choices between short-run and long-run maximization of output; between providing certain commodities through domestic production or through imports; between allocating scarce resources for social overhead or directly productive capital outlays; and, perhaps most important in many countries, between the public and the private sectors.
In theory, all these choices can be made rationally by applying “traditional” economic principles. In practice, however, the influence of various social and political factors often leads to solutions which are unsound from a purely economic viewpoint. The underdeveloped countries of our time, for example, almost all contain one or more “showpiece” industrial establishments; some have called these the modern equivalent of the Pyramids. Yet, though an ultra-modern, big steel mill may be economically questionable in a small country, its symbolic, political effect may outweigh all other considerations. Hirschman agrees with Youngson that “we must remember how widely political systems differ from one another, and how important these differences can be.” But quite apart from differences of political systems, and the constant internal pressures of the development process itself, the underdeveloped states are also affected by the great world conflicts.
The impact of these international tensions can be seen clearly in the case of India, which is in any case torn between the strong belief of its leaders in democratic processes and the long tradition of authoritarianism in its history. If the rivalry with Pakistan did not exist, India claims, she could spend more on economic development and less on defense. American military aid to Pakistan increases the pressure. At the same time, the break-neck pace of China’s industrialization is felt to be a challenge to India. But, though she wants to keep pace with China industrially, India must devote more of her resources to agricultural development if she wants to feed her growing population. Higher living standards—food and other consumer-goods—are a political necessity, too, since India’s masses demand tangible fruits from their enlarged productive efforts. A terroristic dictatorship like China can afford for some time to promise its people pie in the sky; a democratic government must deliver here and now at its peril. All these factors—the popular clamor for higher living standards, defense needs magnified by fear of Pakistan, competition with China for leadership in Asia—make demands on India’s available resources which it cannot meet without either unbearable strain or massive foreign aid. But foreign aid means recognition of a degree of dependence on the wealthy foreigners; and a country which has so recently emerged from colonial status has difficulty in accepting this in good grace.
No one can offer unequivocal solutions for all the problems of this type that may come up in so many underdeveloped countries, and Hirschman does not try. What he does do, with admirable clarity and incisiveness, is to outline the costs and benefits of alternative policies, the prices a country must pay if it chooses one or another line of development. His analysis is realistic in that it is based on the actual experiences of underdeveloped countries. He has correlated a vast number of successful and unsuccessful experiments in economic development and distilled from them principles which apply to all.
He discusses, for example, the methods for making choices in developing the social overhead of a backward society: roads, public buildings, schools, hospitals, power stations, etc. How many lanes should a road have? How well-surfaced should it be? Should one sacrifice the length of a highway network to the quality or width of the roads or vice-versa? What answer will be given in a particular case will depend on special conditions, some of which Hirschman attempts to make clear.
Having rejected the alternative of the “big push” or the massive one-shot investment program, Hirschman favors the drawing up of rather detailed development plans, whether the plan is to be fulfilled centrally or by private decision. A plan is useful because it shows the gaps in knowledge, availability of resources, capital requirements, and other necessary data; and it also forces the planners to think through the process of economic development as a connected series of events. In planning for next year’s production, one must take account of what this production is to serve two, three, and more years hence. (If industry is to turn out complex machinery in five years, one may have to allow now for the building of technical schools, so that skilled mechanics will be available in five years.) Through this kind of planning, one gains insight into the relations between the different parts of the economy, and indeed, into the social structure. The drawing up of a plan in itself presents the choices that need to be made and, if rationally analyzed, suggests solutions to these choices.
These four books, which are of fairly even quality, show the variety and complexity of the factors impinging on economic development. They also show that one approach leads only to limited insights, and that answers derived from special cases may be misleading. Definite knowledge is available for limited cases, but we are still a long way from a realistic general theory of economic development.
This creates a hard task for writers of textbooks on economic development. Of all the efforts to write such a textbook, Charles Kindleberger’s is perhaps the most successful. He collects his data from a wide area and is quite explicit about his facts; his book abounds in clear, well-designed tables and charts. But Kindleberger handles only economic data, and though he agrees that political and social realities profoundly influence development, he is rather naive about the non-economic factors.
Indeed, the main obstacle to a more integrated theory of economic development does not lie on the economic side. Compared with sociology and politics, economics is a “hard” science. In the field of history there is no lack of well-established methodology, but historians have tended to concern themselves with specific events which cast little light on such timeless global problems as the development process itself. (The books by Imlah and Youngson are praiseworthy exceptions.) There is, as yet, too little basic factual knowledge available in historical and socio-cultural studies to permit a well-rounded theory of economic growth. The contemporary literature provides valuable data and useful hypotheses, but it will take many years until a genuine synthesis becomes possible. One may well doubt that a realistic general theory is ever possible.
The world, however, cannot and will not wait for such a theory. Even if we had one now, it would probably not be applied, in view of Keynes’s dictum that policymakers usually implement the theories of a generation ago. Indeed, many of today’s development plans are strongly influenced by the Keynesian thinking characteristic of the world depression, while others reflect Soviet ideas derived from the early five-year plans. Yet the slow progress in some countries (e.g., India) and the repeated setbacks in others (e.g., China) seem to call for new approaches.
Meanwhile, the chief guide line for the Western democracies can only be that economic development must imply a rise in living standards. The production achievements in the Communist countries have had little meaning for the masses of these countries who have not benefited from increased production. Our fundamental assumption should be that economic development is only worth the effort if it can be translated into better health, more food, better housing, more education, and, in general, more of the good things of life—for the masses of people, and not just for a privileged “new class.”
Once we put man at the center of our thinking, we also realize that the chief means of economic progress is the improvement of the productive potentialities of human beings. Capital is important and so are markets, but too much of the literature on economic development has paid them almost exclusive attention. The improvement of human skills and capacities has certainly been decisive in our own economic advancement. In the United States, tangible capital increased by 1.8 per cent annually between 1919 and 1957, whereas income increased in the same time by 3.1 per cent annually. In other words, income in the United States has risen faster than capital and man-hours worked. The only explanation for this astonishing increase in productivity is the improvement in the human factor—a result of increased training, education, and additional capabilities based on health and new knowledge. Primary schools may thus be more decisive for India’s economic development than steel plants.
But if we regard the improvement of human capabilities as a central strategy of economic development, we must also take account of the social and political context in the underdeveloped countries. Youngson’s proposal that policymakers should introduce greater social and political flexibility into their societies is good, but essentially empty, advice. It is in this field that social research can perhaps make a major contribution. No society is completely immobile. Nowhere is the cake of custom so hard that it cannot be cracked. But the image of Western rugged individualism, or of Western social and political institutions, is not a model which can be held up before the societies of Asia and Africa with the simple advice: “do likewise.” What one must study are the ways and means by which change is possible within the traditions of each society. It is easy to say that if the Burmese had a Protestant ethic they would act like New Englanders. It is more difficult, though more useful, to locate those mechanisms within the Burmese system of values which operate in a direction parallel to that of the Protestant ethic in New England.
In this field, we are still dreadfully ignorant. We know very little as yet of how interstices in the caste-system can be utilized to produce greater social mobility in India. We know even less of how the customs of the people of Africa or Southeast Asia can be pressed into the service of economic progress. And we know least of all how the religious and cultural values of the peoples in underdeveloped countries everywhere influence attitudes towards wealth, its acquisition and use, patterns of consumption, and the motives behind economic and productive activity.
Our policy-makers have not even fully realized that the imposition of dictatorship and the application of brute force have even more sterile results in the manipulation of social custom than in the field of capital investment. For by enslaving men one only prevents them from working out positive, creative solutions to their new social problems. What ultimately assures economic progress is not the piling up of masses of capital on the backs of an enslaved population, but the development of social, motivational, and behavioral patterns in accordance with which men act of their free will for the betterment of all. In this sense economic progress, like war and peace, is made in the minds of men.