At the beginning of the 21st century, the most heartening trend in the world economy is the collapse of central planning and the global spread of markets. This has had profound implications both for prosperity and for the entrenchment of constitutional government. Peter Bauer, now Professor Emeritus of Economics at the London School of Economics, both heralded and aided those triumphs, and his work has been vindicated by them.
From our vantage point today, it’s difficult to appreciate just how unreceptive the intellectual climate in the post-World War II era was to Professor Bauer’s antistatist approach to Third World economic development. In 1956, Swedish economist and later Nobel laureate Gunnar Myrdal expressed the prevailing orthodoxy when he wrote, “The special advisers to underdeveloped countries who have taken the time and trouble to acquaint themselves with the problem… all recommend central planning as the first condition of progress.” Indeed, until very recently, orthodox development economics held that the Third World could only achieve prosperity through central planning, autarchic trade policies, and state-led investment. But in books such as West African Trade (1954), The Economics of Under-developed Countries (1957), Dissent on Development (1971), Equality, the Third World and Economic Delusion (1981), Reality and Rhetoric (1984), The Development Frontier (1991) and From Subsistence to Exchange (2000), Bauer doggedly and convincingly undermined the conventional wisdom.
By careful observation and sound reasoning, Professor Bauer refuted many of the beliefs commonly held by development experts, among them, that poverty is self-perpetuating, and central planning and large-scale capital investment are prerequisites for growth. Bauer demonstrated that foreign aid, restrictive immigration and population policies, and trade barriers hinder economic growth. He also cautioned against the indiscriminate use of mathematical formalism in simple economic growth models and criticized the historical determinism inherent in stages-of-growth models. By 1997, the World Bank rather sheepishly admitted in its development report, “State-led intervention emphasized market failures and accorded the state a central role in correcting them. But the institutional assumptions implicit in this world view were, as we all realize today, too simplistic.”
Many of the statist development experts operated under the implicit assumption that poor people in the Third World were largely incapable of entrepreneurship, and could only be led out of poverty through massive state intervention. Bauer rejected this patronizing theory and showed that interventionism, statism, and social engineering were the problem, not the solution. Today, in large part thanks to Bauer, the market and not the plan is seen as the way forward in the developing world.