Peter Bauer and the Limits of Economic Development

How did I come to meet and befriend Peter Bauer? After all, I am but a doctor, and not an economist or a historian, and Peter was not interested in health, least of all his own, enquiries about which, even when ill, he brushed aside with impatience as being dull and tedious.

But I had worked in Tanzania, which was a country that was almost a blueprint for all that Peter thought was most harmful to development and illustrated best and most clearly the politicisation of life that foreign aid promoted. While working there, I had, under an assumed name, published my observations of the country. It should be remembered that, at the time, Tanzania was largely regarded as a shining beacon to Africa, if not to the whole world, whose leader, Julius Nyerere, known locally as Mwalimu, or Teacher, was widely admired because of his apparently modest manner and lifestyle. And because of the uncritical high regard in which he was held at the time, Peter called him St Julius.

But what had Teacher taught, and what were the miracles that St Julius had wrought? There were several things that I noticed. The country was astonishingly impoverished, with young men walking around in western women’s coats, sent out in bundles by charities from Europe. There was nothing to buy. The currency was called “pictures of Nyerere”. In a country of poor people, everyone was thin – except for the members of the single political party, the Party of the Revolution, who were inclined to be portly. You could tell a party member in the countryside by his girth. Every tenth household had what was called a ten cell leader, a man whose permission or certificate of political reliability it was necessary to secure even for a child to continue beyond a certain age at school. I do not think it will surprise you to know that this became a system of bribery that reached into the tiny interstices of life, but it did create, in conditions of general penury, a cadre of people who were not only the eyes and ears of the regime, but loyal to it for the small advantages it gave them (one thinks here of Freud’s phrase, the narcissism of small differences).

Nyerere was adept at talking the language, or rhetoric, of left-wing European intellectuals, while blinding them – in all conscience, not a very difficult thing to do – to the natural consequences of the forcible collectivisation of peasant agriculture and the removal of millions of people from where they were living, all on the supposition that it was only thus that equal and equitable development could take place while the government provided the population with its inestimable services.

The maintenance of this system required tyranny and corruption even on a micro-level. I had a patient, an Indian trader, who had contracted tuberculosis in a Tanzanian prison, to which he had been sent for six months during one of Nyerere’s so-called economic crackdowns, conducted by the army to search out people who had supposedly dealt on the so-called black market (which Peter would have preferred to call the open market). My patient – one of a class of admirable people, small merchants who had begun their careers by bringing a few simple consumer goods to remote rural areas where it was still possible to be attacked by a lion, and who had gradually reached a modest prosperity – had been found to be in possession of six cups and saucers for which he did not have a receipt. For this terrible crime, as I have mentioned, he spent six months in a less than salubrious jail; he got TB and the army officer got his cups and saucers.

I could, of course, continue. It was obvious to me that it was foreign aid that facilitated this iniquity, paid for it in fact (I also was a small beneficiary of the aid, buying my first house from the proceeds). The collectivisation was predictably such a disaster, economically, that there was only one solution to it: more foreign aid, of course. Ninety per cent of the people lived on the land, but still the population could not feed itself, and produced practically no cash crops either, they being subjected, if grown, to almost forced requisition by state marketing boards. Nyerere himself recognised the nature of his system when he explained why he refused to devalue the currency. Such a devaluation would have destroyed his powers of political patronage, for of course access to foreign currency to favoured persons was a way of ensuring their loyalty to him while giving them an incomparably higher standard of living than that of the great mass of the population. “And I would lose everything I have”, were Nyerere’s precise words, which I read almost with disbelief in the county’s one English-language newspaper.

I met Peter at a lunch at The Spectator, and I think he was pleased to come across someone who had written so frankly about the sainted Julius and his miracles: for one has to remember the zeitgeist of the time, even then, and especially among his peers, was very hostile to Peter and friendly towards Julius. Peter was not regarded merely as mistaken in his ideas about Third World development but wicked, the victim of some disorder causing a deficit of generosity and warm feeling towards the impoverished of the world.

Until I met him, I had not given two seconds’ thought to development economics, and I therefore read some of his books: much harder to find, incidentally, than those, which were two a penny, and found in every bookstore, that took the view that the rich were rich because the poor were poor, not merely in a definitional sense, but in a causative sense. For the authors of these books, not only property, but wealth itself was theft; and yet the problem for them was where poverty, not wealth, came from. For them, to adapt Rousseau very slightly, Man is born rich, but everywhere is poor: or at least poor in most places.

If my recollection serves me right, Peter was taken to be some kind of neo-liberal apologist for multinational companies, a man who thought that laissez-faire was the answer to all problems. This seems to me to do him a considerable injustice: though he did believe in free trade and a liberal economy he was certainly not a believer in Homo economicus, far from it. The undifferentiated man who considers only his narrow economic interest, which he calculates with perfect rationality, did not exist for Peter. He did not think that in a world in which restraints on economic life were removed (if one were able even to envisage such a world) differences between individuals and groups would disappear or die out. For it is part of his thought, something that he repeated over and over again, that different people, and different groups of people, react differently to similar economic circumstances and incentives. Not even the same monetary incomes result in the same outcomes in other respects. Income is not all.

I hope you will forgive me if I refer once again to personal experience. When I was a very young doctor, I worked for a time in what was then still called Rhodesia. Unlike in South Africa, black doctors of the same grade in Rhodesia, few though they might have been in number, were paid precisely the same wages as white doctors. And here was a puzzle: why was I able on my salary to live in great luxury and even save money, when a black colleague, paid exactly the same wage, lived almost in squalor and could hardly make ends meet? It certainly had nothing to do with an affinity for squalor, and I am afraid it took me a disgracefully long time to work it out.

For the reason was obvious. I was able to devote my entire salary to myself: I had no parents, brothers or sisters, nieces and nephews, or village to support. My money was wholly my own, to dispose of as I wished. My black colleague’s salary, however, being exceptionally large by local standards, had to support a large number of people: parents, siblings, a very extended family. He would have been regarded as a very bad man indeed if he had refused to share his salary in this fashion, and in fact it was virtually impossible, socially and psychologically, for him to have done so.

There was in this social obligation to share something admirable and good, but it had its harmful effects too, particularly in the then present circumstances, that were all too soon to manifest themselves. It was perfectly fine when people in the situation of the black doctor were not part of the class in charge of the country, and when government service was not the sole means of personal advancement, in other words when the economy was an open one and the government did not seek to regulate economic life in its entirety. But people like my colleague were a very small elite, no doubt by virtue of their own efforts though supported by the sacrifices of their own families, and soon they were to take charge of the country.

Needless to say, they wanted understandably to live at the level the previous ruling class or elite had lived; the near-squalor in which they had previously lived was not of their choosing. But their inherited social obligations remained. Anyone who did not do the maximum he could for his family was either a fool or a very bad man. No conceivable salary in the ordinary sense would have allowed the elite both to meet its inherited and deeply-felt social obligations and live at the desired level, that of the previous elite or ruling class. Bear in mind also that the new political masters, in the name of egalitarianism or social justice, concepts that they had absorbed from their western-style education, and which they manipulated with ease and cunning, both for internal and external consumption, sought to control economic life ever more tightly, such that effort was diverted into obtaining and retaining political influence as the precondition of mounting and keeping a commercial enterprise.

When you put all this together, the result is obvious and not at all surprising. In such an economy, dearth really does become the source of wealth – for a very tiny proportion of the population. The only way to have averted this outcome would have been to maintain limited government, but that was always politically unlikely, given the hegemony or at least preponderance of the ideas that Peter Bauer dedicated his life to fighting against. How far a limited government is compatible or incompatible with an authoritarian government, or actually requires some kind of democracy I leave to others to debate. But certainly a highly regulatory government run by an elite that simultaneously wants for itself the fruits (but not the tree) of past western economic and technological progress is bound to result in stagnation or worse.

In other words, Peter (I hope I am interpreting him correctly) would have said that an open economy, without much central regulation or planning, would have been a necessary condition for African development, precisely the opposite of what was recommended by most of the experts of his time, who believed that only central planning and forced saving, together with subventions from foreign aid, could provide the capital that they said was necessary before any economic development could take place.

Here let me add in parenthesis that a curious inversion of the truth took place in the minds of intellectuals and opinion-formers in the West. Those who favoured central planning and its inevitable extortions were believed to be those who cared most for ordinary people while Peter, who had a deep respect for the capacity of African peasants and farmers to respond to demand for cash crops, and to make investment decisions for themselves, which he had seen for himself in his early researches, was depicted as a kind of hard-hearted, callous, devil-take-the- hindmost, Gradgrindian, dismal-science kind of economist who cared only for profit and not for people.

But if a liberal, or at least liberalised, economy was a necessary condition for economic development in Africa and elsewhere, was it a sufficient one? The answer to this question, of course, depends rather on what you want or expect economic development to achieve.

If what you want from economic development is social justice in its usual modern acceptation, then the answer is clearly no. By social justice is usually meant equality of outcome or equity. Equity is also usually confounded with equality of outcome, though it is clearly incompatible with such equality, at least as long as people make differing efforts in differing fields with differing abilities and differing goals. (Incidentally, it may interest you to know that the words equality and equity are used interchangeably in medical journals. This is surely an instance of what Peter used often to lament, the apparent inability of people, despite great technical or intellectual sophistication, to think connectedly about quite simple matters.)

Over and over again, Peter stressed the differing qualities, aptitudes and desires of people both as individuals and as groups. There was no possible way, short of extreme force, in which outcomes between different groups of people can be equalised or smoothed out; and therefore, in liberal economies, and probably even in illiberal ones (for egalitarianism is rarely carried out equally), differences between groups, often very large, will persist. This has been so throughout history and will remain so, short of genocide. Superficial or demagogic egalitarian objections to spontaneously-generated differences have brought us such delights as Nazism, the slaughter of Chinese in Indonesia and the expulsion of Asians from East Africa.

That Peter’s thought was not unidimensional, let me mention here that he did not think of economic development as necessarily an unequivocal good, that people the world over ought to aim at single-mindedly. This is because there is rarely gain without loss, and people may, with reason, care more about their losses than for their gains. It is conceivable that attachment to the holy cow in India has at times retarded economic development, but only a monomaniac would be prepared to violate the sentiments of the great mass of the Indian population in increasing the GDP by a point or two: that is, on the doubtful assumption that there would be no political consequences of mass slaughter of the holy cow that would not retard economic life. If one were to learn that the construction of skyscrapers in the Vatican would promote Italian economic growth, who, other than a barbarian, would advocate it?

In short, I think Peter would agree with an aphorism that I have adapted from Tocqueville: he who seeks in economic development anything other than economic development itself is destined for economic stagnation.

Now of course Peter recognised that most people prefer to be rich rather than poor, comfortable rather than uncomfortable, economically secure rather than insecure, and that most of them believe that economic development will give them benefits that they seek. But Man is not only a problem-solving animal, he is a problem-generating and desire-creating one also. It seems to be a fact of human psychology that no sooner has one desire been satisfied than another arises in the mind, and past satisfaction no longer satisfies but is taken for granted. We cannot go on for ever being grateful that we have, and always will have, enough to eat, when throughout much of human history having enough to eat was a privilege rather than an assumption. Can I go on for long being euphoric that the infant mortality rate in India has now fallen to what it was in England when I was born? (Incidentally, this vast improvement in India’s infant mortality rate can be presented as a deterioration, in so far as its infant mortality rate was only 5.4 times higher than England’s in 1949, while it is now 9.4 times higher, a relative deterioration of 42.5 per cent. Peter was always acutely aware, much more than most economists in the field, of how statistics can be, and often are, used to create a misleading impression, usually for lobbying purposes, and how they do not speak for themselves but have to be interpreted for their meaning.)

Peter’s view of development, then, was not a simple economistic one. He ascribed great importance to history, to culture, to psychology. These, of course, can and do change, in individuals as in countries and cultures. In my work in an inner city hospital in England, for example, I was very much struck by how refugees to Britain, who whatever their motives for coming were certainly enterprising and daring people, often having arrived in containers or under trucks, and having hazarded dangerous border-crossings, could be turned in a matter of weeks by enforced dependence into the kind of people who complained of the size of the television screen in their allocated accommodation, or of their inability to go to English classes in the rain without a free umbrella.

Thus Peter’s view of the reach of development economics was essentially modest, though not the less sophisticated for that. It might tell us something about necessary conditions for development, but not much about sufficient ones. In assessing any country and its prospects, it was necessary to have an appreciation of its history, culture and psychology. Wealth is neither nothing nor everything; there is no single measure of life, not even GDP per capita.

Peter always enjoyed – I think enjoyed is the word, though always within the bounds of truth – revealing supposed wisdom as folly, knowledge as ignorance, compassion as cruelty, and orthodoxy as absurdity. He saw in his lifetime his ideas go from being dismissed as wrong and cruel to being accepted as so obvious and self-evident that their enunciation was hardly worth the effort. But no victory is final, and I think that Peter’s beautifully-expressed strictures, so beautifully that even a non-economist such as I can understand them, will remain salutary for a very long time – alas.