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Leap into Modernity – Political Economy of Growth on the Periphery, 1943–1980

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Adam Leszczyński

This book describes struggles of different countries and their development after World War II. It presents a panorama of different ideologies of accelerated development, which dominated the world just before the war and in the next 40 years. The author explains why in the 1970s global and local elites began to turn away from the state, exchanging statism for the belief in the «invisible hand of the market» as a panacea for underdevelopment. He focuses not only on the genesis of underdevelopment, but also on the causes of popularity of economic planning, and the advent of neoliberalism in the discourse of development economics. This book evaluates the power of state as a vehicle of progress and focuses in detail on the Soviet Union, China, Poland, Ghana, Tanzania, and South Korea.

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Chapter 2. “A task without historical precedent”

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Chapter 2.“A task without historical precedent”

1.History

It is interesting to note that the landmark text from which the entire postwar economics of development in underdeveloped countries began was a blueprint for the future of Central Europe. This text, Paul Rosenstein-Rodan’s “Problems of Industrialization of Eastern and South-eastern Europe” appeared in the prestigious Economic Journal in 1943 and, despite what may seem like a rather uninspiring title for today’s reader, it carried an explosive ideological and political charge.147 In it Rosenstein-Rodan wrote:

It is generally agreed that industrialisation of “international depressed areas” like Eastern and South-Eastern Europe (or the Far East) is in the general interest not only of those countries, but of the world as a whole. It is the way of achieving a more equal distribution of income between different areas of the world by raising incomes in depressed areas at a higher rate than in the rich areas. […] It is a tremendous task, almost without historical precedent. There is no analogy to the process of industrialisation in the early nineteenth century for a number of reasons.148

Rosenstein proposed a model of large-scale planned industrialization that was later called the “big push” (a name he himself also adopted and used). He argued that to be effective, industrialization must simultaneously encompass several complementary industries. He argued, for example, that you could not build a giant shoe factory employing 20,000 workers in a poor Eastern European country. Such a project was doomed to failure: the factory would not have anyone to sell its shoes to because there would be no market (the shoes would not be purchased by poor peasants, who constituted three-quarters of the population). And, in order to survive, factory workers would have to be paid much more than peasants living in the countryside – because, unlike the peasants, the workers would not be able to even partially feed themselves. For these reasons, the project would soon prove to be unprofitable.

The key to success lay in the overall scale of the operation. Rosenstein-Rodan wrote:

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If, instead, one million unemployed workers were taken from the land and put, not into one industry, but into a whole series of industries which produce the bulk of the goods on which the workers would spend their wages, what was not true in the case of one shoe factory would become true in the case of a whole system of industries: it would create its own additional market, thus realising an expansion of world output with the minimum disturbance of the world markets. The industries producing the bulk of the wage goods can therefore be said to be complementary. The planned creation of such a complementary system reduces the risk of not being able to sell, and, since risk can be considered as cost, it reduces costs.149

Rosenstein-Rodan was not a supporter of industrialization according to the Soviet model.150 This was not because he believed that it had failed. On the contrary, like most economists of the day (including non-communists), he thought it had been a spectacular success. However, he thought that investing in heavy industry in the East would be inefficient, because the same industries in the West had a large surplus production capacity; it would be a pointless duplication.

The economist also pointed to humanitarian concerns. He considered the social costs of the Soviet model – which “squeezed” resources for investment out of its own citizens – to be too great. The people of Eastern European were living in such miserable conditions that it would be inhumane to worsen them further. This led Rosenstein-Rodan to indulge in the following psychological observation: “People (even Eastern Europeans!) are not as tough today as they used to be. Social conscience would not stand for as much misery in peace-time as was taken for granted in the Darwinist nineteenth century. Milder methods must be used.”151

A number of ideas contained in Rosenstein-Rodan’s concept later appeared in accelerated development projects. The first was that private capital was not what mattered. Investments as large and complex as those required by the “big push” were for him unattractive – due to both the long period of time required to realise their benefits, and political risks, such as war or nationalization. (Rosenstein-Rodan: “Political risks of international investment are very much greater today than in the nineteenth century, when it was assumed that certain things were ‘not done’.”152)

Capitalism was not also capable of undertaking such a great transformation for structural reasons: the projected future would be radically different from the ←58 | 59→past, and capitalism belonged to the past. Rosenstein-Rodan wrote, “Experience of the past is partly irrelevant, however, where the whole economic structure of a region is to be changed. An individual entrepreneur’s knowledge of the market is bound to be insufficient in this case because he cannot have all the data that would be available to the planning board [….].”153 Thus, if things took their natural, capitalist course, not only would the standard of living in underdeveloped Eastern Europe rise much more slowly than its untapped potential offered, its industrial structure, built in such a way, would be less than optimal from the point of view of social needs.

This difference reflected the superiority of rational planning over the chaos of the market. The capitalist financial markets which usually financed individual investments could not grasp (or support) massive, technologically and socially complex projects involving multiple sectors of the economy. A capitalist will not even create institutions for training industrial workers on a mass scale – because it would not be profitable. For-profit schools will only teach the children of parents who can pay, and from the point of view of society as a whole, this is obviously a loss, because it means that dormant human potential is left unrealized. Capitalists will also not build infrastructure: roads, electricity, railways. According to Rosenstein-Rodan, education and infrastructure will absorb 30–35 percent of the cost of a “big push”, so it must therefore be steered from above by the state. “The theory of growth must be very largely a theory of investment,” he wrote some years later.154 “Natura facit saltum”, he would say, in an obvious reference to a well-known saying by classical economist Alfred Marshall, who thought that leapfrogging stages of development was impossible.155

The entire project faced several perilous conundrums. First of all, it was not clear how to finance the “big push”. Rosenstein-Rodan assumed that part of the cost, which he estimated at the time to be five billion pounds, would cover the costs of an “Eastern European Industrial Trust”, which was to be established after the war, financed in part with Western loans, and in part from compensation paid by Germany (perhaps in kind, or in machines for Poland’s or Romania’s newly built industries). It was a purely hypothetical idea: some source of capital was simply necessary. As many as 3.6 billion pounds, however, was to come from Eastern Europe itself. With its national income estimated by Rosenstein at two ←59 | 60→billion pounds a year, he calculated it would require committing to investment 18 percent of national income annually for a number of years, roughly as much as the USSR spent during Stalin’s five-year plans. In Russia, however, it had been necessary to use police terror and drastically reduce citizens’ living standards in order for the state to collect the funds required for investment. How could this be accomplished using “softer” methods?

The second problem concerned people. Rosenstein-Rodan estimated that among Central and Eastern Europe’s 110 million inhabitants, up to 20–25 million were actually unemployed (he had in mind primarily disguised unemployment). These people, he claimed, were surplus labour: their work in the fields did not increase agricultural production, i.e., they could be employed in factories in cities without harming agriculture. The whole project therefore involved social engineering on a massive scale. The economist treated it as a completely natural part of the development process. The population was like pawns on the planner’s chessboard: people were pieces to be “placed”, “moved”,” and “taken”.

Thirdly, Rosenstein-Rodan in practice used interchangeably such notions as “industrialization”, “growth” and “income growth”. There was no hint of consideration that perhaps they were not all equivalent. He was also not interested in redistribution. He assumed that all “Eastern Europeans” would benefit from a “big push” and not merely a narrow elite.

Rosenstein-Rodan’s article was more than just an academic work printed in a prestigious journal. It was a chapter from an official report of the Royal Institute for International Affairs, prepared by the Economic Group of the Committee on Reconstruction, and an expression of the allied governments’ profound interest in the problems of the development of underdeveloped countries.

In 1941 a number of very different institutions in the U.K. were dealing with development planning – including the Royal Institute for International Affairs and the Oxford Institute of Statistics– as well as émigré governments and various informal (or semiformal) groups of economists and politicians meeting at seminars.156 In 1941 Rosenstein-Rodan also became secretary of the Committee for Postwar Reconstruction at Chatham House, where he worked with Eastern European economists. As he wrote later, he chose Eastern Europe, not because he considered it to be the most interesting or characteristic example of underdevelopment, but simply because he had “at hand” émigré governments from the region and the ability to work with the numerous Eastern European economists; ←60 | 61→he maintained, for example, regular contacts with a group working at Oxford, which included, among others, Michał Kalecki.157 Kalecki was considered the intellectual leader of the group, which also included Dudley Seers and Nicholas Kaldor.158 In The Economics of Full Employment, a report published in 1944 by six young economists from this circle, we can read: “the regulation of the economic process by market forces […] must be supplemented by conscious and deliberate regulation of public authorities.”159 It was a document written fully in the spirit of Keynes.160 It assumed the possibility of obtaining full employment in developed economies through macroeconomic policies and remained influenced by discussions in the U.K about planning during the 1930s by the Political and Economic Planning (PEP) think tank.161 By 1935, the PEP had already published three major reports – on construction, textiles, and metallurgy – and its journal Planning had a circulation of 2,000 copies and a readership that included almost a hundred members of parliament.162

Interest in the fate of the poorest countries had been at least partly forced upon Britain by the circumstances of war. Hitler offered countries allied with Germany a “New Order” – which in the economic sphere meant the promise that they could “eat from the German table” once the war had been won. Japan had its own “Co-Prosperity Sphere” for the peoples of Asia. Even if hiding behind platitudes about prosperity and development was the brutal exploitation of conquered peoples (and, as military defeats increased, of their allies, as well). The Allies felt obliged to present a more credible proposal.

Yet there were greater considerations involved than just politics and propaganda. The reasons for the Allies’ interest in the development of poor and peripheral countries went much deeper, and were not merely utilitarian in nature. In The Great Transformation, a study of the formation of market economies and the modern nation state published in 1944, Karl Polanyi foresaw the coming of a socialist society that would embody a spontaneous reaction to the market’s ills.163 ←61 | 62→“Socialism is, essentially, the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously subordinating it to a democratic society,” he wrote.164 In 1942 the Beveridge Report was published in Great Britain. The document called for the creation of a welfare state, and delineated specific individual needs that should be met by society.165 630,000 copies of the report were sold.166 The war had been a cataclysm from which a better world was supposed to emerge, one free of the inequalities and injustices of the past. Such was the thinking of Paul Rosenstein-Rodan, but he was not alone.167 At almost the same time, a solution very similar to Rosenstein-Rodan’s for South-Eastern Europe was being suggested by a group at Oxford associated with the economist Kurt Mandelbaum, who proposed harnessing the “hidden reservoir of manpower in the countryside” for purposes of industrialization.168 In all of these projects, a rational, planning state was to be an instrument of social progress.169

This view was at least as much the fruit of experience as of ideology. Already during World War I, the Viennese philosopher and political scientist (and socialist) Otto Neurath had noted that in the realities of the wartime system of planning and control, governments had managed to eliminate many of the evils plaguing the liberal economy of the belle epoque, including unemployment and economic fluctuations. It turned out that the state was able to effectively mobilize resources – money, raw materials and people – and organize production on a large scale. Neurath, one of the authors of the Austro-Hungarian planning system during the war, and later an adviser and chief planner for the government of the short-lived Bavarian Council Republic, he was convinced that the state could use the same methods to effectively deal with the economy in times of peace (he also proposed the abolition of money and basing the economy on the exchange of goods, but these ideas drew far fewer supporters). The successes of German war planning during World War I had also inspired the Bolsheviks in Russia.170

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The lessons of World War II were even more explicit. The economies of the Soviet Union and Germany were completely controlled by the state. Although Germany had not murdered its capitalists, it had essentially incapacitated them, and could boast impressive results afterwards. In 1946 the well-known Marxist historian E.H. Carr wrote in his book The Soviet Impact on the Western World:

The economic impact of the Soviet Union on the rest of the world may be summed up in the single word “planning”. […] President Roosevelt’s enemies were never tired of claiming that the New Deal had been framed on a Soviet model.171

Carr added that the idea was a mixture of naivety and genius, and that the core idea was essentially correct, although the details were often utopian. We are all planners, he confessed, under the influence of the Soviet practice and Soviet achievements. He also wrote that the poorer the country, the more it is fated to planning, and therefore an impoverished postwar United Kingdom planned to a greater extent than the United States, modelling it on the Soviet Union’s wartime efforts.

Germany as well, despite its defeat, provided arguments for the proponents of planning and statism. In the face of destructive bombing raids and a permanent lack of raw materials, the Reich’s industrial production continued to grow in the latter half of 1944.172

Propaganda made an equally strong impression as hard numbers. Albert Speer, author of the German “armaments miracle,” ​was also a master of mass persuasion: he made it possible for the regime not only to continue the war (after the defeat at Moscow in 1941 many managers of the German economy agreed that the war was unwinnable and that a political resolution had to be sought), but also persuaded the Germans that they were capable of overcoming all obstacles through their collective efforts. Total mobilization of the economy was an enterprise which lay as much in the realm of social psychology as in the economic sphere itself. Beginning in April 1942, German newsreels began to show the first views of the factories that build tanks; on May 20, 1942 at a giant public ceremony publicized in the press, radio and newsreels, Franz Hahne, a worker from the Alkett tank factory in Berlin, received a high distinction, the War Merit Cross (Ritterkreuz zum Kriegsverdienstkreuz). Alongside Hahne – “Germany’s most efficient armaments worker” – thousands of other employees of the armaments industry were honoured with medals, with the highest-ranking Nazi dignitaries (including Goering, Speer and Keitel) all in attendance for this propaganda “show”. The German newsreel showed Franz ←63 | 64→Hahne beaming with pride as he paraded before an honour guard composed of soldiers, sailors, airmen and Waffen-SS, while the narrator’s voiceover proclaimed: “The best soldiers with the best weapons will defeat the enemy”. In 1943 such armaments-related performances had become the daily bread of German propaganda: for example, on June 5, 1943 Speer spoke at the Sportspalast in Berlin to 10,000 workers of the armaments industry while rewarding their bosses for service to the German nation.173 Germany lost the war, but the vision of the unlimited potential that could be harnesses through centrally directed, collective efforts had taken root among both the losers and the winners.

The capitalist West also quickly switched over to a centrally planned war economy. In the U.S., the state controlled prices and wages with an iron fist. A Bureau of Planning and Statistics was set up within the War Production Board to direct the economy (its chief economist and statistician was Simon Kuznets).174 Private investors were also replaced: between 1942 and 1945, net private investment amounted to minus $ 6.2 billion, which meant that private industrial plants underwent decapitalization. Meanwhile, government investment totalled $ 99.4 billion.175 The government’s armaments investment programme was enormous in scale; from 1940 to 1943, as many factories were built (mainly for armaments, but also for other branches of industry, from steel mills to rubber and chemical plants) as in the previous two decades. Yet America did not avoid the pitfalls typical of a planned economy: already in 1944, some factories were not operating at full capacity because of poorly calculated deliveries of raw materials; excessive production in some areas was accompanied by deficits in others. But in the eyes of people who still remembered the misery and absurdities of the Great Depression, the U.S. war economy functioned with impressive efficiency.

After 1945, it quickly became apparent that many previous investments did not make sense in peacetime: for example, in 1951, shipyards built at a cost of $1.4 billion could hardly find a buyer at slightly more than 10 percent of this sum.176 “Contemporaries greatly exaggerated the heroic achievements of wartime socialism,” U.S. researcher Robert Higgs concludes in relation to the war economy, adding that the waste of funds during the war, even if you consider it to be justified ←64 | 65→by circumstances, was gigantic.177 Perhaps this is true; it is hard to forget, however, that the war economy was what eventually pulled the United States out of the Great Depression.178 In the eyes of many contemporaries, this was an argument for the idea that liberal capitalism was an inefficient and wasteful system, and the return to it after World War I had been a gross mistake of historic proportions.179 Full employment and economic growth had been restored through state intervention, and even if consumption had not recovered to pre-Depression levels, in the eyes of many, freedom from unemployment and abject poverty was worth the price.

“Development economics – the study of how poor countries can become rich – was forever cursed by the timing of its birth after the Great Depression. That gave development economics a bias toward relying on governments, rather than markets, to create growth,” wrote William Easterly, former chief economist of the World Bank and one of the most prominent critics of development aid.180 The question of whether it was a blessing or a curse needs to be put aside for the time being; it is a fact, however, that postwar ideas about the development of underdeveloped countries drew heavily upon the means by which the West tried to cope with the Great Depression.

Many economists felt guilty: they were late in realizing the enormity of the economic collapse that followed the stock market crash in 1929, and were slow to find a way out of crisis.181 In the latter half of the 1940s, one of the main tasks the Keynesian “new economy” had set for itself was preventing a repeat of the Great Depression. After the war, Western countries all led policies of full employment and built the institutions of a welfare state. Specialists in the development of underdeveloped countries set similar targets for themselves; they also wanted to use the same instruments, and that meant, above all, state intervention in various spheres of life, beginning with planning and ending with foreign trade. This distinguished them from Keynes, whose theory postulated controlling demand, not interfering with supply.182 Like him, however, they did not believe in the market. This distrust of the market was deeply rooted and justified by the experience of recent past ←65 | 66→disasters. They also thought that social evolution had led to a split between profit and economic progress.

Many future specialists in development had been followers of classical economics in their youth (the roads of two Poles active in this sphere, Oskar Lange and Michał Kalecki, who had previously ascribed to Marxism, were not typical in this respect). The famous Argentinean economist Raúl Prébisch, one of the spiritual fathers of dependence theory in the 1970s and a leading supporter of protectionist industrial policy in underdeveloped countries, recalled shortly before his death:

When I started my life as a young economist and professor during the 1920s, I was a firm believer in neoclassical theories. However, the first great crisis of capitalism – the world Depression – prompted in me serious doubts regarding these beliefs. It was the beginning of a long period of heresies, as I tried to explore new views on development matters.183

Total war inclined people to think about a new beginning. It was clear that the world after this disaster could not return to its old routine. It had to be built on a better, more equitable basis. Paul Rosenstein-Rodan wrote then:

If we were to emerge alive, we should not return to the previous status quo but… form a better world […] Not to do enough about inequality of opportunity and poverty when our world resources are sufficient to improve the situation is the real moral crisis.184

Another noted economist of the time, Hans Singer, wrote that his mission is simply the creation of a “global welfare state”.185 This idealism was expressed in development projects and tasks that emerged during the war, and which were placed on the agendas of then-forming international organizations.

The first political statements postulating a rise in the standard of living in peripheral and underdeveloped countries came out of the circle of leftist liberals associated in the 1930s with the World Labour Organisation (who, among other things, called for providing better nutrition in the colonies of the European empires). But it was the war that gave impetus to these ideas. Already in September 1939, just days after the outbreak of war in Europe, U.S. Secretary of State Cordel Hull appointed an advisory committee, whose job was to prepare plans for the ←66 | 67→postwar order. The problem of the development of underdeveloped countries was taken up by the Committee in January 1941, when Roosevelt announced the “four freedoms” as the foundation of the new order: among them was “freedom from want” (next to freedom of speech, freedom of religion and freedom from fear). In the Atlantic Charter, signed in August 1941, Roosevelt and Churchill promised equal access to trade and raw materials for all countries; they wrote that “they desire to bring about the fullest collaboration between all nations in the economic field with the object of securing, for all, improved labor standards, economic advancement and social security.”

Soon international organizations began to form which were designed to bring this programme into effect: the FAO (now the U.N. Food and Agriculture Organisation) in 1943, and the World Bank and International Monetary Fund in 1944. The International Labor Organization put together programmes for full employment which included colonies and dependent territories.186 In 1945 the economic development of underdeveloped countries had already become one of the main official objectives of the domestic and foreign policies of Western countries.187 It also had a leading place among the tasks of the emerging United Nations.

The rapid and successful postwar reconstruction of the West was a fourth – in addition to the two world wars and the Great Depression – important historical experience. Many economists later involved in development began their careers in offices of planning and reconstruction after the war. Dutchman Jan Tinbergen, later one of the most influential specialists on development (Nobel Laureate in 1969 and Chairman of the U.N.’s Committee for Development Planning from 1965 to 1972) had previously been (after 1945) the director of the Central Planning Bureau in the Netherlands. In the early 1950s, he began to advise the Government of India during the drafting of its first five-year plan (“the poverty prevailing in India – as a normal situation – was such a contrast [to living conditions in the Netherlands] that it redirected my thinking and main activities”).188 Western Europe rebuilt itself following the enormous destruction caused by the war in part through rational planning, and in part thanks to the injection of American capital.189 (The Marshall Plan was equal to two percent of U.S. GDP; its success only strengthened the belief – then an already well-established theory – that a ←67 | 68→lack of capital is the primary and most important brake on development).190 The relative ease with which Europe and Japan rebuilt themselves out of the ruins after the war, managed to maintain full employment, and quickly become richer than before the war, inclined people to optimism.191

It is difficult today to understand the mix of idealism and optimism in which new development projects were undertaken. “In a sense, all the pioneers, without exception, felt they were engaged in a battle on behalf of the underdogs of the world, – i.e., the men, women, and children of countries that were latecomers”, one of the most important protagonists in these events wrote in the 1990s.192

A look at the résumés of the economists involved helps us better understand their motivations. Tinbergen wrote, for example, that in the 1920s he abandoned physics for economics because he wanted to fight poverty.193 Others had experienced the vicissitudes of emigration: fleeing war, they had travelled halfway around the world, eventually finding jobs at British or American universities. Rosenstein-Rodan was born in Austro-Hungarian Kraków, and studied in Vienna and London; he later worked at the World Bank, and retired at the Massachusetts Institute of Technology. Albert O. Hirschman was born in Berlin, earned his doctorate in Trieste, and served – as a German-anti-fascist – in the Allied forces during the war (first with the French, then with the Americans); he later worked in the administration supporting implementation of the Marshall Plan and spent four years in Colombia as an adviser to the World Bank.

Irma Adelman worked as an economist for the World Bank, the UN, FAO and ILO, advised the South Korean government (which was then carrying out its own five-year plans) in the 1960s, and ended her career as a professor at Berkeley. She was born in 1930 to a family of a socialist-leaning Romanian businessman. Having been born into a Jewish family, and brought up in a Catholic school ←68 | 69→run by nuns, she carried within her, as she wrote, “a massive sense of primordial guilt, that was later reinforced by the guilt of the survivor of the Holocaust.” Years later, she wrote that the redemption of this guilt by means of the only mechanism possible – service to humanity – was the main force pushing her through life.194 In the late 1960s and 1970s, Adelman came to the conclusion, based on years of painstaking research, that economic growth does not translate into higher earnings for the poor masses in the countries of the developing world, because most of the benefits went to urban elites.195 For two years, she refused to publish these studies because she was afraid that they would serve the political opponents of development aid as an argument to cut off funds. Her compassion towards the poor, excluded and marginalised is inscribed into her biography.

“[M]y mother had brought me up to believe that anything they [the white British] can do we can do. This is not a scientific proposition, but it turned out to be true”, recalled years later Arthur W. Lewis, the first black winner of the Nobel Prize (in 1979).196 “They” were, of course, not just the British, but the citizens of the white, rich world in general. He was born in St. Lucia, and his father died when he was seven years old, leaving behind a widow and five children aged five to seventeen. Lewis left school when he was 14 years old, having completed all the requirements of the curriculum, and began working as a clerk. He later recalled in the autobiography he prepared for the Nobel Committee that the job had proven valuable because it taught him how to type, take notes and keep order.197 Lewis, a descendant of slaves, rose to the top through persistence and perseverance: he earned a government scholarship to study in Britain, and before the war became the first black lecturer at the London School of Economics. (Lewis’ interest in the history of economic development was sparked by his boss at the university, the ultraliberal Friedrich von Hayek, from whose ideas he would distance himself throughout his life.) As the son of a poor black teacher from the empire’s distant provinces, he had learned that success was possible even under the most unfavourable circumstances: it was only a matter of will and effort. When in the 1950s debate continued over how much capital underdeveloped countries were able to absorb – this was a key point in the wider debate over accelerated development – Lewis used the argument ←69 | 70→that it was just a matter of will. As he recalled years later: “This is not a scientific proposition, but it turned out to be true.”

2.Theories

Theoretical innovations also tended to be optimistic. The very term “economic development” was still fresh; before World War II it had been used rarely.

The concept, however, was older than words. In the nineteenth century, English literature commonly used the word “progress”, sometimes adding “material” or “economic” (for example, in the writings of Adam Smith and John Stuart Mill). “Development” began to appear sporadically at the beginning of the twentieth century: it was used by Schumpeter in a book published in German in 1911 (but only in 1934 in English), The Theory of Economic Development. In the 1920s, British economic historians and colonial administrators were also beginning to write, though not so often, about “development”.198

Polish authors wrote more frequently and eagerly about “progress”. The word itself appeared late in the Polish language, towards the end of the eighteenth century, and gained popularity during the era of Napoleon and Congress Poland: it was used by, among others, Staszic, Wybicki and Szaniawski, as well as by many journalists during the times of the November Uprising and the Great Emigration. It was also used by Mickiewicz (as counted by one tenacious literary scholar, Francis Pepłowski, it occurs in his writings exactly 58 times, and thus, perhaps, not all that often).199

Even by then, the word had become a symbol – a banner for all radical sociopolitical ideas. “Progress is life”, wrote the radical philosopher and economist, Henryk Kamieński. Another philosopher, Bronisław Trentowski, used the word repeatedly as part of the phrase “freedom, light and progress”.200

The word “development” appears in the Polish language still later yet, in the 1840s, and originally had a clear philosophical context, appearing in discussions of Hegel’s philosophy.

The economic sphere was only one part of the great, all-encompassing advancement of progress. “The material economy,” wrote Kamieński, “is thus a term defining and objectifying the general progress of humanity, its scientific ←70 | 71→embodiment. And this progress, scientifically defined and scientifically objectified, becomes material development.”201 The phrase “economic development” became prevalent in Poland during the interwar period: among those who used it was Ludwik Landau, who wrote in 1933 about “the link between wages in Poland and economic development”, and Oskar Lange, who included it in his outline for an economic programme for Poland after the war, written in exile in 1943.202 This change in terms was significant, because “development” has a different meaning than “progress”: it presupposes hidden potential that you can only develop what already exists in a germinal state.203

Landau and Lange were associated with the left. The impressive career of the concept of “economic development” stemmed not only from its ties to the Hegelian-Marxist tradition. (The words “development of production” or “development of the social economy” appear on nearly every page of the last pre-war issue of the Polish annual journal Przegląd Gospodarczy (Eng. Economic Review), published by the Central Association of Polish Industry, and thus, an institution which distanced itself from the ideas of the Left.) There was something in this notion that seemed to reach to the hidden depths of modern spirituality, and that touched upon a vision of the historical process in which not only the Marxists believed - because they were not the only ones who were deeply convinced that history was governed by universal laws; that it was a process that had a beginning and an end, and, above all, was moving in a certain direction; that the future would be, on balance, morally better than the past; and that scientific inquiry into the path that guides it was possible. Economics was, not only for Marx, but for the spirit of modernity, a record of the historical process in a crystallized, scientific form; “economic development” was the essence of economics. Its identification with “progress” was a matter of course; in the years after World War II, few people questioned this. In general, the terms “economic development”, “progress”, “industrialization” and often “income growth” were simply equated with one another. The notion that economic growth did not necessarily mean ←71 | 72→progress, common among nineteenth-century critics of industrial civilization, would not reach the popular consciousness until the 1970s.

Marx’s writings were among the first classical works on economics to use the phrase “economic development” in the sense given to it in the 1950s and 1960s. In the preface to the first German edition of Capital, Marx wrote:

The physicist either observes physical phenomena where they occur in their most typical form and most free from disturbing influence, or, wherever possible, he makes experiments under conditions that assure the occurrence of the phenomenon in its normality. In this work I have to examine the capitalist mode of production […] Up to the present time, their classic ground is England. […] If, however, the German reader shrugs his shoulders at the condition of the English industrial and agricultural labourers, or in optimist fashion comforts himself with the thought that in Germany things are not nearly so bad; I must plainly tell him, “De te fabula narratur!” […] Intrinsically, it is not a question of the higher or lower degree of development of the social antagonisms that result from the natural laws of capitalist production. It is a question of these laws themselves, of these tendencies working with iron necessity towards inevitable results. The country that is more developed industrially only shows, to the less developed, the image of its own future.204

In the next paragraph, in writing about the underdevelopment plaguing Germany, Marx uses the term in the same sense as Rosenstein-Rodan, Lange and Lewis did in the 1940s and 1950s: “Alongside the modern evils, a whole series of inherited evils oppress us, arising from the passive survival of antiquated modes of production, with their inevitable train of social and political anachronisms. We suffer not only from the living, but from the dead.”205

However, it was not until the interwar period that economists developed theoretical tools which allowed them to consider providing underdeveloped countries with a prescription for bridging the gap dividing them from the affluent West. After the war, the collapse of colonial empires and widespread aspirations for emancipation in peripheral countries opened up a vast space for experimentation.

The first technical innovation was the publishing of truly global economic statistics. In the mid- 1930s, the first studies on nutrition levels had been carried out in different countries (including the colonies) at the request of the League of Nations. These showed a disastrous level of malnutrition – which was common everywhere except the rich West and a number of countries in the New World dominated by European immigrants. In 1940, a groundbreaking book ←72 | 73→titled The Conditions of Economic Progress was published in England by Colin Clark, a friend of Keynes’ and a participant in his seminar. In it Clark published the first global compilation of national income statistics, data that was cited for many years afterward. The gulf in income between developed countries and the developing world could now for the first time be shown in numbers – and turned out to be greater than expected.206 Clark’s book was extremely popular; as the author himself noted, illegal handwritten copies even circulated in Japan during the war.207 By 1947, Clark had been made an adviser to the Planning Commission in India, and he spent the rest of his career dealing with problems of development in underdeveloped countries. As with all new tools, including national income statistics, they were widely used and even abused: the level of national income soon became recognized as the measure of development. This tool offered numerous advantages, the most important of which was that it provided an easy means for comparing very diverse societies (although economists realized how imperfect it was as a measuring stick).

In the 1930s, economics created a new model of economic growth, which suggested – unlike classical economics, which assumed that progress took its “natural course”– that it was possible to accelerate the rate at which national income rose. A tangible example (to which we will return shortly) was provided by the USSR, while the applicable theory was constructed by two economists, Sir Roy Harrod, a Brit, and Evsey Domar, a Russian émigré. The two men formulated their models independently of one another, a true expression of the spirit of the times. Harrod, like Colin Clark, was a member of Keynes’ circle (he was even the author of a biography of him); Keynes and his theories on full employment in developed capitalist countries was the starting point for his analysis. (Keynes himself was interested mainly in developed countries, and did not express particular interest in peripheral countries, or place trust in their governments: in a confidential report on the Bretton Woods conference for the Foreign Office, he called the Third World countries participating in it “the most monstrous monkey-house assembled for years”).208

For Domar, who was born in Łódź brought up in a Russian colony in Manchuria, from which he emmigrated in 1936 to America, the starting point was Marx, and the purpose of his analysis was political in nature: he wanted to prove theoretically the inherent instability of capitalism. The two men’s conclusions, ←73 | 74→however, shared many similarities: the so-called Harrod-Domar model is a very simple equation for describing the relationship between income growth, the level of saving (which was equal to the level of investment), and the “capital-output ratio”, which expresses the productivity of capital (which was associated primarily with the level of technological development and was thus relatively constant at a given period in history).209

The political moral to be drawn from the Harrod-Domar model was appealing simple: the key to growth (and therefore economic development) was the level of investment.210 The more a country saves, the more it invests; the higher the level of investment, the higher the rise in economic growth, and, therefore, the future rise in standard of living. Arthur W. Lewis in his most important article on accelerated development, “Economic Development with Unlimited Supplies of Labour”, published in 1954, wrote that a fundamental problem in the theory of economic development is understanding the process by which a community which had previously saved and invested 4 or 5 percent or less of its national income is transformed into a economy in which voluntary savings are at 12–15 percent of national income or more. For Lewis fundamental to economic development was the rapid accumulation of capital, and the key to explaining each industrial revolution was a sudden, sharp rise in savings.211

Lewis based his reasoning on an analysis of economic growth in India: in the first half of the twentieth century, 4–5 percent of national income was invested, which led to growth of 1.25 percent annually. The population grew at roughly the same pace. The level of income of an average Indian thus remained on a constant, very low level. For it to rise, concluded Lewis, investment had to at least double.

In the Harrod-Domar equation, there was no place for a number of important elements found in later, significantly more complex models of growth. It was assumed, for example, that the level of production depended on just two factors – the availability of labour and capital inputs (and not, for example, the educational level of workers). It also did not take it into consideration the possibility of large injections of capital for investment from outside; accumulation always came at ←74 | 75→the expense of local consumption. He also did not consider the possibility that one could invest wastefully – the productivity of capital was determined by the level of technological development.

It is hard to overestimate the political consequences of this simplicity. It led experts to offer politicians, many of whom had a very limited understanding of economics, a clear goal for economic policy: the need to increase the level of investment (and thus savings). Just like the petty bourgeois who saves on food and heating, investing every penny in high-yield interest-bearing securities, the governments of Third World countries likewise had to reduce consumption in order to invest. Money “consumed” today equalled a missed opportunity for prosperity tomorrow. This led politicians and economists to an interesting question: whose consumption should be reduced? Who has to pay for growth? In 1957 Oskar Lange wrote:

First of all, let us explain what accumulation in general involves. It essentially involves – and this is true for all social systems – some portion of social income not being consumed, but instead used to create new means of production. […] In underdeveloped countries the excess surplus product, which could serve as a source of accumulation, is rather low. This is due to the widespread poverty prevailing in these countries. At a low level of labour productivity, in relation to which the full potential of the labour force is underutilised, income is low, and so, the surplus product, which could be used for accumulation, is likewise low.212

Accumulation requires an appropriate social structure. In underdeveloped countries, any surplus in production – which itself is rather limited – is used by the elite on forms of conspicuous consumption. In order to change this, one needs to change society. Such thinking led development economics to assume the role of a critical social science. Lange linked this to a feudal economy:

A significant or even predominant part of the surplus product is allocated for consumption by the feudal lords and the state apparatus associated with the feudal regime, the church, court etc. We are familiar with the lifestyle of the ruling classes and strata in a feudal regime: the maintenance of a large number of servants, an unproductive “clientele”, a greatly expanded church apparatus with numerous expenses, the courts of the monarch and magnates. Surplus product was allotted to such objectives under feudalism. […] It follows that a basic condition for the development of an underdeveloped country is to eliminate feudal relations in production and the corresponding parasitic political superstructure.213

←75 | 76→

Even when such a view was not expressed in the language of Marxism, as it is in Lange, the proposals made were generally similar in practical terms: the traditional elite, often additionally burdened by the sin of collaboration with the colonial metropolis, had to pay for accumulation. Economic development had to be accompanied by the social emancipation of the masses.

The realities of political life usually complicate considerably the application of this formula. If surplus production in underdeveloped countries is small – 4–5 percent – even if it is allocated to socially useful investments, rather than to luxury consumption, it will still be insufficient. Where can we obtain the missing 10 percent? Development policy planners turned to various methods. The most radical was nationalization, which allowed governments to gain full control over the investment process (and retain the earnings in the country if the nationalized industries belonged to foreigners). More often they tried to build a system of customs duties and indirect taxes, thus, placing the burden for raising capital for investment on consumption. This was all done according to the formula: we have to tighten our belts today, in order to loosen them tomorrow.

In practice, however, it often turned out that the only possible solution was to lower the standard of living of the poor. Of course, politicians may have seen this as merely a temporary solution, and were forced to turn to this option in spite of their populist rhetoric. The old elites might have been politically unjust and corrupt, but they still possessed money and influence; it rarely paid to engage in open warfare with them, as the risks were too great. You could curse them aloud, because they tolerated populist and nationalist politics as long as they did not interfere with their true interests. The people allowed themselves – for the moment – to be won over with by words. One of the most popular mechanisms for “extracting” money for investment from a poor, rural population was the nationalized monopoly purchasing of agricultural products at prices fixed by the government significantly below those on the global market (this was the case in many postcolonial countries, such as Ghana; we will return to this case). In this way, the state obtained income from villagers, who were forced to finance an ambitious modernization programme.

In the 1950s, there was an inundation of theoretical works justifying such a policy. Their authors, without exception, were sworn democrats, and many of them had leftist sympathies; all were also supporters of the emancipation of the Third World. The paradox was that the economic prescriptions they offered during their visits to governments in Africa, Asia and Latin America implicitly required authoritarian institutions; in democratic conditions, they could often ←76 | 77→simply not be put into practice.214 Another noted economist, Gunnar Myrdal, wrote in 1957:

There is no other road to economic development than a compulsory rise in the share of the national income which is withheld from consumption and devoted to investment. This implies a policy of the utmost austerity quite independently of whether the increased savings are engendered by high levels of profits to be ploughed back in industrial expansion or by increased taxation.215

Myrdal added that planning was necessary, and that planning had to be antimarket, because only large-scale investments involving the creation of entire industries from scratch could lead to an industrial breakthrough, and these would not be profitable from a capitalist standpoint.

The government had to involve itself in the process of industrialization: the message was clear. Ragnar Nurkse, an emigrant from Estonia and professor at Columbia and Princeton Universities, was convinced, like Rosenstein-Rodan and many other colleagues, that the only remedy for poverty in the Third World was industrialization. Otherwise, they would remain trapped indefinitely in a vicious circle of low investment, a growing population and stagnant wages. This was a commonly held view: impoverished countries were caught in “low-level equilibirum traps”, that is, their social and economic structure condemned them to stagnation.216 Another noted economist, Harvey Leibenstein, wrote in 1958 that underdevelopment is a state of “quasi-stable equilibrium”, which requires a “push” in order to reach a new state of equilibrium – where investment and the associated risk-taking are necessary in order to maintain a place on the market. Reaching this state would of course require both coordinated intervention by the state and international aid.217

←77 | 78→

Unlike Rosenstein-Rodan, Nurkse believed, however, that it was not enough to invest in a number of interrelated sectors – what was needed was sustainable growth in the overall economy: the “big push” was to encompass simultaneously the whole of the economy, as a mean of breaking the vicious circle of poverty and low investment:

For example, a poor man may not have enough to eat; being under-fed, his health may be weak; being physically weak, his working capacity is low, which means that he is poor, which in turn means that he will not have enough to eat; and so on. A situation of this sort, relating to a country as a whole, can be summed up in the trite proposition: ‘a country is poor because it is poor’. Perhaps the most important circular relationships of this kind are those that afflict the accumulation of capital in economically backward countries.218

But where could capital for investment be obtained? Nurkse was optimistic: he believed that poor countries did not lack capital; they were merely unable to mobilize it. This hidden capital in poor countries was the labour of their people; if we add international aid to this (Nurkse often wrote about two percent of U.S. GDP, which is equal to the cost of the Marshall Plan in Europe), this should, according to Nurkse, be sufficient for a “big push”. The cheapest path to industrialization was the bring into the labour force those people living in the countryside who were de facto surplus, that is, their labour did not increase agricultural production. If villagers who were actively working sent their surplus relatives – cousins, brothers and nephews who lived with them – to work on large public construction projects, and continued to feed them there, then, according to the economist, the unproductive consumption of the surplus rural population would become productive consumption.219

The economist did not respond to questions posed to him by reviewers at the time: perhaps assigning poor villagers to new jobs would cost more than the cost of merely providing them with substinence?220 And where could money be obtained for their accommodation on construction sites? For transport? For job training? For oversight and supervision? For building materials? Finally, the crucial point: how to encourage them to work, since currently they were, Nurkse claimed, supported by relatives, and allegedly had nothing to do? Why should they work for free? Nor was it clear how many farmers and in what seasons could actually be mobilized to work – that is, how many people were really surplus.

←78 | 79→

Nurkse also believed – like Prébisch – that exports would not help poor countries raise capital for investment. The developing world generally exports either natural resources or agricultural products. The market demand for their goods in the rich countries of the West is limited. Increasing production would only lead to lower prices, rather than to higher incomes. One can even imagine a situation in which a country through enormous effort expands its exports of cocoa and coffee, but that its income from them is lower than before.

Foreign trade could also be harmful from another point of view. In exchange for cocoa, gold and coffee, an underdeveloped country imported machinery to produce industrial and consumer goods. According to Nurkse, however, there should be as little of the latter as possible. This is because luxury is demoralising and not conducive to savings. Nurkse believed that many consumer needs were neither necessary nor essential, and thus not truly needs. The consumption of luxury goods was just part of a play for social status. Imported luxury goods are consumed by the elite and become a status symbol. In this way, they become a widespread object of desire among a poor country’s poorest citizens – and any effort to meet these needs will weigh on the trade balance and lower the savings rate (and therefore investment).221 Imports of cars or perfume were harmful, since for the same money you could buy equipment needed for the “big push”. But can a democratic government permit such restrictions on consumption?

Arthur W. Lewis wrote about the potential benefits for poor countries of their surplus labour. In a famous and much-quoted 1954 article, he described the economy of a poor country that consisted of two sectors: a small industrial and a dominant agriculture sector, full of surplus people.222 If industrialists were willing to pay workers more than they could earn in the fields – Lewis estimated that 30 percent more would suffice – this would sufficiently compensate landless villagers for the costs and inconvenience associated with a move to the city and would be adequate to support them. Industrialists in poor countries would then be in possession of two trump cards. First, they could pay workers much less than their competitors from rich countries. Second, along with the expansion of industry, more and more workers would migrate to cities, but their earnings would not have to rise because as long as a labour surplus remained in the countryside, the cost of food (on which workers spend most of their money) would remain stable. In this way, urbanization and industrialization might proceed ←79 | 80→somehow “spontaneously”.223 If labour shortages began to occur in the countryside, food prices would rise, and the wages of workers in the cities would likewise have to rise; however, industry would then have become strong and competitive enough to afford these costs.

Lewis immediately faced accusations that his model assumed growing social inequality: living in cities alongside capitalists and the middle class, who were acquiring new wealth along with industrialization, would be masses of rural workers, whose salaries barely covered the costs of subsistence. Lewis thought this was painful, but inevitable: he could not see another way to accelerate growth. His research on the industrial revolution in England seemed to confirm that a temporary increase in social inequalities could not be avoided. In later books, he proposed income redistribution in the form of draconian taxes on the elites in traditional societies, namely, the landowners, but also on financial speculators and other unproductive parasites. (Lewis did not include in this category capitalists investing in industry; he had no liking for them, but he appreciated their historical role.) Although the industrialization process had to take place largely automatically, the state nevertheless had a decisive role to play. In 1952 Lewis wrote:

Planning in backward countries imposes much bigger tasks on governments than does planning in advanced countries. The government has too many things [to do] which can in advanced countries be left to entrepreneurs. It has to create industrial centers, to put through an agricultural revolution, to control the foreign exchanges more strictly, and in addition to make up a great leeway of public services and/or ordinary economic legislation. And all this has to be done through a civil service that is usually much inferior to that of an advanced country. Why then do backward countries take more readily to planning? Because their need is also so obviously much greater. And it is also this that enables them to carry it through in spite of error and incompetence. For, if the people are on their side, nationalistic, conscious of their backwardness, and anxious to progress, they willingly bear great hardships and tolerate many mistakes, and they throw themselves with enthusiasm into the job of regenerating their country. Popular enthusiasm is both the lubricating oil of planning, and the petrol of economic development–a dynamic force that almost makes all things possible.224

Lewis added that development “increases the range of human choice”. A list of similar statements could be extended virtually indefinitely. There were discussions about how to plan, in how many industries to invest, how far nationalization ←80 | 81→should go, and what rules to impose on foreign trade and capital flows, but nobody doubted that all this was the domain and mission of the State.

By the mid-1950s, Albert O. Hirschman had acquired a reputation as a dissident, who after his experience acting as an advisor to the Colombian government (1952–1956) began doubting the wisdom of integrated planning for the economy as a whole. In 1958 he published a book in which he announced, in contrast to Nurkse, the need for “unbalanced growth”. He believed that the state should invest in one industrial sector, which through linkages would “pull along” other branches of the economy. Hirschman was much less condescending towards his clients than many of his colleagues: he wrote about the “hidden rationalities” in forms of economic life in the Third World that were seemingly irrational to an outside observer. He gave as an example Colombia, where in many regions it was more economical to invest in air transport than to build a road (seemingly less expensive) through the jungle, as advocated by experts from the World Bank and the UN. However, Hirschman (the dissident!) was likewise convinced of the need to build industry, and that the state should provide inspiration for this (or simply do it on its own). In the spirit of the era, he thought that in backward countries hidden potential lay in the people’s skills and talents, but was held back by irrational and outdated institutions; this potential had to be freed up before the country could enter onto the shining path of growth. He ascribed a great deal of importance to cultural factors, which at that time was unparalleled, explaining the backwardness of Latinos as the result of a widespread belief in luck and the need to outwit others to get ahead in life.225

Economic development was unthinkable without political emancipation, whether this concerned the masses in underdeveloped countries, or entire nations seeking to free themselves from outside domination. This view found its fullest expression in the texts of the Argentine economist Raúl Prébisch, who would later become one of the spiritual fathers of the theory of dependency. It is no coincidence that these ideas were born in Latin America, where economic and political failure in times of independence could easily be explained as a product of imperial (and no longer colonial) domination. This was – especially from the late nineteenth to the mid-twentieth century – a very real concern. The U.S. ambassador represented not only the political but also the economic interests of his country, which did not necessarily coincide with the interests of Latinos. His ←81 | 82→interference in local politics and business was meticulous, painful, and often carried out with a striking lack of respect for local sensitivities and pride.226

Even countries less subject to imperial dictates, such as Argentina, suffered badly from the collapse in world trade during the Great Depression. In Latin America, as in the West, this was a formative experience – albeit in a different way. The turn of the century had brought Argentina true prosperity. The country’s standard of living was among the highest in the world, and many Argentines believed they could attain universal prosperity through the export of agricultural products. In those days, even the socialist press in Buenos Aires praised liberal free trade: in 1891, one of them attacked economic protectionism as a “tremendous capitalist barbarity” that “raises the prices of essentials and is designed to free the upper classes from paying taxes by shifting these to the shoulders of the workers.”227

The crisis brought a painful awareness not only of their own economic backwardness, but also of their dependence on foreign export markets. When the demand for their goods vanished, Latinos found themselves trapped with no way out. Latin American countries returned to 1929 levels of income very slowly, in some cases not until after World War II, which reignited demand for their exports. In the early 1930s, the GDP of Chile and Mexico fell by more than a third. This shock led people to draw conclusions: though various forms of state control over the economy were experimented with in the 1930s, only Prébisch turned his reflections into an economic theory. In the late 1940s, in a report for the recently formed UN Economic Commission for Latin America and the Caribbean, Prébisch wrote:

If by “the community” only the great industrial countries are meant, it is indeed true that the benefits of technical progress are gradually distributed among all social groups and classes. If, however, the concept of the community is extended to include the periphery of the world economy, a serious error is implicit in the generalization. The enormous benefits that derive from increased productivity have not reached the periphery in a measure comparable to that obtained by the peoples of the great industrial countries. […] The industrialization of Latin America is not incompatible with the efficient development of primary production. On the contrary, the availability of the best capital equipment and the prompt adoption of new techniques are essential if the development of industry is to fulfil the social objective of raising the standard of living. The same is true of the mechanization of agriculture. Primary products must be exported to allow for the importation of the considerable quantity of capital goods needed.228

←82 | 83→

Blame for this lay in the very structure of international trade. Prébisch thought that growth in labour productivity was higher in industry than in the extraction of commodities, particularly in agricultural production. According to him, however, this difference did not lead to a decline in the prices of industrial products, as the supporters of classical economics would expect. Because workers and business owners in industrial countries had a virtual monopoly on new technology, they could also reduce the pace of its dissemination. In this way, they prevented the prices of industrial products from declining, and thereby protected their profits and living standards. Workers and entrepreneurs from peripheral countries did not have such opportunities; they had to sell their products at prices, which – thanks to this technological monopoly – were dictated by the centre.229 The more tobacco, coffee, sugar, rubber, oil, gold or diamonds manufactured, the more prices would drop on the global market.

Prébisch had in hand fresh substantive arguments in favour of his theory – a new document produced by the United Nations, the first complete statistical data on the prices of agricultural products and commodities compiled since 1860; it proved that prices did indeed fall as production increased.230 He also had strong historical arguments: two great industrial powers – the United States and Germany – during the period of intense industrialization in the late nineteenth century, strongly protected their markets. The political message of his theory was clear: development is unthinkable without the creation of domestic industry; however, suitable conditions for its growth need to be created, while also protecting the domestic market from an influx of imported goods. It is clear that industry in developed countries can produce better and cheaper goods than fledgling local producers: free competition would have bankrupted them. In an interview held a year before his death, Prébisch recalled how his theory was born:

We had to industrialize in Argentina without previously building a theory, because we needed to supply more goods to the population. But we could not pay for all the imported goods, due to the fall of our exports and the deterioration in our terms of trade. That’s the simple fact. Without any theory, the whole of Latin America did the same. From Mexico all the way down. […] [For instance,] import-substitution, not as a theoretical preference, but insofar as we cannot find sufficient markets for our exports. That’s all. ←83 | 84→We need to increase our income. We need to import more. Insofar as we cannot import more by paying with exports, then we have to pay with our own production.231

In this case, as well, breaking out of a vicious cycle of poverty demanded sacrifices. Prébisch did not conceal the fact that the protection of domestic industry would come, inevitably, at the expense of the citizens, who would have to pay more for poorer quality local products. But there was no other choice; the alternative was being eternally fated to the periphery. No one had promised that the road to prosperity and national emancipation would be easy.232

3.Politics

The laws governing intellectual life can be very brutal. Challenging dominant intellectual currents requires courage; those who dissent often face ridicule and barely concealed contempt. In the 1940s and 1950s, such a fate was experienced by those (very few!) who believed that planning, nationalization and statism were not necessarily the best ideas for the development of underdeveloped countries.

In 1952 a prestigious economic journal printed a critical discussion of a new UN report on development written by Herbert Frankel, a well-known economist from Oxford, (where he held the Chair in Colonial Economic Affairs). The report was prepared by a group of experts (among whom was Arthur W. Lewis) and devoted to his methods, which allowed unemployment to be rapidly reduced in the poorest countries.233 However, the report’s contents revealed something more, as Frankel wrote:

[The report] is also significant because of the unconscious expression which it gives of the climate of economic opinion in the middle of the twentieth century. Indeed, it is in itself a very interesting case study for economists, political scientists and even for philosophers, of preconceptions which are apparently current not only in the offices of governments, but also in the more cloistered retreats of academicians – preconceptions which seem at times to be developing into something like an “Official Concept of Progress” […] The authors of the report, true to the spirit of the times, do not appear to have been troubled unduly by any inconvenient difficulties of definition. To them progress is clearly progress; if it cannot be clearly seen or sensed (and reading the report one almost ←84 | 85→gets the feeling that it really can be), it can, at any rate, be measured in terms of national income aggregates or averages and the like, to which I refer later in this article.234

Frankel drew attention to the tendencies attributed to “human beings” by the report’s authors, and the conclusions that followed: “human beings are experimental in their attitude to material techniques, to social institutions, and so on […] The important point at issue, however, is the rate, and the cost – in terms of human life and suffering at which the process of ‘experimentation’ (in itself a very significant abstraction) is being conducted.”235

The UN experts wrote that economic development depended primarily on the actions of governments, and therefore, according to Frankel, development was “largely a matter of social will”. This was taken as a given – the economists made no effort to provide any justification for it. “It seems to me very doubtful whether a history of economic change, of innovation, or of economic growth in different societies supports this optimistic view of the role and capacities of governments,” the Oxford professor commented.236 He accused the authors of accepting authoritarian solutions and a mechanical approach. He quoted the report:

As it is we are left with the ex cathedra conclusion (par. 38) that “there cannot be rapid economic progress unless the leaders of a country at all levels – politicians, teachers, engineers, business leaders, trade-unionists, priests, journalists – desire economic progress for the country, and are willing to pay its price, which is the creation of a society from which economic, political and social privileges have been eliminated. On the other hand, given leadership and the public will to advance, all problems of economic development are soluble.”237

But what does it mean to “pay the price”? Who had to pay it? Frankel commented: “It would have been useful to have been told more exactly what the authors meant by ‘willingness to pay the price of economic progress’ Is it to be paid by the masses or by the leaders, by the young or the old, by the weak or the strong?”.

He also questioned the prescription for unemployment suggested by the UN experts: the state-sponsored building of industry, which would absorb surplus labour from the countryside. It is not known, wrote Frankel, how many people are truly surplus in the countryside, because nobody had ever made an exact count; it was not known who would buy the products produced by the newly-built industry ←85 | 86→(the remaining peasants in the countryside were too poor, so there would be no market for these goods). This was not what was contained in the report; one thing was – that development should take place rapidly. The word “development” was repeated numerous times and with emphasis. Recommendation No. 4 of the report, for example, stated:

[T]he government of an underdeveloped country should survey the prospect of creating new productive employment by industrialization, by bringing more land under cultivation, by developing mineral resources, or by other means; and announce its programmes for expanding employment.238

Frankel commented:

This is about as useful advice as would be that of a doctor to a patient to the effect that he may be suffering from an undefined disease, and that he should therefore take any steps he thinks fit to cure it rapidly; but that, above all, he should not fail to announce publicly what he is doing about it.239

The crux of the matter, however, lay not in ambiguities, generalities and insinuations, but in the vision of development itself, the primary purpose and main criterion of which were postulated to be a rise in income. We know, Frankel wrote, that a significant portion of economic activity in different societies takes place without money; it therefore cannot be seen in statistics on national income. Thus, we cannot say for certain if a worker living in the slums of a big city “is better off” than when he lived in solidarity with his relatives and family in the countryside “with a different pattern of beliefs, hopes and ideals.” Moreover, Frankel saw the concept of “income” as an accounting term. It did not include the goals it is intended to serve – it is merely an abstract category. “Planned development” could easily mean planning citizens’ consumption (“authoritarian” decision-making), as well. From an economic point of view, the production of unnecessary objects, for example, too many locomotives or too many tonnes of steel, could increase national income, but would not increase prosperity. This risk was all the greater, since according to the recommendations of the UN report, planners were supposed to deliberately ignore market signals.

Written into the very idea of planning is, according to Frankel, “extreme oversimplification of the problem of structural change.” He reminds us that this is not a game of chess, but the shifting of whole societies onto a new track: people ←86 | 87→adjust to new situations slowly and with difficulty, and their reactions and needs are difficult to predict in advance.

What is significant in this view is the extreme oversimplification of the problem of structural change. For structural change is a vast process of slowly evolving social and economic reorientations. It is not at all like the switching of factors of production to making one product instead of another; and it cannot be adequately discussed in terms of mere “planning” decisions. To postulate major structural readjustment is to imply that the goal of change is known; whereas this is precisely what is not known – unless we are to trust to the intuition of the artist-planner. It is, indeed, unfortunate that the authors speak of the process […] almost as a sculptor might speak of the inanimate materials which he uses as the medium of expression for his art. But human beings are not a medium of artistic expression; except for tyrants.240

From the perspective of hindsight, we have to acknowledge that these warnings proved all too justified. However, they went against the spirit of the times. They were also completely ignored. Frankel’s article met with an angry response; the most violent response was written by Arthur W. Lewis, one of the authors of the report being criticized.241 In response to Frankel, he wrote:

It does not emerge from his review whether he favors the economic development of underdeveloped countries; development has some painful results, of which he is fully aware, and to which he makes extended reference. It is certain that he dislikes the idea of speeding up development. For him, development is a slow process of re-orientation of attitudes and institutions, and attempts to speed it up are certain to be disastrous, if not also unsuccessful.

Every economist is familiar with the concept that every good has its cost, or price, and that it is not for economists to say whether the price is worth paying. We were asked, as technical economists, what measures were required, if development was to be speeded up, and we gave answers, to the best of our ability. I think Professor Frankel’s review may be interpreted as arguing that we should have refused to answer any such question. We should have said “Speeding up economic development is bad; its costs in human happiness exceed any material benefit that it may confer. You ought not to want it, and we refuse to have anything to do with the matter.” This is a rather unusual view of the role which the economist should play. Professor Frankel does not want to speed up the economic development of underdeveloped countries, but most member countries of the United Nations do. They asked us what measures would be required, if this end was given, and we did not think it improper to try to answer their question.242

←87 | 88→

Lewis’s response is quoted here primarily because the same rhetorical techniques he used to crush his enemy here have been used successfully by followers of radical market reforms since the 1970s. Lewis distances himself from ideology; he believes that he is an impartial expert, a technocrat who is merely providing politicians with answers to their questions, and not affecting their decisions. His opponents in the discussion are pictured as pessimistic reactionaries attached to the anachronistic status quo, who in their practice show disregard for the needs of the impoverished citizens of underdeveloped countries. He also makes it clear to his opponents (and, more importantly, to his readers) who has political backing. Which side would prevail in a dispute between an aging university professor and the majority of members of the United Nations?

Thirty years after this debate, those defending the role of the state in the economy were treated in the same way – not only in relation to planning, but even regarding food subsidies, whether these were in the poorest of countries or in those with highly-developed social systems. They were strongly reproached by liberals – who, like Lewis, thought of themselves as neutral technocrats – for being enemies of development, who while posing as the ostensible friends of the poor (whom they in fact disregarded), were defenders of anachronistic and unjust institutions which bred corruption, inefficiency and wealth-destroying inflation.243 They just as easily deflected the charges of the “reactionaries”.

On a side note, the polemic between Frankel and Lewis also prompts some rather discouraging reflections on the mechanisms guiding intellectual life. Frankel has been forgotten; Lewis was awarded the Nobel Prize in 1979. From the standpoint of a public career, it is therefore safer to err in line with conventional thinking – to go along with the rest – than to be right and on your own. We cannot even rely on posthumous rehabilitation.244 Milton Friedman was luckier; his memorandum to the Government of India warning against placing too much emphasis on capital investments and relying on a naïve faith in their automatically generating an increase in wealth, is at least still remembered today.245

In the 1950s, programmes and reports dedicated to the acceleration of development in underdeveloped countries proliferated like mushrooms after a rain. In 1948, at a UN conference in Havana, countries rich and poor formally set for themselves the goal of maintaining full employment and rapid economic growth. ←88 | 89→In 1949 the first mission of the World Bank (then called the International Bank for Reconstruction and Development) to a third world country was sent to Colombia; Experts from various fields, from education to health, were to write a national development plan for Colombia, covering all fields of social life. After returning, they wrote in the report:

Only through a generalized attack throughout the whole economy on education, health, housing, food and productivity can the vicious circle of poverty, ignorance, ill health and low productivity be decisively broken. […] One cannot escape the conclusion that reliance on natural forces has not produced the most happy results.246

In 1951 the UN released the report, which aroused a strong protest from Frankel. A decade later, UN Secretary-General U Thant designated the 1960s as the first “Development Decade”. He set a goal for national income in developing countries to increase by at least 5 percent annually until 1970 and “continue to expand at this annual rate thereafter.” In his report on the plan, he noted:

The concept of national planning—for social as well as for economic development. This is central to all the proposals for intensified action by the United Nations system during the development decade […] Former objections to planning, based largely on a misunderstanding of the role envisaged for the private sector in most development plans, have died away. It is now generally appreciated that the purpose of a development plan is to provide a programme of action for the achievement of targets based on realistic studies of the resources available. Planning is proving to be a potent tool for the mobilization of existing and latent resources—human and material, public and private, domestic and external available to countries for the achievement of their development aims.247

Ignacy Sachs, the Polish delegate to the United Nations conference at which these ambitious plans were announced, noted then with evident satisfaction:

Symptomatic of the prevailing sentiment today is the fact that at this great gathering of scholars meeting in Geneva under the aegis of the United Nations in February 1963 to discuss the salvation of the developing world, no one tried to defend expressis verbis the concept of free competition or an unplanned economy. Delegates from socialist countries listened with some satisfaction to how American professors urged the delegations from the developing world to adopt planning.248

←89 | 90→

Sachs was writing the truth; his description had nothing to do with communist propaganda. He did note with concern, however, that the various “socialisms” put into practice in the developing countries differed from the Soviet pattern – sometimes so much so that they hardly deserve the name:

It is not enough to just talk about freedom, reforms, plans and socialism. The reforms must be put into practice, plans implemented; socialist slogans in the mouth of a leader, and even his sincere, emotional engagement in the struggle against capitalism, do not stake out a non-capitalist path for development. […] They do however always express a desire to gain the support of the masses through a programme which is juxtaposed against capitalism and its discredited colonial stigma. Hardly anyone today believes in the possibility of repeating the “classical” path of capitalist development in the developing world.249

Indeed, the planning projects in the vast majority of countries of the developing world did not assume total nationalization of the economy in accordance with the Soviet model. On the table were investments by the state in industry and nationalization of key sectors of the economy, especially the mining industry, but also banks and large factories. Native-born capitalists – always few in number – were often allowed to keep their property; in return, they had higher taxes imposed on them and were forced to help fulfil state plans.250 (A good example of this was the lot of the Tata family’s wide range of businesses in India. While after independence their airlines were indeed nationalized, they maintained control of the rest of their empire, which has been successfully expanding ever since.) Nationalization always remained, however, “within reach”. The government could resort to this option if it considered it appropriate and politically viable.

The delicate issue of “political profitability” frustrated planners from the outset. Economists moved in a world of ideas, models and statistics. They often did not understand that politicians had to take into account in their calculations dozens of variables that did not fit into the planners’ theories: they had to seek support from both within the country and outside of it; they faced constant competition from rivals seeking power, and finally, they had to feed their ego. Politicians also tended to handle matters in a manner dictated by (at least in part) by their country’s political culture and the existing power relations; from the point of view of the planners, these actions often seemed irrational, as they were circuitous and costly. Most likely nobody has expressed this better than Albert O. Hirschman in his writings about his experiences in Colombia (1948–1952):

←90 | 91→

The task was supposedly crucial for Colombia’s development, yet no Colombian was to be found who had any inkling of how to go about it. That knowledge was held only by a few foreign experts who had had the new growth economics revealed to them. It all seemed to be an affront to the Colombians who were, after all, struggling or tinkering with their problems in many fields through a great variety of private decisions and public policies. My instinct was to try to understand better their patterns of action, rather than assume from the outset that they could only be “developed” by importing a set of techniques they knew nothing about. True, this paternalistic mode of operation was given much encouragement by the Colombians themselves who were, initially at least, treating the foreign advisers as a new brand of magicians, and who loved to pour scorn on themselves by exclaiming at every opportunity “Aqui en el tropico hacemos todo al reves” (Here in the tropics we do everything the wrong way around). But the foreign advisers and experts took such statements far too literally. Many Colombians did not really feel all that inept. For at least some of them the phrase implied that, in the particular environment in which they operated, they might well have worked out by trial and error some cunning principles of action, of which they were themselves hardly conscious, that might seem perverse to outsiders, but have actually proven quite effective.251

Hirschman’s reflections were indeed exceptional; however, they came too late (his most important book was published in 1958, these recollections are from 1984). More typical was the reaction of another expert, a farmer from Oregon, agronomist, and later head of the FAO, who gave some common-sense advice to the inhabitants of a small village in the north of Thailand. Seeing their astonished faces, he told a reporter accompanying him: “If I had been able to stay in that village another few hours, we might have changed the fundamental agricultural methods for hundreds of miles.”252

While dealing with villagers was easy – or so the thinking went – politicians posed problems from the outset. Arthur W. Lewis quickly grew uncomfortable in the role of advisor to the Prime Minister of Ghana, Kwame Nkrumah. When he asked for the removal from the first Five Year Plan of several large construction projects in the capital, Nkrumah refused, reminding him that he must take into account the political consequences of the investments undertaken.253 After just two years, Lewis resigned and left Ghana embittered.

Politicians also had their biases – not always in line with economic doctrine – which planners had no choice but to take into account. Another expert, Colin ←91 | 92→Clark, in recalling years later a meeting with Gandhi, whom he was to advise on how to pull India out of poverty, wrote:

Gandhi (nobody will believe this) proved to be a convinced free-market economist, strongly critical of the price controls, rationing, and compulsory purchase of farm crops which the Nehru government was then introducing. The right solution, he said, was to raise the price of food, then everyone would have to work harder. The source of India’s troubles was that the people were thoroughly idle.254

A few weeks after this conversation, Gandhi was assassinated, leaving Nehru free to realise his vision unimpeded. The Indian Prime Minister believed in progress and technology. “I’m all for tractors and big machinery”, he said, summing up his vision.255 Politicians were familiar with the subtleties of power, but less so with the mysteries of economics; this had its consequences. In recalling Nehru, Colin Clark complained about how some development planners had concluded that industry – any industry – automatically enriches a country.

What a disastrous error. India, under the guidance of a leading scientist, followed a most peculiar line of reasoning. Population, he pointed out, was increasing, therefore we need more food. To produce more food we need fertilizer. So far, correct. Then we must produce the fertilizer – the possibility of importing was apparently not considered. And to construct fertilizer plants we need steel. Therefore as much as possible of our available resources should go into building large steel works. Perhaps because of the extraordinary conditions under which it is produced, steel attracts emotional attributes which prevent rational discussion. Once when I was asked in India whether further investment in steel works should be undertaken, I replied that this was a problem in comparative religion.256

The “liberal” point of view then was likewise completely caught up in the politics of the time. (The word “liberal” has been placed in quotes for a reason; in fact, the advocates of laissez-faire economics who come along in the 1970s –convinced that free trade was the only recipe for growth – were not then present among the specialists on underdeveloped countries.) A Non-Communist Manifesto –this was subtitle of a book published in 1960 by Walt Whitman Rostow, a historian and economist who, from among all the authors of theories on “catching up” earned the greatest sympathy from the market. He was also a politician and a high official ←92 | 93→in the Kennedy administration; he said openly that he had formulated his doctrine on growth in order to counter the global threat of communism.257

In June 1961, Rostow, then Deputy National Security Advisor, delivered a commencement address to a very special group of graduates – officers who had just completed the U.S. Army Special Warfare Center’s course in counterintelligence strategy. The graduates included eighty officers from twenty different countries, the majority of which were poor American client states in Asia and Latin America facing a military threat from leftist guerrillas. The world, he warned, had become a dangerous place. In Cuba, the Congo, Laos and Vietnam – all poor, backward countries – the U.S. administration was facing a crisis that seemed impossible to solve. Each of them, Rostow said, “represented a successful Communist breaching–over previous years—of the Cold War truce lines which had emerged from the Second World War and its aftermath. In different ways each had arisen from the efforts of the international Communist movement to exploit the inherent instabilities of the underdeveloped areas.”258

It was obvious to him that the cold war could not be won without giving the people of the underdeveloped countries the promise of a better life.259 Rostow did not deny that the communist experiment ushered in modernity, but at the price of freedom.260 He thought this was a poor trade-off, because if things were left to their natural course, you could have both one and the other. The officers being trained to fight the guerrillas in Vietnam were to become actively involved “in the whole creative process of modernization.” This was the field where the battle would be decided. Rostow’s theory would be an ideological response to the promise of a way out of backwardness that communism had brought to the ←93 | 94→world’s poorest countries.261 Rostow himself was not among America’s “doves”; in fact, he was said to be the one who convinced Nixon in 1972 to carry out the last wave of bombing raids on Hanoi – a needless action, since the political decision to withdraw from Vietnam had already been taken. What was at stake, he had explained to the president, was the prestige of the United States.

Rostow had written his doctorate in the 1930s on the history of the British industrial revolution. He was convinced that history repeats itself, obviously not in its details, but in the general course taken by all societies as they moved toward modernity. He thought the stages in this course were universal, as he believed, like Marx earlier, that he had discovered the universal laws of history, which he described in his book. This watershed moment Rostow called the “take-off”. Afterward, national income increases dramatically – from a few percent to a double-digit increase – and the country is on the road to modern growth. Rostow thought that the “take off” had begun earliest in England, in the second half of the nineteenth century; other countries – he named, among others, Chile and Venezuela – were now on the threshold. He described this change in words worthy of a visionary, not a scientist:

Usually from outside the society, but sometimes out of its own dynamics, comes the idea that economic progress is possible; and this idea spreads within the established élite or, more usually, in some disadvantaged group whose lack of status does not prevent the exercise of some economic initiative. More often than not the economic motives for seeking economic progress converge with some non-economic motive, such as the desire for increased social power and prestige, national pride, political ambition and so on. Education, for some at least, broadens and changes to suit the needs of modern economic activity. New enterprising men come forward willing to mobilise savings and to take risks in pursuit of profit, notably in commerce. The commercial markets for agricultural products, domestic handicrafts and consumption-goods imports widen. Institutions for mobilising capital appear; or they expand from primitive levels in the scale, surety and time horizon for loans. Basic capital is expanded, notably in transport and communications, often to bring to market raw materials in which other nations have an economic interest, often financed by foreign capital. And, here and there, modern manufacturing enterprise appears, usually in substitution for imports.262

The “take off” itself, a period of high investment and intensive development of the industry lasting several decades, could be triggered by an impulse from outside (for example, the sudden increase in demand for wood and coal in Sweden in ←94 | 95→the late nineteenth century); it could also, as in nineteenth-century Japan, be the result of the internal logic of the historical process. Rostow drew clear political conclusions from this – the West should stimulate development in underdeveloped countries by providing loans, technical support, and buying their goods. All this would sooner or later result in a “take off” to modernity. Communism, with its labour camps, expropriation, dictatorship and impoverished masses, was therefore, Rostow concluded, no longer needed: “the tricks of growth are not all that difficult”, he wrote.263 Rostow thought that for a “dedicated” country, the road from a traditional society to the stage of high mass consumption would take from 54 to 80 years.264

Rostow’s theory was criticized by those economists – i.e., the majority – who did not believe in the spontaneous capitalist development of underdeveloped countries. They did not perceive the fact that although Rostow differed from his more radical colleagues in terms of his political prescriptions, he in fact had a great deal in common with them: like Nurkse, Lewis, Rosenstein-Rodan (and the Poles Lange, Kalecki and Sachs) he was convinced that there could be no development without industrialization, and, following from this, that the rate of investment needed to be rapidly increased, and that all societies moved toward modernity essentially along the same path – the road staked out by the history of the West. Whether a country was a bourgeois democracy or a dictatorship of the proletariat, the essential structure of economic and social modernity was the same – because it is shaped by the division of labour in industry, and this is a function of technology, which is the same in both America and the Soviet Union. All of these economists (Marxists and non-Marxists alike) could say following Marx that developed countries merely showed what the future looked like for underdeveloped countries. They differed, of course, on many issues, especially in such nontrivial matters as the methods by which you can accelerate progress; as to the point they sought to reach, however, their thinking was the same. They shared in common a belief in progress, the fact that people were guided primarily by economic motivations, the primacy of the “base” over the “superstructure”, technophilia, a belief that there were no limits to growth, and that they represented a “scientific” doctrine. I need to make a digression here that is important for the rest of this narrative: in the 1980s, this same creed and these same structural similarities were shared by both Marxists and the ultra-liberal “Chicago school”, ←95 | 96→followers of the next big economic narrative. Dudley Seers, one of the most renowned specialists in development, wrote in 1979:

Though it seems provocative to say so, and always annoys both parties considerably, Marxism can be described as a neoclassical doctrine with precise accuracy. There is no dispute that, like the Chicago School, its origins can be found in the work of Adam Smith and Ricardo, early in the industrial revolution. […] “The invisible hand” in Adam Smith’s graphic metaphor is, on the whole and in the long run, benevolent. Somewhere in the future, justifying sacrifices by the present generation (and many political crimes), lies a utopia, an integrated world of prosperity and peace (capitalist or socialist as the case may be) to be achieved if not in the next generation, then two or three later. They differ profoundly about the mechanisms by which it will be achieved but not about its likelihood […]265

In the 1950s, the vitality and unprecedented prosperity of the affluent societies of the West – especially the United States – drove the imagination in a way that in postmodern times may seem incomprehensible. The transformation of a rural, traditional agricultural society into a modern, urban and industrial society (this was a sharp dichotomy in the theory of modernization) was not solely economic in nature: it was part of a wider process of modernization that included the most intimate spheres of an individual’s life – from religion and family life, to politics and the production of culture.

Sociologists and modernization theorists presented the vicissitudes and goals of this process with a certainty equal to that of economists in relation to the vicissitudes and goals of industrialization.266 Economists, moreover, read the work of modernization theorists; W.A. Lewis, for example, cited them often.267 Modernization, wrote historian Cyril E. Black, was the “process by which historically evolved institutions are adapted to the rapidly changing functions that reflect the unprecedented increase in man’s knowledge, permitting control over his environment.”268

Perhaps the most succinct definition of modernization, as it was imagined at the time, was proposed in 1959 by sociologist Edward Shills at a conference ←96 | 97→devoted to the “new states” in the Middle East, Asia and Africa. Shills said that one word – modernity – summed up the ambitions of underdeveloped regions:

In the new states “modern” means democratic and equalitarian, scientific, economically advanced and sovereign. “Modern” states are “welfare states,” proclaiming the welfare of all the people and especially the lower classes as their primary concern. “Modern” states are meant necessarily to be democratic states in which not merely are the people cared for and looked after by their rulers, but they are, as well, the source of inspiration and guidance of those rulers. Modernity entails democracy, and democracy in the new states is, above all, equalitarian. Modernity therefore entails the dethronement of the rich and the traditionally privileged from their positions of pre-eminent influence. It involves land reform. It involves steeply progressive income taxation. It involves universal suffrage. Modernity involves universal public education. Modernity is scientific. It believes the progress of the country rests on rational technology, and ultimately on scientific knowledge. No country could be modern without being economically advanced or progressive. To be advanced economically means to have an economy based on modern technology, to be industrialized and to have a high standard of living. All this requires planning and the employment of economists and statisticians, conducting surveys to control the rates of savings and investments, the construction of new factories, the building of roads and harbors, the development of railways, irrigation schemes, fertilizer production, agricultural research, forestry research, ceramics research, and research of fuel utilization. “Modern” means being western without the onus of following the West. It is the model of the West detached in some way from its geographical origins and locus.269

To this long quotation we need to add an important footnote. “Democracy”, as referred to here should not be understood in a narrow, formal manner – on the Western model, with a multi-party political system, a tripartite separation of powers, and civil rights guaranteed by the constitution and upheld by the authorities. While American writers on modernization theory generally held up the American system as a model (“The United States is Presiding at a general reorganization of the ways of living throughout the world” was an epigraph to Daniel Lerner’s The Passing of Traditional Society: Modernizing the Middle East in 1958), the specifics of local traditions and the historical moment left open a wide range of options.270 The will of the people could express itself in non-liberal forms of government, such as a one-party system. There was nothing extraordinary about this, especially at a time when making the leap into modernity required the breaking up of feudal social structures – and these old structures, even if doomed to oblivion, would not give in without a fight.

←97 | 98→

In the same year (1959), one of the most prominent modernization theorists, David Apter, analyzed the dynamics of the process by which the pursuit of modernity was pushing countries in the developing word to embrace authoritarian politics.271 He wrote about this not only without hand-wringing, but with no particular regrets. The leaders of the “new” countries, wrote Apter, face a dilemma. They must reconcile the need for universal participation in public life, necessary to maintain public support, with the need to create an integrated, disciplined apparatus of power. Only an “oligarchy” can manage such a transformation of society. “We are familiar with the radical totalitarian solution to this problem. Can we find an optimal solution which falls short a totalitarianism?”, he asked.272

Apter assumed that rapid industrialization required “tight organizational control” and therefore the need for a certain degree of authoritarian rule.

Because a government needs a great deal of trial and error in order to chart its course, its strength and structure must be relatively secure. Such strength is a function of political party support, which in turn depends upon recruitment. There is a tendency for parties to become the private patrimony of the leader. The party leader tries to alter the social stratification system by making its curve less sharp and reducing the upper strata. He needs to create a new managerial and bureaucratic elite. […] The modern nationalist movements of today attack traditional oligarchies and replace them with their own. The main difference between these oligarchies is that in the new ones recruitment is on the basis of political power, party loyalty, or expertise. Each of these categories of entry are relatively democratic.273

Authoritarianism works: Apter did not recommend it – his article is strictly descriptive in style – but he left room for no doubt:

The combination of an elite core with a mass following is the most effective for development purposes. It provides the bureaucratic cadres to run the party, the government, and act as the coordinating arm of the state, while the mass party organization provides the informational core. The differences and antagonisms between local party factions provide both competition in ideas and allow the membership to serve as a communications source.274

Apter was thus an optimist: even if democratic mechanisms in the Western sense did not work, the system was not only capable of carrying out modernization efficiently, but also of assuring certain features characteristic of democracy, including ←98 | 99→competition within the ruling elite and a flow of information “from below” to the government. The party, he recommended, should be decentralized in its organization, but hierarchical in terms of its communication structures. Distributing wealth to its members (and thereby maintaining their support) would ensure the government’s stability and open up possibilities for social mobility (i.e., a career inside the party apparatus). “If too strictly organized, such a party can become a punitive arm of the state. If it does, then the costs of coercion go up, and a very nasty situation can arise.”275

Such a despotic government could be effective and was better than totalitarianism because it placed fewer restrictions on political freedom. However, this price was not what was most important. Democracy was neither possible nor in fact desirable, because it was too weak, too “soft”, and the leap into modernity required a level of heroism that representative governments were unable to demand from their people. The collective aim – accelerated development – demanded precisely such a political structure; one could not conclude otherwise, but it could not be denied. “Authoritarian governments mix the proportions of nationalism and ideology so that sacrifice and self-denial are regarded as social virtues,” Apter wrote.276 The government was responsible – but not to the voters, but to interest groups, such as the urban intelligentsia and the heads of industry:

Government may become impatient with accountability, which limits the freedom and autonomy of decision-makers and tempers their decisions and their plans by potential opposition. […] Leaders search for certainty; social life becomes organized; those who go along with the regime receive benefits and rewards; purpose and direction is provided; development of the state becomes the new religion in which the dominant political party is the home of the faithful, and the messiah is the party leader who controls the government. Within this general framework there can be considerable freedom, often even political freedom […]277

Apter wrote this in 1959, so even before most former colonies had gained independence (although this was generally already at hand). He showed notable foresight: in the developing countries, alongside planning committees and government investments, single-party systems began to quickly multiply. Apter knew there was a natural tendency for non-democratic government to increase their control over the lives of citizens: “the more government controls, the more its costs rise. […] Since increasing costs must be borne by the public, there is normally a ←99 | 100→rise of dissatisfaction”. According to Apter, once could hope that economic development would eventually push the political system towards democracy – in some distant and undefined time in the future.278

Life would quickly verify these theories. Western economists and sociologists and politicians from the Third World entered the 1960s, the first “Development Decade”, with optimism. Success was possible. It was within arm’s reach. It could be achieved with the help of the West – but also in spite of it, if the West did not abandon its colonial habits. “What excites the imagination most and evokes the most enthusiasm in our countries, especially among the younger generations, are the lessons learned from the Soviet methods of development”, Raúl Prébisch wrote.279

This successful country was eager to share its experiences.


147 P. N. Rosenstein-Rodan, “Problems of Industrialisation of Eastern and South-Eastern Europe”, The Economic Journal, 1943, no. 210/211.

148 Ibid., pp. 202–204.

149 Ibid., p. 206.

150 Cf. S. Chakravarty, “Paul Rosenstein-Rodan: An Appreciation”, World Development, 1983, no. 1.

151 Rosenstein-Rodan, op. cit, p. 202.

152 Ibid., p. 206.

153 Ibid.

154 P. Rosenstein-Rodan, “Natura Facit Saltum: Analysis of the Disequilibrium Growth Process”, [in:] Pioneers in Development…, op. cit., p. 211.

155 W. L. David, The Conversation of Economic Development. Historical Voices, Interpretations, and Reality, Armonk 1997, p. 87.

156 Cf. e.g. articles in Agenda: A Quarterly Journal of Reconstruction, published by the London School of Economics in 1942–1944.

157 Ibid., p. 124.

158 H. W. Arndt, “The Origins of Structuralism”, World Development, 1985, no. 2

159 Ibid.

160 E. J. Berg, “Socialism and Economic Development in Tropical Africa”, [in:] Comparative Economic Systems, ed. J. S. Prybyla, New York 1969, p. 147

161 D. Ritschel, The Politics of Planning. The Debate on Economic Planning in Britain in the 1930s, Oxford–New York 1997, p. 153 ff.

162 Ibid., p. 181

163 K. Polanyi, The Great Transformation, New York 1944; cf. G. Dale, Karl Polanyi: The Limits of the Market, Cambridge–Malden 2010, p. 70 ff.

164 K. Polanyi, The Great Transformation, op. cit., p. 234

165 W. Beveridge, Social Insurance and Allied Services, London 1942; cf. K. Williams, From Pauperism to Poverty, London 1981, p. 367

166 D. Kynaston, Austerity Britain, 1945–51, London–Berlin–New York 2007, p. 16

167 H. W. Arndt, The Origins…, op. cit.

168 K. Mandelbaum, Industrialization of Backward Areas, Oxford 1947; cf. also E. Staley, World Economic Development: Effects on Advanced Industrial Countries, New York 1944

169 Cf. J. Kochanowicz, “Początki planowania w Polsce po II wojnie światowej w perspektywie porównawczej”, [in:] Ekonomia i ekonomiści w czasach przełomu, ed. E. Mączyńska, J. Wilkin, Warszawa 2010.

170 Cf. Chapter 3.

171 E. H. Carr, The Soviet Impact on the Western World, London 1946, p. 20.

172 W. Abelhauser, “Germany: Guns, Butter and Economic Miracles”, [in:] The Economics of World War II, ed. M. Harrison, Cambridge 2000, p. 163.

173 A. Tooze, The Wages of Destruction. The Making and Breaking of The Nazi Economy, New York 2008, pp. 554–555.

174 J. Lacey, Keep From All Thoughtful Men. How U.S. Economists Won World War II, Annapolis 2011, p. 74.

175 R. Higgs, Depression, War and Cold War. Studies in Political Economy, Oxford 2006, p. 81.

176 Ibid., p. 88.

177 Ibid., p. 95.

178 R. A. Rosenbaum, Waking to Danger. Americans and Nazi Germany, 1933–1941, Santa Barbara– Denver–Oxford 2010, p. 126.

179 R. Boyce, The Great Interwar Crisis and the Collapse of Globalization, London–New York 2009, p. 18.

180 W. Easterly, “Development Doesn’t Require Big Government, The Wall Street Journal, 3 October 2008.

181 G. M. Meier, “The Formative Period”, [in:] Pioneers…, op. cit. p. 11.

182 R. Skidelsky, Keynes. The Return of the Master, London 2009, p. 153.

183 R. Prébisch, “Five Stages in My Thinking on Development, [in:] Pioneers…, op. cit. p. 175.

184 Quoted in D. Yergin, J. Stanislaw, The Commanding Heights: The Battle Between Government and the Marketplace That Is Remaking the Modern World, New York 1998, p. 77.

185 W.W. Rostow, Theorists of Economic Growth from David Hume to the Present, New York 1992, p. 413.

186 D. Maul, Human Rights, Development and Decolonization, London–New York 2012, p. 86 ff.

187 H. W. Arndt, Economic Development: the History of an Idea, Chicago 1987, pp. 44–45.

188 Quoted in D. Yergin, J. Stanislaw, The Commanding Heights…, op. cit., p. 77.

189 M. J. Hogan, The Marshall Plan. America, Britain and the Reconstruction of Western Europe, Cambridge 1987, p. 431 ff.

190 Many experts today believe that the significance of the Marshall Plan had a different meaning – it was too small of a capital injection to be of economic importance, and did nothing to help in the reconstruction of infrastructure because it had already mostly been rebuilt before the plan started; however, it supported democratic institutions in Western Europe, which threatened to slide into the Soviet sphere of influence. The result was democracy combined with a mixed economy – and one of the greatest economic success stories in history. See B. DeLong, B. Eichengreen, The Marshall Plan: History’s Most Successful Structural Adjustment Program, National Bureau of Economic Research Working Paper no. 3899 from 1991.

191 J. M. Cypher, J. L. Dietz, The Process of Economic Development, London–New York 2009, pp. 73–74.

192 W.W. Rostow, Theorists…, op. cit., p. 413.

193 Ibid.

194 I. Adelman, “Confessions of an Incurable Romantic”, [in:] Recollections of Eminent Economists, ed. J. A. Kregel, Houndmills–London 1989, vol. 2, p. 129 ff.

195 I. Adelman, Economic Growth and Social Equity in Developing Countries, Stanford 1973.

196 W. A. Lewis, “Development Economics in the 1950s”, [in:] Pioneers…, op. cit., p. 140.

197 Nobel Lectures. Economic sciences 1969–1980, ed. A. Lindbeck, Singapore 1992, p. 395.

198 H.W. Arndt, “Economic Development: A Semantic History”, Economic Development and Cultural Change, 1981, no. 3.

199 F. Pepłowski, Słownictwo i frazeologia polskiej publicystyki okresu oświecenia i romantyzmu, Warszawa 1961, p. 201.

200 Ibid., p. 203.

201 H. Kamieński, Filozofia ekonomii materialnej ludzkiego społeczeństwa, Warszawa 1959, p. 61.

202 L. Landau, Płace w Polsce w związku z rozwojem gospodarczym, [in:] idem, Wybór pism, Warszawa 1957, p. 221 (the first edition was published by the Institute of Social Affairs in 1933); O. Lange, Gospodarcze podstawy demokracji w Polsce, [in:] idem, Dzieła, vol. 2, Warszawa 1973, p. 469.

203 For more on Kalecki’s and Lang’s views, see Chapter 4.; cf. also B. Popławski, “Polska szkoła rozwoju – zapomniany paradygmat studiów nad transformacją globalnego południa”, Kultura Współczesna, 2012, no. 3

204 K. Marx, Capital. Preface to the first German edition, 1867, https://www.marxists.org/archive/marx/works/1867-c1/p1.htm.

205 Ibid.

206 H. W. Arndt, Economic Development: the History…, op. cit., p. 35.

207 C. Clark, “Development Economics: The Early Years”, [in:] Pioneers…, op. cit., p. 60.

208 G. M. Meier, “The Formative Period…”, op. cit. p. 9.

209 In later textbooks the theory was reduced to a simple equation: g = s/k, where g is the growth rate, s – the savings rate, and k – the capital-output ratio, see e.g. R. Jha, Macroeconomics for Developing Countries, London–New York 2003 and G. M. Meier, “The Formative Period…”, op. cit. p. 29.

210 Cf. A. Łukaszewicz’s introduction to J. D. Domar, Szkice z teorii wzrostu gospodarczego, trans. L. Niżyński, Warszawa 1962, p. 26.

211 Quoted in F. Crouzet, Capital formation in the Industrial Revolution, London 1972, p. 10.

212 O. Lange, “Dlaczego kapitalizm nie potrafi rozwiązać problemu krajów gospodarczo zacofanych”, [in:] idem, Dzieła, vol. 1, p. 736.

213 Ibid., p. 738.

214 We must also mention here a very influential and widely are reading the work of a historian. In 1951, he published a book A. Gerschenkron, Economic Backwardness in Historical Perspective. Gerschenkron’s thesis was great fit at the time for the theory of accelerated development. He wrote that the farther from the economic and cultural “centre” a country is located, the more backward they are and less likely to develop spontaneously. A stronger modernization impulse must therefore come from the state. Gerschenkron also gave hope: showing that “catching up” economically could be achieved very quickly, within one or two generations.

215 G. Myrdal, Economic Theory and Under-Developed Regions, Gerald Duckworth & Co, 1957, p. 82.

216 W. Ascher, Bringing in the Future. Strategies for Farsightedness and Sustainability in Developing Countries, Chicago–London 2009, p. 40

217 H. Leibenstein, Economic Backwardness and Economic Growth, New York–London 1957.

218 R. Nurkse, Problems of Capital Formation in Underdeveloped Countries, Oxford University Press 1966, p. 4.

219 Ibid., pp. 37–38.

220 Cf. e.g. Brofenbrenner’s review in Journal of Political Economy, 1954, no. 2.

221 This mechanism was later labelled the “demonstration effect”; Nurkse, however, did not yet use this term.

222 W. A. Lewis, “Economic Development with Unlimited Supplies of Labour”, The Manchester School, 1954, no. 2.

223 J. M. Cypher, J. L. Dietz, The Process…, op. cit., pp. 153–156.

224 Quoted in G. M. Meier, “The Old Generation of Development Economists and the New”, [in:] Frontiers Of Development Economics. The Future In Perspective, ed. G. M. Meier, J. E. Stiglitz, New York 2001, p. 16.

225 A. O. Hirschman, The Strategy of Economic Development, Westview Press, Boulder– London 1958, p. 29.

226 S. Farber, The Origins of the Cuban Revolution Reconsidered, Chapel Hill 2006, p. 12.

227 Quoted in H. W. Arndt, Economic Development: the History…, op. cit., p. 21.

228 R. Prébisch, The Economic Development of Latin America and Its Principal Problems, New York 1950, p. 2.

229 R. Jolly, UN Contributions to Development Thinking and Practice, Bloomington 2004, pp. 57–58.

230 A similar thesis was formulated by Hans Singer and (somewhat later) Gunnar Myrdal; see H.W. Arndt, Economic Development: the History…. op. cit., p. 73.

231 D. Pollock, D. Kerner, J. L. Love, “Raúl Prébisch on ECLAC’s Achievements and Deficiencies: An Upublished Interview”, Cepal Review, 2001, no. 75.

232 For more on Prébisch and his theory of dependency, cf. Chapter. 6

233 Measures for the Economic Development of Under-Developed Countries. Report by a Group of Experts appointed by the Secretary-General of the United Nations, New York 1951

234 S. Frankel, “United Nations Primer for Development”, The Quarterly Journal of Economics, 1952, no. 3, pp. 302–303.

235 Ibid., p. 303

236 Ibid.

237 Ibid., p. 304.

238 Ibid., p. 308.

239 Ibid.

240 Ibid., p. 312.

241 W. A. Lewis, “United Nations Primer for Development: Comment”, Quarterly Journal of Economics, 1953, no. 2.

242 Ibid., p. 268.

243 Cf. Chapter 8.

244 In the chapter on the PRL, we will return to another famous debate (in which Lange, Hayek and Mises took part) over whether effective use of resources is possible in a planned economy without market pricing system.

245 M. Friedman, “A Memorandum to the Government of India”, 1955.

246 Quoted in W. Sachs, The Development Dictionary: A Guide to Knowledge as Power, London 1992, p. 135.

247 U Thant, “Foreword to the United Nations Development Decade: Proposals for Action, June 1962”, [in:] A. W. Cordier, M. Harrelson, Public Papers of the Secretaries-General of the United Nations, vol. 6, New York–London 1976, p. 142.

248 I. Sachs, Drogi i manowce świata „B”, Warszawa 1964, p. 37.

249 Ibid., p. 35.

250 S. Yusuf, Development Economic through the Decades, Washington 2009, p. 6.

251 A. O. Hirschman, “A Dissenter’s Confession”, [in:] Pioneers…, op. cit. p. 91.

252 Quoted in R. E. Mulcahy, Readings in Economics from Fortune, New York 1954, p. 137.

253 R. L. Tignor, W. Arthur Lewis and the Birth of Development Economics, Princeton 2006, p. 276.

254 C. Clark, “Development economics…”, op. cit., p. 63.

255 Quoted in D. Yergin, J. Stanislaw, The Commanding Heights…, op. cit., p. 53.

256 C. Clark, “Development Economics…”, op. cit., p. 64.

257 Rostow first published an oultine of his theory in a series of articles he began writing in the early 1950s (e.g. W. W. Rostow, “The Take-off Into Self-sustained Growth”, The Economic Journal, 1961, no. 261); it was later rewritten for a general readership in the The Economist (“Rostow on Growth. A Non-Communist Manifesto”, The Economist, 15 August 1959 and 22 August 1959), and finally in book form (W.W. Rostow, The Stages of Economic Growth, Cambridge 1960).

258 M. E. Latham, Modernization as Ideology. American Social Science and “Nation Building” in the Kennedy Era, Chapel Hill 2000, p. 3.

259 J. M. Hagen, V. W. Ruttan, “Development Policy Under Eisenhower and Kennedy”, Economic Development Center Bulletin 87–10, University of Minnesota, November 1987, p. 35 ff.

260 “The tragedy of Communism is not so much its initial dictatorial character as its capacity to deny future choices to those who fall under it.” W.W. Rostow, Politics and the Stages of Growth, Cambridge 1971, p. 289.

261 K. G. Nustad, “The Development Discourse in the Multilateral System”, [in:] Global Institutions and Development. Framing the World?, London–New York 2004, p. 16.

262 W.W. Rostow, The Take-off…, op. cit., pp. 27–28.

263 Quoted in J. M. Cypher, J. L. Dietz, The Process…, op. cit., p. 141.

264 G. Deng, The Premodern Chinese Economy, New York 1999, p. 6. For more on the disputes among U.S. politicians over development strategy, see W. W. Rostow, Concept and Controversy. Sixty Years of Taking Ideas to Market, Austin 2003, p. 197 ff.

265 D. Seers, “The Congruence of Marxism and Other Neoclassical Doctrines”, [in:] Toward a New Strategy for Development. A Rothko Chapel Colloquium, New York– Oxford 1979, pp. 3–4.

266 For a classic overview of this works, see Modernization. The Dynamics of Growth, ed. M. Weiner, New York–London 1966.

267 R. L. Tignor, W. Arthur Lewis…, op. cit., p. 96.

268 M. E. Latham, Modernization…, op. cit., p. 4.

269 Quoted in N. Gilman, Mandarins of the Future. Modernization Theory in Cold War America, Baltimore 2003, pp. 1–2.

270 Quoted in N. Gilman, Mandarins…, op. cit., p. 1.

271 D. E. Apter, “Nationalism, Government, and Economic Growth”, Economic Development and Cultural Change, 1959, no. 2.

272 Ibid. p. 117.

273 Ibid., pp. 120–121.

274 Ibid., p. 122.

275 Ibid.

276 Ibid., p. 124.

277 Ibid., pp. 126, 132.

278 Ibid., pp. 134–136.

279 Quoted in I. Sachs, Drogi i manowce…, op. cit., p. 90.