Standing Fast against Planning and Poverty

By Thomas Sowell
This article appeared in Reason, December 1984, pp. 45-46..
A Review of Reality and Rhetoric: Studies in the Economics of Development, by P.T. Bauer, Cambridge, Mass.: Harvard University Press. 184 pp. $15.00

Professor Peter T. Bauer, of the London School of Economics, is one of those intellectually heroic figures who has stood fast against the fads and hysteria of his time. While the vast currents of “development economics” inundated us with “overpopulation” theories and “vicious cycle of poverty” doctrines that depicted massive foreign aid as the only salvation of the Third World, Bauer said “No!” loud and clear—but virtually alone.

Despite his scholarly achievements and personal experience in the underdeveloped world, Bauer was long ignored or disparaged as he poked holes in the prevailing orthodoxy. Today, he can no longer be ignored-not even in academic and media circles where the prevailing orthodoxy was once treated as the one true faith. Bauer’s message has begun to be heard, not only because of his own perseverance and insights, but also because the repeated failures and massive disasters of “development planning” have finally broken through the smug unanimity that long substituted for evidence or critical analysis.

Reality and Rhetoric is a compilation of Bauer’s essays over the years on such topics as foreign aid, “planning” versus markets in the Third World, imperialism, and the moralistic pronouncements of the clergy on the international economic order. These essays are written and reasoned in a very straightforward way. It is enough to make you forget that he is an economist.

Bauer’s criticisms of current thinking about Third World nations are both wide and deep. He questions the very concept of “foreign aid” or “the third World.” Whether international transfers of money to the less-developed nations are an aid or a hindrance to their economic progress is for Bauer a question rather than a foregone conclusion. His own reading of the evidence is that it has hindered more than it has helped.

The tremendous range of extremely different nations lumped together as “the Third World” likewise makes no sense to him. All that these nations have in common is that they receive “foreign aid.” A few of these recipient nations have even had higher per capita income than some of the donor nations. Most—if not all—of the poorer nations have classes of people who are more affluent than the average Western taxpayer in the donor nations—and it is precisely those affluent people who have the inside track in getting their hands on the foreign aid.

Bauer is not a mere Scrooge who says “Bah! Humbug!” to the poor. On the contrary, his vision of the world accords far more respect to the less-developed regions and peoples than does the conventional viewpoint. Bauer denounces the “contempt for ordinary people” that underlies development planning.

Drawing on his own many years of research and observation, he punctures the idea that Third World people can progress only under the tutelage of foreign experts or their own westernized elite. Evidence to the contrary, he notes, is found in “the large scale capital formation in agriculture by the local people” in West Africa; the fact that over half the acreage planted with rubber trees in southeast Asia was owned by Asians, even before World War II; and large-scale international migrations by poor and illiterate people who were nevertheless “well informed about economic conditions in distant and alien countries.”

Dramatic economic changes over time likewise belie the stereotypical picture of hopelessly stagnant peasants needing foreign “experts” or … So much for the notion that Third World masses cannot think beyond today.

Bauer also recognizes “the reality and importance of group differences” within the population of a given nation, even though this subject “is virtually proscribed in the profession.” Particular segments of the population of very poor and backward nations often have people who are entrepreneurial, hard-working, thrifty, and with great initiative and imagination. Far from making use of such people for advancing the economic level of the country, many Third World governments devote great efforts to stifling or even expelling such groups, especially when they are racial or ethnic minorities whose prosperity is envied and resented by others. The Chinese in Southeast Asia, the Indians in East Africa, the Lebanese in West Africa, and the Jews historically in Eastern Europe are only some of the more-prominent examples of this very widespread phenomenon.

Early in his career, Bauer was struck by these inter-group differences, which were largely ignored by other development economics: “The differences in economics performance and hence in achievement among groups were immediately evident, indeed startling.” Unskilled plantation workers in Malaya, working with primitive implements, nevertheless differed in output by a ratio of two-to-one as between Chinese and Indian workers, though both were “undedicated coolies.” Differences in other occupations-especially entrepreneurial occupations-are even greater.

Contrary to the prevailing egalitarian ethic, Bauer declares that “differences in incomes and rates of progress and regions…are not reprehensible. They are inevitable.” Egalitarianism is to Bauer simply the “legitimization of envy.” He rejects “the notion that the well-off have prospered at the expense of the poor” and calls it “the most pernicious of all economic misconceptions.” Implicitly, it assumes a zero-sum world, in which A gains only at the expense of B, turns attention away from the central issue of how to increase total wealth. Throttling the production of wealth, in the name of equality, is not humanitarianism but moralistic self-indulgence. So is guilt. Bauer regards “guilt in the West toward the Third World” as “a feeling which does nothing to assist the ordinary people” of the poorer countries.

If your purpose is to understand economic development in the poorer nations, you cannot get a better brief introduction to the subject than in Reality and Rhetoric. If your purpose is to learn the latest fashions in theories and buzzwords, this is not the place. “Statement of the obvious,” Bauer says, “has become a major task,” in part because “prominent economists have perpetuated the grossest elementary transgressions of fat and logic.” Words like infrastructure and phrases like the vicious cycle of poverty have created reputations and programs, even as they have soared above reality and left disaster after disaster in their wake.

Bauer not only mentions some of these disasters but points out how “foreign aid” subsidizes them. The international aid organizations’ emphasis on “need” in general and short-run crisis management in particular means that poor nations that have behaved responsibly, and lived within their means, are far less likely to get money than governments that have spent lavishly, engaged in grandiose social and economic experiments, and run up huge foreign debt without any concern for how—or whether—they would pay it off. Bauer is not afraid to call this “preferential treatment of the incompetent, the improvident or dishonest.”

In its effects on national well-being, the difference between responsible and irresponsible government is seen by Bauer as far more important than the sums transferred by international aid organizations. Insofar as these transfers reward counterproductive government policies, the losses they engender may readily exceed any benefits they can purchase. The sums involved in these international transfers are often not very large relative to total national output but are very impressive as a percentage of government discretionary spending. Therefore their effect on government policy may be very large—and very counterproductive—while they directly add relatively little to the available resources of the economy.

In India, for example, foreign aid in 1980 amounted to less than 2 percent of gross national product (GNP), but it was 18 percent as large as the government’s total tax receipts. In Tanzania, foreign aid was 18 percent of GNP and slightly larger than all taxes received by the government.

In short, foreign aid greatly increases the recipient government’s economic leverage in the economy. In addition, international development agencies tend to be biased toward statist policies, both inherently and as a matter of choice. Inherently because it is, after all, governments that receive both financial resources and the advisory personnel provided by the international development agencies. Moreover, “many staff members of the international organizations favour dirigiste policies (state economic planning),” according to Bauer.

“The international aid organizations and their staffs are not disinterested,” Bauer points out, but instead have heavy personal and institutional stakes in a large and growing amount of foreign aid. These aid organizations are politically active and effective in the Western nations. Their version of the world economic picture is constantly fed through the media to the public as the only humane and decent way to see it. They have patronage to offer academics in the form of jobs and consulting arrangements. At the same time, these international bureaucratic empires are dependent on the Third World nations to accept their aid—and often express fears that the aid would be refused if various conditions were attached to ensure responsible behavior by the recipients.

The moral climate generated by Western intellectuals—including the media and the clergy-is one of the key ingredients in the political success of this process of draining money from Western taxpayers for the benefit of Third World ruling classes and international bureaucracies. Guilt is one of the factors in this moral climate.

The idea that the poverty of some nations is caused by the affluence of other nations is taken as axiomatic in many quarters. Bauer, however, treats this notion as a hypothesis instead of an axiom and looks at the evidence. He finds that in fact poverty and backwardness are greatest in those Third World nations that have been least touched by Western imperialism, trade, or multinational corporations-for example, Ethiopia and Liberia in Africa, and Bhutan, Sikkim, Tibet, and Nepal in Asia.

Far from deferring to the moral authority of politically active clergy, Bauer characterizes their arguments as “immoral because they are incompetent.” He says: “There is profound truth in Pascal’s maxim that working hard to think clearly is the beginning of moral conduct.” Bauer sees these activist clergy as “seeking a new role for themselves in the face of widespread erosion or even the collapse of traditional beliefs.” Their susceptibility to any idea that calls itself “social justice” he regards as symptomatic of a lost religious faith that finds a substitute in secular credulity.

Professor Bauer is no longer alone, though he is still vastly outnumbered by those with a vested interest in the foreign-aid status quo. This book will make it harder for them to continue to pull the wool over the eyes of the taxpaying public.

Thomas Sowell, an economist at the Hoover Institution in Stanford, California, is the author of numerous books, including The Economics and Politics of Race and Civil Rights: Rhetoric or Reality?