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Economic development in a changing world
World Development, Vol. 9, No. 3, pp. 221-226, Printed in Great Britain.
0305--750X/81/030221 -06/$02.00/O 01981. Pergamon Press Ltd.
1981.
Economic Development in a Changing World KEITH GRIFFIN Magdalen College, Oxford Presidential Address to the Development Annual Conference, Swansea, 1 S-17
Without decolonization there probably would have been no development economics or development studies and possibly not much development either. Both the subject of economic development and the process of development as observed in the Third World are products of a changing world - of the aftermath of the Second World War, of the end of empire and of the spread of nationalism to the far corners of the earth. It can be argued that the existence of the economically advanced capitalist nations inhibited the development of the underdeveloped countries in a variety of ways. The military power of the West was used to conquer a large part of the world, to create spheres of influence in nominally independent countries and to force some countries to engage in trade against their will by imposing so-called open-door policies. Politically, the dominance of the West was reflected in the establishment of colonial regimes and in the creation of both formal and informal empires throughout the world. The economic consequence was that in the underdeveloped countries the pattern of production and trade, the way in which investible resources were appropriated and allocated, and the development of human resources through education and training were all largely determined externally to the societies concerned. In the last three and a half decades, however, this picture has changed almost beyond recognition. First, a large number of formerly dependent countries have achieved political independence. In 1945, for instance, when the United Nations was established, there were only 51 member countries, almost none from Asia and Africa. Today there are three times that number and only a tiny proportion of the world’s population still lives in colonial territories. Second, the political and economic strength of the socialist countries has increased considerably and this has eroded the hegemony of the ad-
Studies Association September 1980
vanced capitalist economies and increased the room for manoeuvre of Third-World countries. Ideologically, socialism is on the offensive and in fact about one-third of the world’s population now lives in countries in which the communist party is in power. Third, the underdeveloped countries have grown quite rapidly. The second half of the 20th century has been, on the whole, a period of rising incomes per head in the Third World and the growth performance has been far better than that experienced by the now industrialized countries in the 19th century or by the underdeveloped countries in the first half of this century, when most of them were colonial territories. For example, the most recent World Bank statistics indicate that in the period 19601978, the rate of growth of gross national product per capita of the lowest-income underdeveloped countries was 1.6%; -the middleincome countries experienced a growth rate of 3.7%, the same as the industrialized countries; while the socialist countries grew 4.O%/year/ head.’ The combined achievements of political independence and economic growth are indeed remarkable. One is tempted to claim that the Third World has never had it so good. Before doing so, however, it is necessary to look a bit deeper. The first problem is that the economic distance between the rich countries and the poor has grown wider, both absolutely and relatively. Even if the two groups of countries expanded at the same rate, the absolute differnces in per capita income would of course increase merely because the base to which the rates applied was so different. This point can easily be illustrated. During the period 1960-1978 the average annual growth of gross national product per capita was the same in Switzerland and Burundi, namely 2.2%. GNP per capita in 1978 was only $140 in Burundi, however, whereas it was 221
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$12,000 in Switzerland, a difference of $11,690. Thus in Switzerland, the average person enjoyed an annual increase in his income of $266.20, compared to an increase of only $3.08 per person in Burundi, and in consequence the difference in per capita incomes increased by $263.12. In practice. moreover, the situation is even less favourable for the Third World. That is, in general there has been some tendency for the Third-World countries to grow a little less rapidly in per capita terms than most rich countries. Consider the last two decades, 1960-1980. During that time GNP per capita in the advanced capitalist countries grew 3.2%/year and at least half again as fast in the advanced socialist countries. In the Third World, however, the growth rate was 3.0%. Second, as is clear from figures already cited, within the group of countries which comprise the Third World, inequality has tended to increase. That is, the relatively more prosperous underdeveloped countries have tended to grow much faster than the poorest countries of the Third World. Indeed, differences in national income per head within the Third World have increased much more rapidly than the differences between the Third World as a whole and the rich capitalist countries as a whole. This has both economic and political implications. Economically it means that the most necessitous nations are lagging even further behind and several, e.g. Bangladesh, Chad and Niger are absolutely worse off today than they were two decades ago. Politically, the growing inequality within the Third World is likely to undermine the solidarity of the poor countries. This solidarity never was very great, but such commonality of interests as has existed is almost certain to diminish. In consequence, the bargaining position of poor countries vis-his the rich is likely to become even weaker, dissension and criticism within the so-called Group of 77 is likely to increase, and attempts are bound to be made to separate some of the more prosperous underdeveloped countries - especially oil-exporting countries - from the Group. Finally, and most disturbing of all, is the evidence that even in countries where average incomes have risen, the standard of living of the poorest groups has fallen. A considerable amount of research has been done in Asia and hence the picture there is particularly clear. In the rural areas the proportion of the population below the ‘poverty line’ either has been rising (as in the Philippines) or has remained roughly constant (as in Pakistan).* Even in regions
which have enjoyed exceptionally rapid growth - as in Punjab/Haryana, India - there has been no perceptible decline in the incidence of rural poverty. For example, between 1960- 196 1 and 1973-1974 the trend rate of growth of food production per head in Punjab/Haryana was .5.5%/year, yet the proportion of the rural population in poverty in those states decreased by less than l%.3 In other parts of India the situation was much worse. In West Bengal, for instance, agricultural output per head increased 0.8%/year during this period, yet the incidence of rural poverty rose by 26%.4 Independent evidence on trends in rural wage rates supports these conclusions. For example, in the Philippines the real daily wage in agriculture exhibited a clear and sharp downward trend between 1957 and 1974. In Sri Lanka real wages in the plantation sector fell continuously for 5 years between 1968 and 1972. In Bangladesh, real wages in agriculture were lower in 1975 than they were in 1949. Turning to the urban areas, there was very little difference in the level of income of rural folk and the urban poor. Moreover, it is probable that the real incomes of the urban poor declined at about the same pace as those of the rural poor. There would be a tendency in most countries for internal migration to ensure that falling living standards in the countryside would spread fairly rapidly to the cities. In India, for example, real consumption per head of the poorest 40% of the urban population fell during the 1960~.~ A detailed study of the city of Bombay indicates that the ‘unorganized workforce’, i.e. the poorest workers, were ‘increasing in numbers and possibly as a proportion of the total workforce’. Moreover, ‘it is very likely that . . they lost in real terms’.6 A similar story, no doubt, could be told of many other of the great cities of Asia. ’ The data for Africa and South America are less abundant and less reliable. Nevertheless it is apparent that poverty is increasing in many parts of both continents.’ In some of the e.g. Chad, Ghana, smaller African states, Madagascar, Niger and Somalia, the growth of average income was negative or zero for many years, and it is to be expected that in such circumstances the poor would become worse off. It would be a mistake, however, to attribute the rise in poverty to slow aggregate rates of growth. Even in countries where average incomes are thought to have increased, as in Zaire and Zambia, it is probable that those of the poor declined. In Latin America too there is a suspicion that considerable numbers of people have failed
ECONOMIC DEVELOPMENT IN A CHANGING WORLD
to benefit from the growth that undoubtedly occurred in the last two or three decades. Haiti has experienced many years of economic stagnation, but most of the other countries in the Western Hemisphere have enjoyed a substantial rise in average income per head. Yet poverty persists and may have become accentuated in certain regions and for certain social classes. Work done by myself in Guatemala in the late 1960s indicates that the income and consumption of the poorest members of society were falling. More recent work on Central America, concentrating on the period 1960-1971, reports that ‘annual real earnings . . . appear to be falling for many landless rural workers in the most labour-abundant regions of El Salvador and Guatemala, while only increased participation of women and children in wage labour permits family incomes to be maintained’.a Indirect evidence from Ecuador suggests that since the early 1960s there was a sustained but gradual deterioration in the standard of living of the campesino population inhabiting the Sierra. In Peru the available data indicate that most of the rural population, particularly that of the Sierra, and some groups of self-employed workers such as artisans and domestics, became relatively poorer over the period 1950-1966. The author of the study, Richard Webb, while emphasizing that his conclusions are highly tentative, none the less suggests ‘that for a large proportion of the population, which could plausibly range between 15 per cent and 25 per cent, there has been no absolute improvement in living standards’.9 This group consists largely of small farmers with 5 ha or less. Thus the readily available material from Central America and Western South America, although incomplete and of varying reliability, is broadly consistent. Significant groups of the rural population, notably small farmers and landless workers, either have experienced no increase in their material well-being or have suffered some decline. The increasing international inequality and national poverty, despite unprecedented growth rates, has led to frustration and bitterness in the poorest of the underdeveloped countries and among the poorest classes in almost all underdeveloped countries. This, in turn, is virtually certain to result in national political upheavals throughout the Third World and possibly to greater international discord. One need not subscribe to a materialist interpretation of history to acknowledge the connection between, on the one hand, poverty and inequality and an acutely felt sense of injustice and, on the other, the continuing appeal in many countries of populist,
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nationalist or revolutionary political movements. The overthrow of the Shah in Iran, the violent destruction of the Somoza dictatorship in Nicaragua, the Muslim insurgency in the southern Philippines, the civil wars in Ethiopia and Afghanistan and the recently concluded anti-colonial struggle in Zimbabwe: these are contemporary examples of the sorts of things that can be expected in the future. Equally, however, one can anticipate the further spread of authoritarian regimes of the types present today in Chile, Pakistan, Morocco and Zaire, as those with a vested interest in the status quo strive to maintain their authority. We may well see in the years to come a gradual polarization of Third-World countries into those which achieve stability through repression and those which experience chronic instability and open conflict.
ECONOMIC DEVELOPMENT AND DEVELOPMENT ECONOMICS If government policies and the pursuit of development have led to the further impoverishment of the poor and greater social conflict, it is natural to ask what has gone wrong, who is to blame. Some may be tempted to argue that the disappointing results of development are due to the erroneous or, worse, nefarious doctrines of development economics. This would be wrong, I think, because the most immediate sources of action are not the writings of intellectuals but the interests of those who dominate the social and economic structure of a country. Having said this, however, it would be equally wrong to imagine that the ideas of economists and social scientists have had no influence whatever on the decisions of governments. Looking back over the last 35 years, one can see that two political phenomena had a profound impact on the new subject of development economics. The first was the decline of the European colonial empires and the emergence of many newly independent countries with serious economic difficulties. The second was the eruption of the Cold War and the resulting intense competition between the socialist and advanced capitalist countries for the political and ideological support of the Third World. Of the two, the second was especially important. The reason for this is that moral outrage against poverty and exploitation was at the centre of the Marxist ideology of the socialist countries. The ideology of the West, in contrast, was based on the pursuit of self-interest
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and clearly had more appeal to the top dogs of the world than to the underdogs. Moreover, the socialist countries claimed to know how to overcome poverty and underdevelopment, namely by transferring power to the working class, socializing the means of production and establishing a system of central planning. The liberal market solution of the West appeared at that time to offer little more than secular stagnation punctuated periodically by depressions of the type we are experiencing today. The moral and intellectual challenge of the socialist countries to Western influence in the Third World thus was formidable. The response of the rich capitalist countries perhaps was predictable, namely aid, i.e. grants, loans, tied export credits, sales of surplus commodities on favourable terms, direct private foreign investment and technical assistance. it is hardly an exaggeration to say that without the Cold War there would have been no foreign aid. Foreign aid was supposed to result in a high level of investment, and’ thereby enable an economy to ‘take off’. In practice consumption usually increased ‘more than investment,. but Western development theory tended to ignore this for a long time. Instead the majority of development economists insisted, quite wrongly, that foreign resources were both necessary and sufficient to increase the rate of accumulation. To argue otherwise would be to cast doubt on the utility of such institutions as the World Bank, to remove much of the economic rationale for bilateral aid programmes and generally to undermine the justification for an enormous and highly paid United Nations civil service engaged in recruiting ‘experts’ to send to ‘the field’. Clearly, no development economist worthy of his consultant’s fee was likely to question the link between foreign aid and domestic capital formation. A second strand in Western thought on development has been the centrality of investment in determining the rate of growth. The key to faster growth was believed to be a rising capital-labour ratio. No matter that empirical studies showed that capital formation could account for only a fraction of the rise in labour productivity, or that the effectiveness of investment (as measured by the incremental outputcapital ratio) varied enormously from one country to another, if only a country could reduce consumption and raise saving and investment, growth would accelerate and all would be well. In practice this view gave governments an excuse to squeeze the consumption of the poor and redistribute income in favour. of the ‘saving classes’, i.e. the rich.
The bias in favour of investment was accompanied by a bias in favour of industry. The historical experience of the West was interpreted as indicating that manufacturing was the ‘leading sector’ of development and therefore ought to be encouraged by whatever means were available. In the event the means were protection, subsidies and tax advantages. The effects were high profits for the capitalist class, high costs for the economy as a whole, high prices for the consumer, adverse terms of trade for the farmer and discouragement of small-scale enterprises, especially those located in rural areas. Industrial output did indeed expand rapidly in many countries, but as often as not poverty failed to decline significantly. With the emphasis on industrialization came an espousal of planning. At first sight it seems curious that Western development thought, given its origins in the Cold War, should include a place for state planning. Yet it did. The reason is that development was viewed as an activity for experts and technocrats, that is, for the elite. The type of central planning usually advocated represented in essence a marriage of Keynesian national income accounting concepts and econometric methods. Planning was to be from the top down; the purpose of planning was to accelerate the rate of growth; and the benefits of growth were expected to trickle down to the mass of the population. The objective of planning was defined narrowly as increasing the rate of change of an aggregate statistic called gross national product. The elimination of poverty was not itself a goal; this was to be achieved indirectly, probably only in the distant future, and not as a direct consequence of government action. Even less concern was shown about reducing inequality. Indeed, it was thought that greater inequality probably was inevitable and possibly was desirable in order to provide incentives and encourage savings and investment. This whole approach to development increasingly is being rejected. To the nationalist it is unacceptable because it makes a country excessively dependent on foreign capital to finance growth. To the democrat it is unacceptable because of its authoritarian implications. To the moralist it is unacceptable because of its disregard for equity. And to the economist it is becoming unacceptable because it has done so little to raise the welfare of large sections of the population. Instead of foreign capital, more emphasis is beginning to be placed on national self-reliance in financing deve!opment. The poor aid performance of the major donor nations and the
ECONOMIC DEVELOPMENT IN A CHANGING WORLD
fear of the transnational corporations in many Third-World countries have helped to lead to a reassessment of the role of capital imports. To some extent this is making a virtue of a necessity, but many observers in the underdeveloped countries increasingly are pointing to the positive advantages of greater self-reliance and to the disadvantages of dependency. It is perhaps significant that more aid plays a relatively small part in the demands of the Third World for a New International Economic Order. Along with reduced emphasis on foreign aid has come a reduced emphasis on investment. No one, of course, denies the importance of capital accumulation in promoting development. It is virtually a sine qua non. The new approach, however, gives much greater recognition to the mobilization and development of human resources, the possible contribution of family planning to poverty alleviation and to the introduction of more appropriate forms of technical change. The view that investment in machinery and buildings is almost the only thing that matters has been replaced by a view that investment often has been badly allocated, that the introduction of new technology often has aggravated problems rather than solved them and that capital, land and labour are often underutilized. The greatest waste of resources probably has occurred in the industrial sector. Moreover, the growth of this sector has done remarkably little either directly or indirectly to solve the basic problems of underdevelopment. In reaction to this, and to the periodic ‘food crises’ that beset Africa and South Asia, rural development now receives much greater attention than it did in the 1950s and 1960s. Although there is a danger that opinion will swing too far in the opposite direction, there is no doubt that in a great many countries a better balance was needed between the rates of growth in the agricultural and non-agricultural sectors. Rural development, however, cannot easily be centrally planned. Consequently the shift of thinking in favour of agriculture and the mobilization of local human and material resources has been accompanied by a reduced emphasis on national planning and a growing awareness of the need to devise an administrative structure that would permit regional decentralization, local autonomy in making decisions of primary concern to the locality and greater local responsibility for designing and implementing development programmes. Such changes, evidently, are not just technical or administrative; they are political. They involve a transfer of power from the groups who dominate the centre to those
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who have control at the local level. It is conceivable, even likely in many countries, that power at the local level is more concentrated, more elitist and applied more ruthlessly against the poor than at the centre. Thus greater decentralization does not necessarily imply greater democracy let alone ‘power to the people’. It all depends on the circumstances under which decentralization occurs. Finally, the rate of growth of GNP has been dethroned as the sole, or major, objective of policy. Instead of growth, emphasis now is being placed on measures aimed directly at reducing poverty. The more radical thinkers have argued that reducing inequality in the distribution of income should be the first priority, that this is impossible without redistributing productive wealth, in particular land, and that this, in turn, requires major political and institutional changes. The more moderate thinkers have focused not on inequality as such but on more limited measures to meet the ‘basic needs’ of the entire population for adequate nutrition, health, clothing and shelter. Differences between the two groups arise partly over the choice of tactics, some advocates of a ‘basic-needs’ strategy wishing to differentiate their approach from that of ‘revolutionaries’. They differ also because of differences in the conception of poverty, the ‘basic-needs’ strategists often taking the view that poverty is an absolute, largely physiological concept whereas the radicals view poverty as a relative concept. Partly, too, they differ about what economic measures are necessary to reduce poverty. At one extreme are those who think that basic needs could be satisfied if only underdeveloped countries would grow more food; at the other extreme are those who reply that more food would be grown if only the poor had greater purchasing power and controlled the means of production My own views are closer to the latter than to the former. There still are many people from the Third World who oppose any change in domestic policy which would alter the distribution of income in favour of the poor. In the words of a senior Pakistani official, they ‘ . . find it difficult to accept the two-fold assumption that is implicit in the basic needs approach. First, that the developing countries need to put their houses in order instead of seeking to remove inequalities And second, among nations.’ . . . that it is possible to satisfy the basic needs of people in the poor countries without a rapid and comprehensive development of their economies through industrialization, improvement in terms of trade and so forth’.rO
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The issue, however, is not primarily one of industry vs agriculture, but of what pattern of industrialization, what institutional framework for agricultural expansion and what balance between the growth of the agricultural and industrial sectors. Similarly, the issue is not whether national redistribution should occur instead of international redistribution - both obviously are desirable - but whether the alleviation of poverty in underdeveloped countries must wait until there is a significant redistribution of income on a world scale. If it is in fact necess-
ary to wait, then the prospects for the poor are very dim indeed. The evidence, however, indicates that even in the poorest countries national resources can be mobilized so as to satisfy the essential needs of the entire population within, say, a generation or a bit more. Thus it is not necessary to change the entire world, to have a New International Economic Order, in order to’ abolish poverty. Rather, if each country would embark on a programme to abolish the poverty within its borders, the world would soon be changed in the process.
NOTES 1. World Bank, World Development Report, (Washington: 1980). Table 1, pp. 110-111.
1980
2. Keith Griffin and Azizur Rahman Khan, ‘Poverty in the Third World: ugly facts and fancy models’, World Development (March 1978). 3. Keith Griffin and Ajit Ghose, ‘Growth and impoverishment in rural Asia’, World Development (April/May 1978), Table 7, p. 371. 4. ibid. 5. V. M. Dandekar and N. Rath, Poverty in India (Bombay: 1971). Chap. 2. 6. Heather Joshi and Vijay Joshi, Surplus Labour and the City: A Study of Bombay (Delhi: Oxford Uni-
versity Press, 1976), p. 108. 7. See Keith Griffin, International Inequality and National Poverty (London: MacmiIlan, 1978), pp. 146-149. 8. Clark Reynolds, ‘Fissures in the volcano?: Central American economic prospects’, draft (November 1975), p. 15. 9. Richard Webb, Government Policy and the Distribution of Income in Peru, 1963-1973 (Cambridge, MA: Harvard University Press, 1977), p. 42. 10. See the statement of the Ambassador of Pakistan to France, Iqbal Akhund, ‘A Third World view’, OECD Observer (January 1979), p. 6, emphasis in the original.
0305--750X/81/030221 -06/$02.00/O 01981. Pergamon Press Ltd.
1981.
Economic Development in a Changing World KEITH GRIFFIN Magdalen College, Oxford Presidential Address to the Development Annual Conference, Swansea, 1 S-17
Without decolonization there probably would have been no development economics or development studies and possibly not much development either. Both the subject of economic development and the process of development as observed in the Third World are products of a changing world - of the aftermath of the Second World War, of the end of empire and of the spread of nationalism to the far corners of the earth. It can be argued that the existence of the economically advanced capitalist nations inhibited the development of the underdeveloped countries in a variety of ways. The military power of the West was used to conquer a large part of the world, to create spheres of influence in nominally independent countries and to force some countries to engage in trade against their will by imposing so-called open-door policies. Politically, the dominance of the West was reflected in the establishment of colonial regimes and in the creation of both formal and informal empires throughout the world. The economic consequence was that in the underdeveloped countries the pattern of production and trade, the way in which investible resources were appropriated and allocated, and the development of human resources through education and training were all largely determined externally to the societies concerned. In the last three and a half decades, however, this picture has changed almost beyond recognition. First, a large number of formerly dependent countries have achieved political independence. In 1945, for instance, when the United Nations was established, there were only 51 member countries, almost none from Asia and Africa. Today there are three times that number and only a tiny proportion of the world’s population still lives in colonial territories. Second, the political and economic strength of the socialist countries has increased considerably and this has eroded the hegemony of the ad-
Studies Association September 1980
vanced capitalist economies and increased the room for manoeuvre of Third-World countries. Ideologically, socialism is on the offensive and in fact about one-third of the world’s population now lives in countries in which the communist party is in power. Third, the underdeveloped countries have grown quite rapidly. The second half of the 20th century has been, on the whole, a period of rising incomes per head in the Third World and the growth performance has been far better than that experienced by the now industrialized countries in the 19th century or by the underdeveloped countries in the first half of this century, when most of them were colonial territories. For example, the most recent World Bank statistics indicate that in the period 19601978, the rate of growth of gross national product per capita of the lowest-income underdeveloped countries was 1.6%; -the middleincome countries experienced a growth rate of 3.7%, the same as the industrialized countries; while the socialist countries grew 4.O%/year/ head.’ The combined achievements of political independence and economic growth are indeed remarkable. One is tempted to claim that the Third World has never had it so good. Before doing so, however, it is necessary to look a bit deeper. The first problem is that the economic distance between the rich countries and the poor has grown wider, both absolutely and relatively. Even if the two groups of countries expanded at the same rate, the absolute differnces in per capita income would of course increase merely because the base to which the rates applied was so different. This point can easily be illustrated. During the period 1960-1978 the average annual growth of gross national product per capita was the same in Switzerland and Burundi, namely 2.2%. GNP per capita in 1978 was only $140 in Burundi, however, whereas it was 221
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$12,000 in Switzerland, a difference of $11,690. Thus in Switzerland, the average person enjoyed an annual increase in his income of $266.20, compared to an increase of only $3.08 per person in Burundi, and in consequence the difference in per capita incomes increased by $263.12. In practice. moreover, the situation is even less favourable for the Third World. That is, in general there has been some tendency for the Third-World countries to grow a little less rapidly in per capita terms than most rich countries. Consider the last two decades, 1960-1980. During that time GNP per capita in the advanced capitalist countries grew 3.2%/year and at least half again as fast in the advanced socialist countries. In the Third World, however, the growth rate was 3.0%. Second, as is clear from figures already cited, within the group of countries which comprise the Third World, inequality has tended to increase. That is, the relatively more prosperous underdeveloped countries have tended to grow much faster than the poorest countries of the Third World. Indeed, differences in national income per head within the Third World have increased much more rapidly than the differences between the Third World as a whole and the rich capitalist countries as a whole. This has both economic and political implications. Economically it means that the most necessitous nations are lagging even further behind and several, e.g. Bangladesh, Chad and Niger are absolutely worse off today than they were two decades ago. Politically, the growing inequality within the Third World is likely to undermine the solidarity of the poor countries. This solidarity never was very great, but such commonality of interests as has existed is almost certain to diminish. In consequence, the bargaining position of poor countries vis-his the rich is likely to become even weaker, dissension and criticism within the so-called Group of 77 is likely to increase, and attempts are bound to be made to separate some of the more prosperous underdeveloped countries - especially oil-exporting countries - from the Group. Finally, and most disturbing of all, is the evidence that even in countries where average incomes have risen, the standard of living of the poorest groups has fallen. A considerable amount of research has been done in Asia and hence the picture there is particularly clear. In the rural areas the proportion of the population below the ‘poverty line’ either has been rising (as in the Philippines) or has remained roughly constant (as in Pakistan).* Even in regions
which have enjoyed exceptionally rapid growth - as in Punjab/Haryana, India - there has been no perceptible decline in the incidence of rural poverty. For example, between 1960- 196 1 and 1973-1974 the trend rate of growth of food production per head in Punjab/Haryana was .5.5%/year, yet the proportion of the rural population in poverty in those states decreased by less than l%.3 In other parts of India the situation was much worse. In West Bengal, for instance, agricultural output per head increased 0.8%/year during this period, yet the incidence of rural poverty rose by 26%.4 Independent evidence on trends in rural wage rates supports these conclusions. For example, in the Philippines the real daily wage in agriculture exhibited a clear and sharp downward trend between 1957 and 1974. In Sri Lanka real wages in the plantation sector fell continuously for 5 years between 1968 and 1972. In Bangladesh, real wages in agriculture were lower in 1975 than they were in 1949. Turning to the urban areas, there was very little difference in the level of income of rural folk and the urban poor. Moreover, it is probable that the real incomes of the urban poor declined at about the same pace as those of the rural poor. There would be a tendency in most countries for internal migration to ensure that falling living standards in the countryside would spread fairly rapidly to the cities. In India, for example, real consumption per head of the poorest 40% of the urban population fell during the 1960~.~ A detailed study of the city of Bombay indicates that the ‘unorganized workforce’, i.e. the poorest workers, were ‘increasing in numbers and possibly as a proportion of the total workforce’. Moreover, ‘it is very likely that . . they lost in real terms’.6 A similar story, no doubt, could be told of many other of the great cities of Asia. ’ The data for Africa and South America are less abundant and less reliable. Nevertheless it is apparent that poverty is increasing in many parts of both continents.’ In some of the e.g. Chad, Ghana, smaller African states, Madagascar, Niger and Somalia, the growth of average income was negative or zero for many years, and it is to be expected that in such circumstances the poor would become worse off. It would be a mistake, however, to attribute the rise in poverty to slow aggregate rates of growth. Even in countries where average incomes are thought to have increased, as in Zaire and Zambia, it is probable that those of the poor declined. In Latin America too there is a suspicion that considerable numbers of people have failed
ECONOMIC DEVELOPMENT IN A CHANGING WORLD
to benefit from the growth that undoubtedly occurred in the last two or three decades. Haiti has experienced many years of economic stagnation, but most of the other countries in the Western Hemisphere have enjoyed a substantial rise in average income per head. Yet poverty persists and may have become accentuated in certain regions and for certain social classes. Work done by myself in Guatemala in the late 1960s indicates that the income and consumption of the poorest members of society were falling. More recent work on Central America, concentrating on the period 1960-1971, reports that ‘annual real earnings . . . appear to be falling for many landless rural workers in the most labour-abundant regions of El Salvador and Guatemala, while only increased participation of women and children in wage labour permits family incomes to be maintained’.a Indirect evidence from Ecuador suggests that since the early 1960s there was a sustained but gradual deterioration in the standard of living of the campesino population inhabiting the Sierra. In Peru the available data indicate that most of the rural population, particularly that of the Sierra, and some groups of self-employed workers such as artisans and domestics, became relatively poorer over the period 1950-1966. The author of the study, Richard Webb, while emphasizing that his conclusions are highly tentative, none the less suggests ‘that for a large proportion of the population, which could plausibly range between 15 per cent and 25 per cent, there has been no absolute improvement in living standards’.9 This group consists largely of small farmers with 5 ha or less. Thus the readily available material from Central America and Western South America, although incomplete and of varying reliability, is broadly consistent. Significant groups of the rural population, notably small farmers and landless workers, either have experienced no increase in their material well-being or have suffered some decline. The increasing international inequality and national poverty, despite unprecedented growth rates, has led to frustration and bitterness in the poorest of the underdeveloped countries and among the poorest classes in almost all underdeveloped countries. This, in turn, is virtually certain to result in national political upheavals throughout the Third World and possibly to greater international discord. One need not subscribe to a materialist interpretation of history to acknowledge the connection between, on the one hand, poverty and inequality and an acutely felt sense of injustice and, on the other, the continuing appeal in many countries of populist,
223
nationalist or revolutionary political movements. The overthrow of the Shah in Iran, the violent destruction of the Somoza dictatorship in Nicaragua, the Muslim insurgency in the southern Philippines, the civil wars in Ethiopia and Afghanistan and the recently concluded anti-colonial struggle in Zimbabwe: these are contemporary examples of the sorts of things that can be expected in the future. Equally, however, one can anticipate the further spread of authoritarian regimes of the types present today in Chile, Pakistan, Morocco and Zaire, as those with a vested interest in the status quo strive to maintain their authority. We may well see in the years to come a gradual polarization of Third-World countries into those which achieve stability through repression and those which experience chronic instability and open conflict.
ECONOMIC DEVELOPMENT AND DEVELOPMENT ECONOMICS If government policies and the pursuit of development have led to the further impoverishment of the poor and greater social conflict, it is natural to ask what has gone wrong, who is to blame. Some may be tempted to argue that the disappointing results of development are due to the erroneous or, worse, nefarious doctrines of development economics. This would be wrong, I think, because the most immediate sources of action are not the writings of intellectuals but the interests of those who dominate the social and economic structure of a country. Having said this, however, it would be equally wrong to imagine that the ideas of economists and social scientists have had no influence whatever on the decisions of governments. Looking back over the last 35 years, one can see that two political phenomena had a profound impact on the new subject of development economics. The first was the decline of the European colonial empires and the emergence of many newly independent countries with serious economic difficulties. The second was the eruption of the Cold War and the resulting intense competition between the socialist and advanced capitalist countries for the political and ideological support of the Third World. Of the two, the second was especially important. The reason for this is that moral outrage against poverty and exploitation was at the centre of the Marxist ideology of the socialist countries. The ideology of the West, in contrast, was based on the pursuit of self-interest
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and clearly had more appeal to the top dogs of the world than to the underdogs. Moreover, the socialist countries claimed to know how to overcome poverty and underdevelopment, namely by transferring power to the working class, socializing the means of production and establishing a system of central planning. The liberal market solution of the West appeared at that time to offer little more than secular stagnation punctuated periodically by depressions of the type we are experiencing today. The moral and intellectual challenge of the socialist countries to Western influence in the Third World thus was formidable. The response of the rich capitalist countries perhaps was predictable, namely aid, i.e. grants, loans, tied export credits, sales of surplus commodities on favourable terms, direct private foreign investment and technical assistance. it is hardly an exaggeration to say that without the Cold War there would have been no foreign aid. Foreign aid was supposed to result in a high level of investment, and’ thereby enable an economy to ‘take off’. In practice consumption usually increased ‘more than investment,. but Western development theory tended to ignore this for a long time. Instead the majority of development economists insisted, quite wrongly, that foreign resources were both necessary and sufficient to increase the rate of accumulation. To argue otherwise would be to cast doubt on the utility of such institutions as the World Bank, to remove much of the economic rationale for bilateral aid programmes and generally to undermine the justification for an enormous and highly paid United Nations civil service engaged in recruiting ‘experts’ to send to ‘the field’. Clearly, no development economist worthy of his consultant’s fee was likely to question the link between foreign aid and domestic capital formation. A second strand in Western thought on development has been the centrality of investment in determining the rate of growth. The key to faster growth was believed to be a rising capital-labour ratio. No matter that empirical studies showed that capital formation could account for only a fraction of the rise in labour productivity, or that the effectiveness of investment (as measured by the incremental outputcapital ratio) varied enormously from one country to another, if only a country could reduce consumption and raise saving and investment, growth would accelerate and all would be well. In practice this view gave governments an excuse to squeeze the consumption of the poor and redistribute income in favour. of the ‘saving classes’, i.e. the rich.
The bias in favour of investment was accompanied by a bias in favour of industry. The historical experience of the West was interpreted as indicating that manufacturing was the ‘leading sector’ of development and therefore ought to be encouraged by whatever means were available. In the event the means were protection, subsidies and tax advantages. The effects were high profits for the capitalist class, high costs for the economy as a whole, high prices for the consumer, adverse terms of trade for the farmer and discouragement of small-scale enterprises, especially those located in rural areas. Industrial output did indeed expand rapidly in many countries, but as often as not poverty failed to decline significantly. With the emphasis on industrialization came an espousal of planning. At first sight it seems curious that Western development thought, given its origins in the Cold War, should include a place for state planning. Yet it did. The reason is that development was viewed as an activity for experts and technocrats, that is, for the elite. The type of central planning usually advocated represented in essence a marriage of Keynesian national income accounting concepts and econometric methods. Planning was to be from the top down; the purpose of planning was to accelerate the rate of growth; and the benefits of growth were expected to trickle down to the mass of the population. The objective of planning was defined narrowly as increasing the rate of change of an aggregate statistic called gross national product. The elimination of poverty was not itself a goal; this was to be achieved indirectly, probably only in the distant future, and not as a direct consequence of government action. Even less concern was shown about reducing inequality. Indeed, it was thought that greater inequality probably was inevitable and possibly was desirable in order to provide incentives and encourage savings and investment. This whole approach to development increasingly is being rejected. To the nationalist it is unacceptable because it makes a country excessively dependent on foreign capital to finance growth. To the democrat it is unacceptable because of its authoritarian implications. To the moralist it is unacceptable because of its disregard for equity. And to the economist it is becoming unacceptable because it has done so little to raise the welfare of large sections of the population. Instead of foreign capital, more emphasis is beginning to be placed on national self-reliance in financing deve!opment. The poor aid performance of the major donor nations and the
ECONOMIC DEVELOPMENT IN A CHANGING WORLD
fear of the transnational corporations in many Third-World countries have helped to lead to a reassessment of the role of capital imports. To some extent this is making a virtue of a necessity, but many observers in the underdeveloped countries increasingly are pointing to the positive advantages of greater self-reliance and to the disadvantages of dependency. It is perhaps significant that more aid plays a relatively small part in the demands of the Third World for a New International Economic Order. Along with reduced emphasis on foreign aid has come a reduced emphasis on investment. No one, of course, denies the importance of capital accumulation in promoting development. It is virtually a sine qua non. The new approach, however, gives much greater recognition to the mobilization and development of human resources, the possible contribution of family planning to poverty alleviation and to the introduction of more appropriate forms of technical change. The view that investment in machinery and buildings is almost the only thing that matters has been replaced by a view that investment often has been badly allocated, that the introduction of new technology often has aggravated problems rather than solved them and that capital, land and labour are often underutilized. The greatest waste of resources probably has occurred in the industrial sector. Moreover, the growth of this sector has done remarkably little either directly or indirectly to solve the basic problems of underdevelopment. In reaction to this, and to the periodic ‘food crises’ that beset Africa and South Asia, rural development now receives much greater attention than it did in the 1950s and 1960s. Although there is a danger that opinion will swing too far in the opposite direction, there is no doubt that in a great many countries a better balance was needed between the rates of growth in the agricultural and non-agricultural sectors. Rural development, however, cannot easily be centrally planned. Consequently the shift of thinking in favour of agriculture and the mobilization of local human and material resources has been accompanied by a reduced emphasis on national planning and a growing awareness of the need to devise an administrative structure that would permit regional decentralization, local autonomy in making decisions of primary concern to the locality and greater local responsibility for designing and implementing development programmes. Such changes, evidently, are not just technical or administrative; they are political. They involve a transfer of power from the groups who dominate the centre to those
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who have control at the local level. It is conceivable, even likely in many countries, that power at the local level is more concentrated, more elitist and applied more ruthlessly against the poor than at the centre. Thus greater decentralization does not necessarily imply greater democracy let alone ‘power to the people’. It all depends on the circumstances under which decentralization occurs. Finally, the rate of growth of GNP has been dethroned as the sole, or major, objective of policy. Instead of growth, emphasis now is being placed on measures aimed directly at reducing poverty. The more radical thinkers have argued that reducing inequality in the distribution of income should be the first priority, that this is impossible without redistributing productive wealth, in particular land, and that this, in turn, requires major political and institutional changes. The more moderate thinkers have focused not on inequality as such but on more limited measures to meet the ‘basic needs’ of the entire population for adequate nutrition, health, clothing and shelter. Differences between the two groups arise partly over the choice of tactics, some advocates of a ‘basic-needs’ strategy wishing to differentiate their approach from that of ‘revolutionaries’. They differ also because of differences in the conception of poverty, the ‘basic-needs’ strategists often taking the view that poverty is an absolute, largely physiological concept whereas the radicals view poverty as a relative concept. Partly, too, they differ about what economic measures are necessary to reduce poverty. At one extreme are those who think that basic needs could be satisfied if only underdeveloped countries would grow more food; at the other extreme are those who reply that more food would be grown if only the poor had greater purchasing power and controlled the means of production My own views are closer to the latter than to the former. There still are many people from the Third World who oppose any change in domestic policy which would alter the distribution of income in favour of the poor. In the words of a senior Pakistani official, they ‘ . . find it difficult to accept the two-fold assumption that is implicit in the basic needs approach. First, that the developing countries need to put their houses in order instead of seeking to remove inequalities And second, among nations.’ . . . that it is possible to satisfy the basic needs of people in the poor countries without a rapid and comprehensive development of their economies through industrialization, improvement in terms of trade and so forth’.rO
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The issue, however, is not primarily one of industry vs agriculture, but of what pattern of industrialization, what institutional framework for agricultural expansion and what balance between the growth of the agricultural and industrial sectors. Similarly, the issue is not whether national redistribution should occur instead of international redistribution - both obviously are desirable - but whether the alleviation of poverty in underdeveloped countries must wait until there is a significant redistribution of income on a world scale. If it is in fact necess-
ary to wait, then the prospects for the poor are very dim indeed. The evidence, however, indicates that even in the poorest countries national resources can be mobilized so as to satisfy the essential needs of the entire population within, say, a generation or a bit more. Thus it is not necessary to change the entire world, to have a New International Economic Order, in order to’ abolish poverty. Rather, if each country would embark on a programme to abolish the poverty within its borders, the world would soon be changed in the process.
NOTES 1. World Bank, World Development Report, (Washington: 1980). Table 1, pp. 110-111.
1980
2. Keith Griffin and Azizur Rahman Khan, ‘Poverty in the Third World: ugly facts and fancy models’, World Development (March 1978). 3. Keith Griffin and Ajit Ghose, ‘Growth and impoverishment in rural Asia’, World Development (April/May 1978), Table 7, p. 371. 4. ibid. 5. V. M. Dandekar and N. Rath, Poverty in India (Bombay: 1971). Chap. 2. 6. Heather Joshi and Vijay Joshi, Surplus Labour and the City: A Study of Bombay (Delhi: Oxford Uni-
versity Press, 1976), p. 108. 7. See Keith Griffin, International Inequality and National Poverty (London: MacmiIlan, 1978), pp. 146-149. 8. Clark Reynolds, ‘Fissures in the volcano?: Central American economic prospects’, draft (November 1975), p. 15. 9. Richard Webb, Government Policy and the Distribution of Income in Peru, 1963-1973 (Cambridge, MA: Harvard University Press, 1977), p. 42. 10. See the statement of the Ambassador of Pakistan to France, Iqbal Akhund, ‘A Third World view’, OECD Observer (January 1979), p. 6, emphasis in the original.