Comments on "Problems of Economic Development"

Author(s): Andrew Gunder Frank

Source: The Canadian Journal of Economics and Political Science / Revue canadienne
d'Economique et de Science politique, Vol. 21, No. 2 (May, 1955), pp. 237-241
Published by: Wiley on behalf of Canadian Economics Association
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NOTES AND MEMORANDA
COMMENTS ON "PROBLEMS OF ECONOMIC DEVELOPMENT"
ANDREW GCNDER FRANK
University of Chicago
THE treatment in a recent issue of this
JOURNAL
of some
problems
of
economic
development
invites further comment on the issues raised.1 This is the
case
particularly
as the discussion
by
S. G. Triantis in the review article in
question
is
one,
albeit a more ambitious
one,
of a host of reviews that have
recently appeared
in the literature of
reports published by
the
International
Bank for Reconstruction and
Development
on the economic
development of
a number of countries. These
reviews,
and
especially
the more extensive
one
in this
JOURNAL,
offer the reader an outline and evaluation of the
treatment
by
the World Bank's missions of the
problems
of economic
growth.
I
shall
discuss in turn the issues raised
by
Mr. Triantis' evaluation of the
reports.
They
concern matters of
population growth, public
finance,
the
capital supply,
inflation, education,
and allocation of resources. I conclude
by raising
some
additional issues.
The
questions
raised
by
the
rapid growth
of
population today
are,
in the
opinion
of Mr.
Triantis,
inadequately
treated. Some
reports
do not
correctly
determine the rate of income
growth required
to
keep pace
with the
growth
of
population.
The
reports
on
Turkey,
Guatemala,
and
Nicaragua
fail to
discuss the
question.
Yet,
it is
precisely
these three
countries,
among
the
seven that come under
discussion,
in which the Iabour:land ratio is the
smallest.
Indeed,
in
Nicaragua only
a fraction of the arable land is under
cultivation,
and other resources are
plentiful.
In
selecting
these three
reports
for
criticism,
Mr. Triantis
appears
to share the
assumption
I find
underlying
the
reports,
even the
Nicaragua report,
that
rapid population growth
con-
stitutes a
handicap
for an
economy
anxious to
develop.
Instead of the criticism offered
by
Mr.
Triantis,
another
may
be
suggested.
The missions seem unable to divest themselves of the Malthusian
assumption
even where it is not
applicable. Consequently they
fail to ask some
important
questions.
Under what circumstances will a
growth
in the
population,
and
therewith an increase in the labour
force,
give increasing
returns? How
may
these circumstances be fostered and the returns
reaped by
the
community?
These
questions
are not answered.
More attention and
space
in the
reports
is devoted to administrative and
fiscal matters than to
any
other set of
problems.
For
instance,
119 out of
415,
or 28
per
cent of the
pages (pp.
77-99 and
318-415)
in the
Nicaragua report
are concerned with "fiscal
policy"
and "the fiscal
system."
The
emphasis
devoted
thereto,
particularly
in that
study
and in the one on
Turkey,
is
1S. G.
Triantis, "Problems of Economic
Development,"
this
JOURNAL, XX,
no.
1, Feb.,
1954, 107-11. This is a review article of the United Nations
report
on
Bolivia,
and the
reports
of the International Bank for Reconstruction and
Development
on
Ceylon,
Cuba,
Guatemala,
Jamaica, Nicaragua,
and Turkey.
237
Vol.
XXI, no.
2,
May,
1955
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All use subject to JSTOR Terms and Conditions
238 The Canadian
Journal
of
Economics and Political Science
noteworthy
because it is
symptomatic
of the
singular importance
attached
by
the missions
generally
to
organizational
and administrative
changes.
The
establishment of
institutions,
already
common in the
West,
for the
improve-
ment of the co-ordination of economic
affairs,
to use the words of the
Turkish
report,
constitutes the
principal,
almost the
exclusive,
line of attack
recom-
mended
by
the missions to the various countries. Yet Mr. Triantis feels that
the
reports, particularly
the one on
Nicaragua,
devote too little attention
to
monetary
and fiscal matters.
Contrary
to this
criticism,
it
may
be
suggested
that the missions
place
too
great
reliance on
programmes
of
public
finance
and
improved
administration to the exclusion of other matters to be
suggested
below.
Moreover,
in so
doing,
the missions consider their
acquaintance
with
Western economies to be more useful for the
interpretation
of
underdeveloped
economies than is
probably
warranted
by
circumstances there.
Mr.
Triantis, too,
seems to succumb to this
temptation
when he
suggests
that
greater
reliance should be
placed
on the "medium and smaller incomes
of consumers and
enterprises"
for their
potential
contribution to the
supply
of
capital
than is accorded them
by
the various missions. The
larger
standard
deviation in the distribution of incomes in the less
developed
countries
prob-
ably prohibits
such reliance. On the other
hand,
it
may
be
suggested
that
the
peasant population
in
many
areas,
which Mr. Triantis
probably
did not
have in
mind,
already
does considerable
"saving,"
that
is,
allows others to
save,
because of its enforced low
consumption.
Mr. Triantis next addresses himself to
ways
of
mobilizing savings.
I am in
hearty agreement
with him when he
points
out
that,
although
the
reports
universally
condemn
inflation,
they
make almost no
attempt
to
support
their
condemnation.
Indeed,
in the face of
post-war
inflations
everywhere, they
regard
it as an
already accepted assumption
that inflation is detrimental to
economic
development. Except
for brief discussions in the studies on Bolivia
and
Ceylon,
no
analytical
treatment of the
consequences
of inflation is
attempted. Although probably
not fundamental to economic
development,
consideration
by
such bodies as the World Bank's missions of the
questions
posed by
Triantis as well as of the
following question may
be
very
much
worth while. What is the
source,
in the
country
under
study,
of
inflation,
the creation of commercial-bank
credit,
central-bank
borrowing
or
issuing
of
currency,
or a favourable shift in the terms of
trade,
etc.? What are the
consequences
of the various
possible
causes (and
intensities)
respectively
of inflation on the incidence of
inflation,
on the distribution of command
over
resources,
and on the
change
in these over time? Can the
government
of the
country
in
question,
for
instance,
gain
command over resources for
purposes
of investment which it could not so
gain by
some other measure?
What would be the cost of such a
policy, particularly
in less favourable terms
of trade and balance of
payments
for a
country
in which
foreign
trade is
important?
More
significant
than the
assumption
of the
reports
with
regard
to inflation
are the
assumptions
which
appear
to underlie their recommendations on
education
specifically,
and those reflected
throughout
in their discussion
of social and cultural factors. We
may
or
may
not lament with Mr. Triantis
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the sacrifice of liberal to vocational education and the
neglect,
in some
of
the
reports,
of conditions
peculiar
to
particular underdeveloped
areas.
But
comment in this
sphere ought
not to be confined to
that,
lest the
impression
be left with the reader that
many
of the issues raised
by
the discussion of
the
reports
are settled. Vocational
education,
whether in school or
field,
as
under-
stood in the
reports, only
serves to reinforce the
already
too
prevalent
reliance
on demonstration or
example
and on
expert
advice,
instead of on
training by
participation, by working
with the
teacher,
foreign expert,
or extension officer.
More
important
still,
the recommendations
designed
to
improve
education
and to increase
agricultural
and industrial
production
all
appear
to
imply
that the
people
in the
underdeveloped
countries must all be somehow re-
educated before
they
can or will take
part
in the economic
development
of
their countries.
They
must
variously
be made to
reason,
to be more enter-
prising,
to become freer in
thought,
to
give up
their
superstitions,
etc. In
short,
the
people (peasants,
business
men,
and
all)
must be
taught
to become
(1) rational, (2)
economically
rational
(3)
individualistically economically
rational
(Talcott
Parson's "universalistic" rather than
"particularistic").
I do
not
believe,
as the mission members and Mr. Triantis
appear
to
feel,
that it
is
already
established either that
people
in
underdeveloped
countries are less
rational than
people
elsewhere,
or that
they
must be individualistic in
making
decisions before economic
development
can
proceed.
The discussion of allocation of resources invites comment. Most of the
countries under consideration
have,
compared
to the
West,
relatively
little
capital
and land. The recommendations of the missions are
based, therefore,
on the stated maxim that under those circumstances investment
requiring
relatively
much labour and
relatively
few other resources should be
given
preference. Application
of this criterion to the situation in
Turkey leads,
in
the
opinion
of the
mission,
to the conclusion that investment in
agriculture
should be favoured over investment in
industry. "Agricultural development
will
provide
the
greatest employment
of
manpower
for the least
capital
investment"
(p. 264).
Both the conclusion and the criterion on which it is
based draw
sharp
criticism from Mr. Triantis. He recommends instead that
the criterion on which to base investment decisions should be the ratio
of economic
progress
to the increase in
capital employed.
He
suggests
that
the use of his criterion would not
necessarily
lead to the same investment
(say agriculture
instead of
industry)
as would use of the criterion of
pro-
viding
"the
greatest employment
of
manpower
for a
given
increase in
capital
employed," that
is, of
maximizing
the
employment
of labour. This is true.
However,
in
attributing
to the Turkish
report
the
argument
of mere maximiza-
tion of
employment,
Mr. Triantis has, as can be seen
by reading
the
passage,
misinterpreted
the mission's intent. The mission's recommendation is based
on the
originally
stated criterion which
appeals
to the familiar law of variable
proportions
and
which,
re-phrased,
merely
states: maximize total
product,
keeping marginal product positive
and
average product falling
for both
factors. This is not the same as
invoking
the
employment argument,
for
nothing
at all is said about
maximizing
the
quantity
of labour used. Indeed, this, the
criterion used
by
the Turkish
report,
states the
general
case which includes as
Notes and Memoranda 239
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The Canadian Journal
of
Economics and Political Science
a
special
case the maxim offered
by
Mr. Triantis. It would read: maximize
income
(progress) by
maximizing
the
marginal
product
of
capital, given
the
supply
of labour
(the complement
of which is to maximize the
marginal
product
of
labour,
given
the
supply
of
capital).
So
far, then,
the criterion used in the
reports
stands
up
under criticism.
To take issue with the conclusions reached
by
the mission we would have
to
argue
that the criterion has been
misapplied
to the circumstances in
Turkey,
or elsewhere. It
may
be that the mission has
merely
miscalculated the alter-
native costs in
concluding,
as most advisers
do,
that
emphasis
should be
given
to
agriculture
and
export industry. Unfortunately,
the
reports
rarely
give
the reader sufficient information to enable him to check the calculations.
An alternative
possibility
deserves a
great
deal of further
investigation.
It
may
be that the missions are
using
the
wrong
frame of
reference;
that what is at
issue in economic
development
is
really
not so much
maximizing
the
marginal
product
of an
input
or
reaping
comparative
advantage
as
changing
the cir-
cumstances which determine the maximum and that
comparative advantage.
The latter
is,
in
my opinion,
the useful
interpretation
of the Marxian
position
with
regard
to industrialization.
The definition of economic
development
offered
by
Mr. Triantis
may
serve
as introduction to
my concluding
remarks. "Economic
growth,"
he
says,
"involves increases in the
supply
of
productive
resources or
improvements
in the
productivity
of the
existing
resources
through
better allocation and
combination." It
may
be noted that he
speaks only
of increases and omits
mention of such matters as continuous
growth
and
self-sustaining
cumulative
increases,
much less of
changes
in
quality
of resources. In
imposing by
ex-
clusion such limits on what economic
growth
"involves,"
Mr. Triantis
suggests
that he shares the
conception
of economic
development apparently
held
by
the International Bank's missions whose critic he is.
The
reports
under review
suggest throughout
that in
speaking
of economic
development
the authors have in mind a
snapshot
of a
developed economy
(the
United
States)
or at best a
gap,
or
deficit,
between
developed
and
un(der)de-
veloped economy.
The task the missions set themselves is
only
to recommend
how this
gap may
be
bridged,
or from the
viewpoint
of the
underdeveloped
country,
the deficit removed. To this
purpose they suggest principally
that the
institutions and
organization along
with a little
capital
be
transplanted
from
the former to the latter countries.
No
suggestion
is made
by
the
missions,
nor
by
the
reviewers,
with the
notable
exception
of
Kindleberger,2
of economic
development
as a
process
of
economic
growth
in a
developing economy.
Nor would the reader
suspect
that
the United States also remains a
developing economy,
and that the
adjust-
ment of
Europe's economy
to
post-war
world conditions constitutes no less an
economic
development.
Such a narrow
perspective
leads to unfortunate
consequences.
No con-
sideration is
given
to the
many
unanswered
questions arising
from the mutual
2C. P.
Kindleberger,
review of the
reports
of the International Bank for Reconstruction
and
Development
on
Cuba,
Turkey,
and
Guatemala,
Review
of
Econmics and
Stztistics,
XXXIV,
Nov., 1952.
240
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Notes and Memoranda Notes and Memoranda
and
dynamic relationship
between the division of labour and the extent of the
market;
to the nature and relevance of
increasing
returns which
may
or
may
not lend
support
to the
theory
of balanced
growth;
to the
relationship
between
the
Keynesian argument
for diversification of the
economy
and the classical
argument
of
comparative
advantage;
or to their
proper applicability
to
policy
formation in a
developing economy.
"PROBLEMS OF ECONOMIC DEVELOPMENT": A REPLY
S. G. TIANIS
University
of
Toronto
A NUMBER of
points
in Mr. Frank's "Comments on 'Problems of Economic De-
velopment'" require
closer examination.
In his comments on
population
Mr. Frank does not seem to
distinguish
the
relation between certain
flows
from the relation between certain stocks. He
notes that "it is
precisely"
in
Turkey,
Guatemala,
and
Nicaragua, "among
the
seven
[countries]
that come under
discussion,
in which the labour:land ratio
is the smallest." But such
snapshots
of the
economy
are
very incomplete,
for
there are
many
more than two
types
of
productive
resources. What is more
important, they
tell us no more about the
problems
of economic
development
than a
snapshot
of a
living organism
tells us about its
prospects
and
problems
of
growth.
For,
in the discussion of economic
development,
it is
chiefly
the
rates,
timing,
and interaction of various
changes
in the conditions of
supply
of
productive
factors, demand for
goods
and
services,
and so
on,
that are
relevant. These
changes
constitute the
composite process
of economic de-
velopment
or
growth.
Much of the
post-war
economic literature on the
problems
of less
developed
countries has failed to take note of this
point.
Yet,
the treatment "of economic
development
as a
process
of economic
growth
in a
developing economy,"
which,
in his
concluding paragraphs,
Mr. Frank
finds
lacking
in the World Bank's
reports,
involves
exactly
a discussion in
terms of such changes-less in terms of "labour:land ratios." The
prospects
of
development might
be better for a
country
which has a different rate of
growth
in
population
even
though
it had a
higher
'labour:land ratio" than
Nicaragua, just
as
they
are
probably
better for a
six-year
old child who at
present may
be a few inches shorter than a
twenty-five
year
old dwarf.
Mr. Frank notes that I
appear
"to share the
assumption,"
which he finds
underlying
the
reports,
"that
rapid population growth
constitutes a
handicap
for an
economy
anxious to
develop."
But in this and one or two other
parts
of
his "Comments" Mr. Frank seems to ascribe to me views which I did not ex-
press,
nor intend to
imply. "Rapid population growth" may
or
may
not "con-
stitute a
handicap."
In the first
place,
it
depends
on the "definition" of
growth
itself,
and in the
second,
it
depends
on the relation of the rate and
timing
of
this flow to other
changes.
Therefore,
the
problem
can be considered
only
with
reference to
particular
countries,
not to
any "economy
anxious to
develop."
Vol.
XXI,
no.
2,
May,
1955
and
dynamic relationship
between the division of labour and the extent of the
market;
to the nature and relevance of
increasing
returns which
may
or
may
not lend
support
to the
theory
of balanced
growth;
to the
relationship
between
the
Keynesian argument
for diversification of the
economy
and the classical
argument
of
comparative
advantage;
or to their
proper applicability
to
policy
formation in a
developing economy.
"PROBLEMS OF ECONOMIC DEVELOPMENT": A REPLY
S. G. TIANIS
University
of
Toronto
A NUMBER of
points
in Mr. Frank's "Comments on 'Problems of Economic De-
velopment'" require
closer examination.
In his comments on
population
Mr. Frank does not seem to
distinguish
the
relation between certain
flows
from the relation between certain stocks. He
notes that "it is
precisely"
in
Turkey,
Guatemala,
and
Nicaragua, "among
the
seven
[countries]
that come under
discussion,
in which the labour:land ratio
is the smallest." But such
snapshots
of the
economy
are
very incomplete,
for
there are
many
more than two
types
of
productive
resources. What is more
important, they
tell us no more about the
problems
of economic
development
than a
snapshot
of a
living organism
tells us about its
prospects
and
problems
of
growth.
For,
in the discussion of economic
development,
it is
chiefly
the
rates,
timing,
and interaction of various
changes
in the conditions of
supply
of
productive
factors, demand for
goods
and
services,
and so
on,
that are
relevant. These
changes
constitute the
composite process
of economic de-
velopment
or
growth.
Much of the
post-war
economic literature on the
problems
of less
developed
countries has failed to take note of this
point.
Yet,
the treatment "of economic
development
as a
process
of economic
growth
in a
developing economy,"
which,
in his
concluding paragraphs,
Mr. Frank
finds
lacking
in the World Bank's
reports,
involves
exactly
a discussion in
terms of such changes-less in terms of "labour:land ratios." The
prospects
of
development might
be better for a
country
which has a different rate of
growth
in
population
even
though
it had a
higher
'labour:land ratio" than
Nicaragua, just
as
they
are
probably
better for a
six-year
old child who at
present may
be a few inches shorter than a
twenty-five
year
old dwarf.
Mr. Frank notes that I
appear
"to share the
assumption,"
which he finds
underlying
the
reports,
"that
rapid population growth
constitutes a
handicap
for an
economy
anxious to
develop."
But in this and one or two other
parts
of
his "Comments" Mr. Frank seems to ascribe to me views which I did not ex-
press,
nor intend to
imply. "Rapid population growth" may
or
may
not "con-
stitute a
handicap."
In the first
place,
it
depends
on the "definition" of
growth
itself,
and in the
second,
it
depends
on the relation of the rate and
timing
of
this flow to other
changes.
Therefore,
the
problem
can be considered
only
with
reference to
particular
countries,
not to
any "economy
anxious to
develop."
Vol.
XXI,
no.
2,
May,
1955
241 241
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