March 6, 2000

Economist challenges conventional explanations of world poverty
Scholar says developing countries need freedom, not foreign aid

Economists often neglect major determinants of the economic performance of developing nations, according to a new Cato Institute book written by a pioneer in the study of such economies.

Peter Bauer, Professor Emeritus of Economics at the London School of Economics, challenges standard explanations of Third World poverty, including colonialism, lack of capital and population growth, in From Subsistence to Exchange and Other Essays, published by Princeton University Press.

Bauer is skeptical of the benefits of foreign aid, which he writes "is demonstrably neither necessary nor sufficient to promote economic progress in the so-called Third World and is indeed much more likely to inhibit economic advance than it is to promote it."

Bauer argues that the study of developing countries suffers, for example, from a disregard of the crucial role of domestic trade in poor countries even though economists recognize the importance of such trade in the rise of Western nations. Economists also regularly disregard the impact of history, culture and institutions on material progress, Bauer writes.

The reasons for that, Bauer argues, include feelings of guilt and an over-reliance on quantitative methods, which "has brought with it a regrettable atrophy of close observation and simple reflection."

Bauer calls for people in developing countries to be given more freedom and for an end to the "alarming retrogression" in development economics. Because of Bauer's continued influence in fields as diverse as political science and anthropology, Nobel laureate Amartya Sen writes in the book’s introduction, "Many of Bauer’s claims, while resisted at the time, have become a part of the new 'establishment' of ideas."

From Subsistence to Exchange and Other Essays