“The Underdeveloped Country” (1965) by John Kenneth
Galbraith, from The Lost Massey Lectures:
Recovered Classics from Five Great Thinkers, 2007, Anansi Press.
THIS IS A RADIO LECTURE HE GAVE IN THE
EARLY 1960s, and much of what he discusses is as relevant today as then. I
wrote this a couple of years ago after I read a copy of the lectures. It’s
rather long. Sorry about that. I hope I got most of his points down accurately.
But first I’ll quote a few gems; he writes such
pithy prose!
--about rich countries investing their savings
abroad:
“The Pre-Cambrian shield and the Canadian prairie
were partially bridged by such savings. At least until recently some Englishmen
(or their descendants) who supplied money to that monument to the eternal
optimism of investors, the Grand Trunk Railway, were still hoping to be paid.”
--on where capital investments from said rich
countries may flow: “It may
go into steel mills, fertilizer plants, power stations or other good Calvinist
employments. But equally it may go into a deadfall in Las Vegas, a racetrack in
Florida or a plant to manufacture electric golf carts and electric exercise
machines so we can extirpate, once and finally, the remaining occasions for
employing muscular energy.”
--on visiting Bhutan:
“Once some years ago I visited Bhutan, a lovely
pastoral country in the Himalayas with rich forests, clear streams and—unique
in Asia—a declining population. It is indubitably underdeveloped. It has no
industry, airport, railroad, post office, television, department store,
diplomacy, bureaucracy, air pollution, outdoor advertising, or settled capital
city. It occurred to me that a fence should be built around it to protect it
from development. But I quickly recovered my senses.”
--in describing “Model 1” countries and how they
acquire a “cultural base”:
“Here is the problem of the Model 1 countries. It
requires a government of minimal competence, together with a nucleus of
teachers to organize an educational system. In the more fortunate former
colonial countries, this nucleus of teachers was provided by missionaries out
of the sensible conviction that heaven has at least a marginal preference for
the literate. In the less fortunate countries, comparable help from the outside
is still required.”
--in describing how “disestablishment” [Nice word!] of non-functional (i.e.
parasitical) elites can come about in “Model 2” countries:
“The problem of…non-functional groups is a task not
for reform but for revolution. A country does not redistribute land or
eliminate an army by passing a law. Certainly it will not do so if landowners
or the military are in control of the government. Nor is compensation an
answer; men will sell property but they will not sell power.”
--in comparing the needs for underdeveloped Model 3
countries which have an adequate “cultural base” as well as a social structure,
albeit imperfect, with a functional (i.e. economically productive for the most
part) elite base, he says:
“But the claims of non-functional groups and the
absence of reward for those who have function are also not the decisive barrier
to advance. One is spared the delicate task of recommending the right kind of
revolution.”
…………………..
AS WITH HIS OTHER WRITINGS, Galbraith
presents complex subjects in a clear, logical prose, using every day examples. And with no arcane mathematical formulas in
sight! His arguments are
interspersed with dry witticisms and humanist observations that give the reader
a sense of how thoughtful and compassionate a person he was. I never thought I would
guffaw while reading an economics text!
His Massey
lectures are on the topic of development and how aid to “underdeveloped”
countries might best be given. He wrote them during the height of the cold war,
when the world was divided between Communist and Capitalist spheres of influence.
He describes modern, industrial countries (which include most communist
countries as “Model 3” types, with the
exception of China) as being relatively peaceful and content, while, in the
post-colonial world, many developing countries experience conflict and social
disorder. He compares a high communist official with his capitalist
counterpart. Each would, he drolly comments, no doubt extol the virtues of
their individual systems; each, of course, being the beneficiaries of said
systems. He adds:
But the similar reactions of the comfortable are
not my case. I wish to argue that as much, perhaps more, of the behaviour of
people and nations is explained by their poverty or their well-being as by
their political systems. To fail to see this is increasingly to misunderstand
the world in which we live.*
It is poverty,
then, and not political systems that
is the primary force shaping human behaviour, political behaviour and
international attitudes, according to Galbraith. His major theme is that not
all developing countries are alike, yet because they are deemed “developing”
they are assumed to have the same set of problems and therefore the same
solutions needed to address them. Furthermore, the ‘roadblocks’ that stop poor
countries from developing modern economies are generalized from countries with,
what he labels, Model III systems, causing a mismatch in a country’s needs and
the type of aid it receives:
The Model 3 countries are in some respects, the
most comprehensible in their backwardness. They conform most closely to the
standard explanations of the economists; because of their education and
cultural sophistication, their people tend to speak for all of the underdeveloped
lands. Their case, in consequence, is regularly generalized to all instances of
underdevelopment.
His
view, that underdeveloped countries need to be treated individually, and
their histories and current level of development similarly examined, resonates
strongly today after decades of globalization, and IMF and World Bank
intercessions. Galbraith’s warning that a simplistic ‘one-size-fits-all’ policy of development aid wouldn’t work in the
post-colonial 1960s is certainly even truer today. The demands for austerity
measures that come with development loans from today’s institutional lenders
and governments are a long-standing practice. And the resounding chorus of
complaints against the hardships such measures create for poor countries makes
it clear how little we have learned in the last forty years about how to help
our neighbours. This strict standardization
of aid (some might call it pillage) is exactly the opposite of what Galbraith
argued for—aid relief based on a developing country’s actual needs, not on
economists’ assumptions about how to most quickly and efficiently (and
profitably) give a poor country its “modern economy”. Galbraith suggests going back to first
principles by asking some questions: Are all developing countries alike? Do
their states of impoverishment have a common cause? Do their individual
histories help us to understand their current level of development? Are there
categories into which “underdeveloped” countries might be placed? And can aid
packages be tailored to better fit individual countries’ needs within these
categories?
Galbraith believed that poverty was the
determining factor in creating a country’s social, political and even
psychological makeup. Where one stands along the ‘impoverishment spectrum’
determines one’s outlook on life, one’s individual actions, and collectively, a
nation’s outlook and actions, both internally and in its relations with other countries.
He gives the example of a poor farmer being reluctant to try new crop seeds because
he has little room for error. He is one failed harvest from starvation; hence
he displays a perfectly understandable conservatism, and a logical reluctance
to try something new. What worked in the past is generally the safer bet. With
so little resources in reserve and no savings for investment in any kind of
scheme that might increase his family’s wealth, the farmer is unlikely to view
future changes to his social status as possible. Poor families with large
numbers of children are one result of this outlook. Since he is unable to
afford a pension plan, his children will care for him in his old age, and
infant mortality being high, larger numbers of children are needed (and here Galbraith
suggests a ‘Catch 22’ scenario in that, with investments to social
infrastructure and public health facilities coming from aid loans, populations
in poor countries tend to increase, making such aid less impactful for the
society as a whole.)
Nationally, poverty affects a country’s
ability to save; even with large populations, the masses live at a subsistence
level. Without surplus savings from its production, there can be little money a
state cane investment in future development. On the other hand, rich countries
have the ability to save due to steadily increasing levels of output from their
various economies. They also have the ability to access the vast reservoir of
their citizens’ private savings though taxation policies and investment
platforms that is unavailable to poor countries. Galbraith notes:
In the rich countries, the poor do little saving;
in the United States only a negligible amount comes from those in the lower
half of the income brackets. In the poor countries, nearly everyone is poor.
And even the few who are rich may not be a very good source of savings. The
landed feudal tradition of the well-to-do minority in South America and the
Middle East is one of easygoing and often lavish expenditure.
But how do you define poverty and what barriers stand in the way for a country to
develop its economy? To this end Galbraith and his colleagues devised a classification
system** that placed groups of countries together under sets of common characteristics
[with the caveat that some countries can
be in more than one category] and then suggested the type of aid most
appropriate for each class. They looked at which factors most prevented
economic development in poor countries and found the “cultural base”, the
“social structure” and the “bad proportioning of the factors of production”
were categories into which groups of countries could reasonably be placed
(Models I, II and III respectively) and aid programs designed accordingly.
Model
1 countries lack a pool of skilled professionals without which systems of
governance, education, communication, and internal security and so on cannot be
formed. Lacking this base, the prospects for economic growth is limited.
Galbraith was writing in a period when many of these countries—notably in
Africa—were emerging from colonial rule and needed to develop their own “cultural base” after the colonial powers departed along with their
administrative structures. The next question to be answered is how best to
assist this type of country in developing its economy. Galbraith points out
that the structures in place to plan, administer and build upon a standard aid
package are so lacking in these countries as to render it all but useless. It’s
a kind of ‘chicken and the egg’ problem, Galbraith suggests. Where do you
start? For example, how do you build an educational system without educators? He
says you don’t start at the top, by giving money to establish, say, an airline
industry when the country lacks a basic road system. He states there are no
easy solutions for Model 1 countries, but adds that such efforts as the Peace Corps teacher-training program in
a number of African nations is the type of appropriate scale aid for this type
of impoverished country; that, and aid to assist consumption spending, since
most people living in Model 1 countries do not have any surplus savings to
invest, they spend what they earn on their daily needs. Galbraith adds that
where the colonial project was exploitative (as so many were) or failed to
prepare the country for economic activity beyond basic subsistence, then there
development will be difficult, and the possibility of further decline and
instability a real possibility. Of the establishment of “honest and competent”
elites, he says:
But in those countries where colonialism was
exploitive and regressive—where there was no liberalizing urge that sought to
prepare people for some role other than that of primitive agriculture and
unskilled industrial labor—this group is very small. This Model, as a result—as
in the classic case of Haiti and possibly the more recent one of the Congo
(Leopoldville)—can readily become one not of advance but of disintegration with
eventual reversion to tribalism or anarchy.
Fifty
years on, with billions given in aid, the success of development in Africa
might best be described as a ‘dog’s breakfast’. My own take is that many countries
on the continent have the worst aspects
of Model 1 and 2 systems, as well as the crippling problem of over-population found in countries with
Model 3 systems.
Model
2 countries have the basic social infrastructure lacking in Model I
countries. They include many Latin American countries as well as resource rich
nations like Iran and Iraq. They have a professional class of educators,
politicians, bureaucrats, lawyers, doctors, engineers, scientists and so on.
Their elites are well-educated and trained, but the country’s per capital
income is well below that of a developed nation. Also, productivity is low in
such countries. While there are sufficient sources of revenue to generate
savings and a pool for investment, such investments in modern and productive
enterprises are woefully inadequate. The main reason for this is the “non-functional” aspect of the
country’s dominant elites; they contribute little in the way of economic
activity, but through power and position, control the means of production and wealth
creation. Landlords control the countryside, taking their rents while providing
few incentives for their workers to maximize their productivity. (With the
elites controlling access to wealth and power, there is little opportunity for
upward mobility, so there is little incentive for workers to work hard to
improve their lot in life.)
Land is a traditional source of wealth and
power for elites in Model II countries, but there are other sources acquired
through political connections, the army (I am reminded of the businesses run by
Egypt’s military today), investments in industries (regardless how moribund)
and natural resources such as oil. Similarly, wealthy urban elites control the
factories, warehouses, ports and transportation networks, and other sources of
wealth in a modern economy. In addition there are the comprador elites who are local functionaries and beneficiaries of
multi-national corporations. (I think here of all the local operators involved
in Central America’s banana production, or at least as it was when Galbraith
was writing.)
Wages are low, productivity is low, the
majority of the population is poor, and inflationary cycles are endemic.
Galbraith points out that chronic inflation is a result of competition between
competing groups of elites for the country’s limited supply of goods and
services. These elites, who do not contribute economic benefits to their
societies, control the centers of power—the government, military, police, land,
natural resources, transportation, shipping and traditional industries. Instead
of businesses being able to operate and compete in a fair and free economy,
taking their profits while adding economic benefits for the country, traditional
elites use their “non-functional” levers of power to take unearned profits. New,
non-elite entrepreneurs who wish to establish competitive, productive
businesses find they must adopt the “non-functional”
practices of the elites in order to survive. Such systems reward inefficiency,
promote graft and corruption, and keep productivity and per-capita incomes low.
Wealth that could easily be generated from, say, oil production is siphoned away
by elites and kept from generating further wealth in other sectors of the
economy. Here, the rentier class rules. Thus, such countries need to change their social structures in order to advance
their economies. Galbraith feels that such change will occur, more often as
not, through revolution.
Interestingly, he mentions Mexico and
Costa Rica as two Latin-American+
countries that avoided Model 2 status by eliminating their elites or not having
them in the first place. Mexico’s early Twentieth Century revolution hung most members
of their elite class from lampposts, and Costa Rica traditionally has been a
land of small farm holdings. It would be fascinating to read his take on the
current state of affairs of Mexico and the Middle East.
In Model
3 countries (India, Pakistan, etc., and “since its characteristics
transcend political organization”, China) there are wide cultural bases, with
adequate, even exemplary levels of social infrastructure. They also have a
substantial number of “non-functional”, competing elites but not to the extent found in Model II countries. For example, in
India the political power of traditional owners of rural lands—the princes,
“jagirdars” and wealthy landlords, was curtailed at the time of independence,
and the power of the military with its non-functional claims on wealth is not
significant.++ Thus,
Galbraith concludes that Indian “[e]conomic incentive is…reasonably operative.”
The difficulty for addressing poverty in such countries is in the “drastically bad proportioning of the factors of
production.” In other words, their over-large populations strain the
available arable land and the ability of farmers to rise above a subsistence
level of production; hence perpetuating low per capita income, savings rates and
capital investment outlays. Like Model I countries, they are conservative and risk
adverse. He suggests that these countries should implement large-scale birth control practices to reduce their populations,
and to allow them to increase their per capita income with the
concomitant ability to save and invest and expand their economies.
In the nearly fifty years since Galbraith
wrote “The Underdeveloped Country” much has changed. The categories he used in
the 1960s to define the economies and social systems of poor countries, and the
solutions necessary to help them develop and grow seem blurred today. To my way
of thinking, many African states seem to have developed Model 2 systems with
powerful elites vigorously competing for their country’s wealth, while others have
descended into the conflicts he warned about in disintegrating Model 1
countries. Still others have developed systems with characteristics of all
three. I think he’s right that poverty
and not a particular political system is the main factor affecting a country’s
development. Communism, except for China, North Korea, Cuba, and I can’t think
of any other countries at the moment, is past its pull date (gulags, anyone?).
Socialism of one sort or another and at varying intensities is at work in
countries around the world, and one person’s socialism is another’s ‘mixed
economy’. What I mean is that the type of political system a country has is
less important than how it deals with poverty.
Galbraith
said this of Model 3 countries with their well-developed cultural bases and
more-restrained elites. Such countries have a level of social
infrastructure that allows them to plan and prioritize necessary capital
investments which at the same time must compete with the massive consumption
needs of their populations who can save little and who spend daily to cover
their basic needs. Worldwide, we see the growth of social infrastructure, even
in countries of very low per capita incomes. This build-out of various countries’
bureaucratic and professional classes, along with industrial modernization and
the financialization of economies (and copious amounts of development aid) has
allowed poverty in many poor countries to become ‘more affordable’ so to speak.
Instead of whole countries experiencing poverty,
it is groups of people within countries—what Sheldon Wolin calls the disenfranchised “internal proletariat”—who experience most of the crises. Urban
elites, in particular, are sheltered from the worst effects of poverty. The
rising tide of world-wide wealth creation brought about by industrialism and
globalization has raised income levels for most countries, poor and rich alike.
However, per capita income, especially in densely populated countries and in
countries with significant levels of Model 1 and 2 structures intact, has not
increased. There are sectors that reap the benefits of modernization and those
that don’t. Economic power and political
power, it goes without saying, is less ‘democratic’ than we like to think, despite
all the inroads of modernization and all the aid money.
It will be evident that in all of these Models we
face problems of the most formidable difficulty. There can be no talk of the
poor countries catching up with the rich. Nor can we hope to keep the gap
between those that grow easily and those that grow only with difficulty from
widening. Our best hope is that the people of the poor countries, in comparing
their position in the given year with that of the year before, will have a
sense of improvement. This is not a negligible accomplishment…
In
contrast to this modest proposal, there exists today the absurd fantasy that
the world’s billions can and should live middle-class American lives. Hubris
and fossil fuels have provided this false promise. Nemesis and dry wells will
end it.
* In this
1965 essay, Galbraith refers to China as an impoverished Model 3 country. How
times have changed!
** Four
categories were devised. Three were outlined in his essay: Model 1— The Sub-Sahara
African Model; Model 2—The Latin-American Model and Model 3—The South Asian
Model.
+ In
Galbraith’s Model scheme, geographical
categorization of countries is somewhat flexible. For example, he places Iran
and Iraq alongside Latin American countries in their failure to generate
adequate revenues, savings and investments in productive economic activities,
despite their wealth of resources; as well, he says some of the oil-rich Middle
Eastern countries that are “among the poorest in the world.” Model 2
characteristics define these countries, as well.
++ How
might Galbraith view the militaries of Model 3 countries today? (Not to
mention their threat to stability and peace in the world).
ǂ Ultimately
of course, poverty of some sort will be in all our futures. Peak oil, the
decline of industrialism and the end of the false dream of globalization will
see to it.
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