THE COLD WAR: SUPPORTING AUTHORITARIAN REGIMES #2

This land is your land and this land is my land – sure – but the world is run by those who don’t listen to music anyway.                                  Bob Dylan (born 1941)

As implied in Part #1 of this topic (posted January 23, 2011), current events in Egypt are partially the fruit of political and military decisions made by the United States and its allies during the Cold War. That motivation was subsequently replaced by the new “terrorist” threat following the American Embassy bombings in Nairobi and Dar Es Salaam on August 7, 1998. Nonetheless, the desire to build anti-communist coalitions during the Cold War also dovetailed nicely with the perceived theoretical requirements for economic development current at that time.

Economists’ Rule

During the two decades of the 1960s and 1970s that bound the period under review in this blog post, thinking about the most effective road to “modernity” reflected the two mutually reinforcing economic theories of “linear growth1 and “dual economies.”2 Although there are different versions of those theories,3 most presented both good and bad news for “underdeveloped” countries. The bad news was that economic development must follow the same path experienced by western industrialized countries;4 a path that meandered through European history over a period of more than 200 years.5 The good news was that a correct understanding of that long history provided the opportunity to substantially accelerate the trip along that path.

Despite the Cold War competition between the “Communist” and “Free” worlds, both Marxist and non-Marxist theories shared the view that the rapid growth of European economies during the eighteenth century was the result of an “industrial revolution.” Indeed, the basic premise of those theories is generally credited to both David Ricardo (1772-1823) and Karl Marx (1818-1883). That shared premise was that economic growth depended on a shift from supposedly “traditionally static” agricultural economies to more dynamic and highly organized forms of industrial production. And that transition began when improved agricultural and animal husbandry techniques were incrementally introduced into increasingly integrated agricultural economies over many decades. Those innovations eventually led to investment in export-oriented cash crops, increased agricultural profits, and ultimately reinvestment of those profits in an exponentially expanding industrial sector. Eventually, an expanding industrial sector displaced agriculture as the primary employer within European and North American economies.

Nonetheless, there were also differences between Marxist and non-Marxist approaches. First, Marxist theory posited a linear progression from feudalism through capitalism and socialism to communism while non-Marxist economic development theory posited a linear progression from subsistence agriculture to surplus agricultural production to industrialization. Indeed, equating “modernity” with industrialization and consequent urbanization is taken for granted by many people today. 

Second, the projected beneficiaries of Marxist theory would be industrial workers (the “proletariat”) worldwide without respect to state borders or national identities while for the non-Marxist theoretical descendents of Ricardo the beneficiaries would be “underdeveloped” sovereign-states. Third, the ideal Marxist society was a universal classless society without differentiated state borders to be achieved sometime in the indefinite future while for non-Marxists the ideal state was simply a replication in “underdeveloped” countries of the socio-political economy already achieved by “modern industrialized” sovereign-states within a single generation. 

“The People:” Means or Ends?

Unfortunately, both Marxist and non-Marxist theories were transformed into an ideologically-rooted policy prescription for the rapid “development” of non-European people. And the stereotypically undifferentiated view held by many foreign and indigenous elites was that most of them were illiterate “peasants,” bound by counter-productive traditional beliefs and traditions, and living in parochial and inward looking rural villages. Ordinary people were perceived as simply too ignorant or selfish to voluntarily behave in the sacrificial ways posited by either of the two economic development theories dominant at the time. It is not surprising that both theorists and policy-makers identified the “people” as the primary obstacle to development – another demonstration of the notion that the “people are the problem” (see post dated January 3, 2011 and this blog’s Mission statement). And that view led inexorably to viewing “the people” merely as factors of production and consumption. 

Authoritarian Imperative?

It was only a short logical leap from the notion that the “people” were an obstacle to achievement of their own “best interests” to the view that they would need to be forced to behave “correctly” to achieve a greater economic good in future.6 Thus, within only a few years after gaining independence, the overwhelming majority of underdeveloped countries were officially governed by single political parties or military regimes; many of whose organizational structures mirrored those of the Soviet Union’s Communist Party even as they were not necessarily Marxist in the ideological sense.7   

Another important difference between the authoritarian regimes of Stalin’s Soviet Union and those emerging within newly independent underdeveloped countries was that the former implemented forced industrialization by using that country’s own domestic resources8 while the rulers of most newly independent underdeveloped countries viewed foreign finance as crucial.9 But attendant with foreign finance was the view that neither the first generation of political leaders or the extremely limited number of educated persons available to staff their governments had the requisite understanding of the development process or skills required to implement it. Therefore, if the pre-requisites for the success of the Marshall Plan did not already exist in newly independent African and Asian countries, then they would need to be created from scratch. And that would, in turn, require reliance on scientifically-trained “experts” who had proved their worth during the process of reconstructing Europe after World War II10 (see my next blog post, “From Colonial Administration to Technical Assistance,” forthcoming). And reliance on the limited pool of foreign-experts resulted almost inexorably in a centralized approach to planning development projects and programs; characterized in many case by the initiation of five-year planning cycles.11 In that way, a belief in efficiencies of central planning was not the exclusive mantra of “evil communists” or “misguided socialists.”12 And although the rationale for authoritarianism was clearly circular, it nonetheless influenced many international decision-makers and “free world” aid agencies continued to be strong advocates of central planning well into the 1970s.

Expansive Role of the State

Planning is to Implementation as Alchemy is to Wealth.

                              Jerry Silverman (born 1942) and George Honadle (born 1944)

Clearly, comprehensive planning, however “scientific” it might be, was not enough. It was also necessary to “control” implementation of plans while also ensuring political stability. Thus, to ensure that projected profits were re-invested in the industrial sector, many governments resorted to direct ownership of all domestic “strategic” industries and establishment of state-owned monopoly “marketing boards” tasked with squeezing largely non-existent agricultural surpluses from farmers while capturing profits from higher agricultural export prices. But to ensure political stability, many governments also: (1) established controls on consumer prices in an attempt to avoid inflation; (2) provided food to urban populations at artificially low prices essentially subsidized by the equally low prices paid to farmers by “marketing boards;” (3) promised to provide an expansive array of social services that, in the event, they failed to produce; (4) tried to control rural to urban migration by requiring permits to reside in cities (resulting in “illegal” slums without public services); (5) ultimately looked to the military and/or police to protect them against their still potentially volatile population; and, particularly in Africa, (6) employed large numbers of unskilled people without qualifications in largely non-productive jobs through “social employment” programs.

Consequences

The rationale for relying on authoritarian regimes and their expert advisors required at least two things: (1) correct theoretical assumptions and (2) policies likely to achieve the objectives posited by those assumptions. Neither of those conditions were met, as illustrated by declining agricultural incomes and the vicious cycle of borrowing and ever increasing debt.

Declining Agricultural Income

The decision by farmers not to produce above subsistence requirements or to favor consumption over reinvestment were clearly rational responses to both: (1) the counter-productive domestic policies adopted by their own interventionist governments and (2) the practice by many European and North American industrialized countries to subsidize their own farmers and dump resulting agricultural surpluses (often in the form of food “aid”). As rural land became less valuable for agricultural purposes, people began to migrate in droves from rural villages to rapidly expanding urban slums drawn by the possibility of securing higher income urban jobs rather than the actual availability of such jobs; creating increasing levels of unemployment.13

Doubling-Down

Reliance on an expansive role by artificial states in equally artificial economies did not achieve either political stabilization or economic development objectives. External financing did provide the opportunity to invest in both agricultural and industrial sectors at the same time rather than sequentially. However, non-mechanized small-scale agriculture continued to employ a majority of the population throughout most of Sub-Saharan Africa and much of Asia well into the 1980s.14 New industries failed to produce predicted rates of economic return and were unable to employ the burgeoning urban population.  Nonetheless, countries on whose behalf governments had borrowed money for economic development were required to repay the loans and credits they had received. 15

That, in turn, led to a vicious cycle of more borrowing to both repay past loans and further increase investment in the hope that sufficient profits would eventually be produced. That problem was compounded by the knowledge among many government officials that repayment of monies borrowed in the immediate-term would not need to be paid back until a future time well beyond their own tenure. Repetitive cycles of disappointing economic growth combined with recurrent borrowing finally culminated in the partially successful movement to “forgive debt” (HIPC) to the most heavily indebted countries beginning in 1996.

Formal Democracy or Participatory Involvement

It is clear in retrospect that “winners” and “losers” would inevitably result from decisions about who would and who would not receive development assistance and, therefore, that such decisions were inherently political. And although it is not always clear who those winners and losers would be, experience suggests that smallholder farmers, tenants, agricultural laborers, and residents of urban slums were among the biggest losers.

I will argue in a future blog post (“A World Without Poverty”) that local community-based “participatory” approaches to poverty reduction16 are more effective than either expert-driven development or attempts to aggregate diverse demands within centralized formal structures of electoral democracy. An incipient movement toward grassroots participatory approaches began to take hold within DFID, USAID, and the World Bank during the late 1980s and early 1990s.17 Nonetheless, those initiatives have remained at the margins of development assistance while the primary ethos of the World Bank and most other “donors” continues to be expert-driven. That ethos is perhaps best illustrated by remarks by Lawrence Summers at the World Bank’s Country Director’s Retreat on May 2, 2001.18

The suggestion that there would be a generalized improvement in decision making processes by giving more weight to local community is a proposition for which there is very little evidence…. there is little to be found in [the] success of [Asian countries] that points to the wisdom of much of what is said today in the name of empowerment or in the name of enfranchising those who have not been enfranchised…. I am concerned that the move toward empowerment rather than an economic approach is standing in some ways for a reduced emphasis on the analytic element in the Bank’s work…. [Thus,] I am deeply troubled by the distance that the Bank has gone in democratic countries toward engagement with groups other than governments in designing projects.

Summers was arguing primarily against the World Bank’s attempts to empower non-government stakeholders within countries with ostensibly “democratically” elected governments because he believed that “there is a real possibility…of significantly weakening [those] governments.” Nonetheless, he also clearly implied opposition to World Bank support of demand-driven participatory approaches in countries with authoritarian regimes as well. Thus, Summers continued – 

It has to be recognized that in many cases governments are not allied with many of the forces professing to represent civil society within countries…. I think the issue is a much more difficult one where the quality of democracy is questioned, where governments less legitimately speak for their people. But here, too, there is a basic tension between the notion of being closer to governments and having better partnerships and more effective engagement with civil society…. But I rather think that on those occasions when the Bank is encouraging and pushing greater involvement with civil society — which I suspect is on a large number of occasions — the issues are perhaps a bit more complex than has been faced…. [But] I think it would be a great tragedy in terms of the Bank’s potential contribution to reducing global poverty if, in the name of demonstrating its compassion and moral energy, it were to lose sight of the rigorous analytic basis and emphasis on supporting genuine market forces that have allowed the Bank to make such a great contribution to the global poverty reduction efforts over these last 50 years.19

It would be difficult to find any better illustration of the intellectual triumph of scientific theory and expertise over the socio-political rights of ordinary people.

Summary Conclusion

Scientists have odious manners, except when you prop up their theory; then you can borrow money of them.                                                          Mark Twain (1835-1910)

Authoritarianism, not democracy, was the historical norm well before the beginning of the Cold War (Part #1) or the introduction of international development assistance. Therefore, the argument presented here is not that either of those phenomena caused authoritarian regimes. Nonetheless, foreign policy and economic theory did combine to justify support of authoritarian regimes in many developing countries. And that no doubt contributed to the sub-optimal performance of “development aid” since the 1960s.

The Spotlight currently shining on Egypt presents an opportunity to shift from an expert-led to a demand-driven approach to development. But as protesters continue to occupy Tahrir Square in Cairo, are we listening to what they are actually saying and do we have any better idea about how to effectively meet their demands than authoritarian rulers like Hosni Mubarak? Is it likely that local community or occupationally-based institutions capable of aggregating public preferences about priorities and influencing decision-makers will be established following Mubarak’s departure from the Presidency? An affirmative answer to those questions is unlikely precisely because that would require a fundamental change away from the stereotypical view of people in developing countries as lacking the capacity to make the “correct” choices. That stereotypical view was not true in the past and it is clearly not true today.

When I served as a technical assistance advisor in Egypt during 1975, 1976, and again in 1981, I worked with many Egyptians whose graduate education and professional experience mirrored my own. But looking back, that itself was a fundamental problem because indigenous “experts” continue to design and implement top-down supply-driven development assistance programs in much the same way that foreigners urged their governments to do in the past.

We do not, of course, know what the outcomes might have been if “the people” had had the opportunity to make their preferences known and if from the beginning a demand-driven approach had been supported instead of the commitment to ideologically determined policies that actually occurred. But it is hard to believe that it would have been any worse than the actual outcomes achieved after the investment of trillions of dollars in so-called “development.” Thus, achieving political reforms without commensurate changes in the way we do development or, more specifically, poverty reduction will, I predict, find the Egyptian poor in much the same place twenty years from now as they find themselves today. And that will be the case no matter how well-intentioned a democratically elected successor to Mubarak might be.

­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­_________________________________

NOTES:

  [1]    During the 1960s, perhaps the most generally known linear growth theorist was Walt Rostow (see The Stages of Economic Growth: A Non-Communist Manifesto [Cambridge: Cambridge University Press, 1960]). The strong influence of the Cold War in this context is suggested by the sub-title.

  [2]   The initial version of dual economy theories emerged during the eighteenth century to explain the causes of a series of economic crises in France. However, that initial theory was substantially changed by the classical dualism of David Ricardo and Karl Marx. It is important to note that “dual economy” theories are not the same as “parallel economy” theories. Indeed, as we will illustrate below, while “dual economy” theories of the 1950s through the early 1970s provided a foundation for centrally planned “controlled” economies, “parallel economy” theories provide an analytical foundation for the dismantling of “controlled” economies in favor of open markets.

  [3]    Although a substantial variety of modern dual economy models are presented in the academic literature, most are categorized as being either “classical” or “neo-classical.”

  [4]    For the history of the transition from reliance on agricultural to industrial production in Europe, see Paul Bairoch, Economics and World History (London: Harvester-Wheatsheaf, 1993); Walt Rostow, How It All Began: Origins of the Modern Economy (New York: McGraw-Hill Book Company, 1975); and Heinz Arndt, Economic Development: The History of an Idea (Chicago: University of Chicago Press, 1987).

  [5]    In Great Britain around 1810, agricultural employment exceeded industrial employment by about 70% but that ratio was reversed as industrial sector employment rose to more than 60% by 1840; see Paul Bairoch cited in endnote 4.

  [6]   The need to “force people to be free” is a theme woven through “western” political philosophy since Jean-Jacques Rousseau’s discussion of the “Social Contract;” even though his own interpretation of that phrase is often misunderstood (see On the Social Contract first published in 1762). A common, and simplistic, interpretation of that notion is that independent “states” once legitimately established in history have the “sovereign” right to force their citizens to behave in ways the government of such states believe are required for the greater collective good. Although the focus is on the greater good in Rousseau, the practical application of that principle is that the ‘greater good” is almost always defined by governments to conform to their own particular interests.

  [7]   An important contribution of Vladimir Lenin to Marxist theory was the assertion of the need for a vanguard party of the proletariat prior to the Bolsheviks successful 1917 coup in Russia. The focus of that approach, articulated in his 1902 pamphlet What is to be Done? was further refined by Joseph Stalin’s subsequent focus on enforced introduction of accelerated industrialization within the Soviet Union. See Vladimir Lenin, What is to be Done? Burning Questions of Our Movement, published in 1902 and republished in English by International Publishers (New York, 1929) and in Lenin’s Collected Works (Moscow, Russia: Foreign Languages Publishing House, 1961) as well as on-line by Paul Halsall, Fordham University during August 1997 at www.fordham.edu/halsall/mod/1902lenin.html).

  [8]   During the 1920s, Russian economists were also engaged in an important discussion over the best way to progress from a predominantly agrarian society to a modern industrialized economy; a debate very similar to modern classical dual economy theory. See, for example, Evgenii Preobrazhenskii, The New Economics (1924), English language reprinted edition (Oxford: Clarendon Press, 1965).

  [9]   Very few states have voluntarily attempt to pursue explicitly “autarkic” policies of complete economic self-sufficiency; the most notable are the Democratic People’s Republic of Korea (North) and Myanmar (Burma).

[10]    For a seminal formulation of “scientific public administration,” Max Weber, Economy and Society, edited by Guenther Roth and Claus Wittich (Berkeley: University of Califonia Press, 1978).  See also, Max Weber’s Construction of Social Theory (New York: St. Martin’s Press, 1990); Gunnar Myrdal, Asian Drama: An Inquiry Into the Poverty of Nations, 3 Volumes (New York: Twentieth Century Fund, 1968).

[11]   At least three precedents presented themselves as central planning prototypes prior to the period of accelerated decolonization beginning in the late 1950s: (1)  the Soviet’s preparation of multi-year plans and state ownership of both agricultural production and industrial enterprises; (2) the subsequent requirement for comprehensive multi-year plans imposed by the United States on European recipients of post-World War II Marshall Plan aid and the provision of American “experts” to assist recipients to prepare those plans; and (3) the early adoption by the World Bank of requirements for comprehensive planning and provision of technical assistance similar to those of the Marshall Plan, including a Ten-Year Development Plan for the Belgian Congo during 1951, India’s first five-year development plan in 1956, and comprehensive “economic survey missions” to eighteen different countries or colonial territories by 1959.

[12]   That outlook was also reinforced by the election of majority democratic socialist governments or coalition governments in least six Western European states by the beginning of the 1960s de-colonization era that were also committed to the principles of an expansive role for Government in centrally planned economies.

[13]    More recent theories of economic development have assumed some level of unemployment will exist within the formal urban sector even in a relatively efficient economy. As an early example, see Michael Todaro, A Model of Labor Migration and Urban Unemployment in Less Developed Countries, American Economic Review 59 (1969), p. 138 – 148.

[14]   Of the 142 countries currently on the OECD’s DAC List of ODA Recipients, sufficient same-source agricultural employment data is available for only 89 (62.7%). Of those 89 countries, a full 69 percent (61) still employed more than 50% of their active labor force in agriculture as late as the period under discussion here (1980); including the entire Sub-Saharan Africa region (67.1%) and South Asia and East and Southeast Asian sub-regions (82.5% and 56.3% respectively). See the Organization for Economic Cooperation and Development, DAC List of ODA Recipients used for 2008, 2009 and 2010 available at www.oecd.org/dac/stats/daclist as revised in DAC List of ODA Recipients: Effective for Reporting on 2009 and 2010 flows available at http://www.oecd.org/dataoecd/32/40/43540882.pdf. All of the statistics presented here were calculated by Jerry Mark Silverman from data provided by the United Nations’ Food and Agriculture Organization (FAO), FAOSTAT data available at http://faostat.fao.org/default.aspx and International Labour Organization (ILO), LABORSTA Internet available at http://laborsta.ilo.org/data_topic_E.html. NOTE: China is the most significant country on the DAC List for which insufficient same-source data is available. 

[15]   Distinctions are normally made between “grants,” “credits” and “loans.” A “grant” is finance that does not require repayment of any kind and is usually provided as bilateral aid by one country to another. A “credit,” often referred to as “concessional finance,” requires repayment of the original principal amount in the constant value of currencies determined by the lender but at a lower rate of interest than normal market rates – or without any interest at all. In the case of credits, repayment normally does not begin until an extended grace period has elapsed.  Development “loans” are extended to lower and upper middle income countries at or very near international market rates with both principal and interest repaid over an extended period of time.

[16]    The definition of “Participation” adopted here conforms to the World Bank’s Participation Sourcebook: “a process through which stakeholders influence and share control over development initiatives and the decisions and resources which affect them;” see The World Bank Participation Sourcebook (Washington, DC: The World Bank, 1996) available at http://go.worldbank.org/R3WF0ID3N0.

[17]    It was during that time that a “participation working group” was established within the World Bank that eventually produced the “Participation Sourcebook” referenced above as well as the multi-million dollar “Voices of the Poor” trilogy: Deepa Narayan et al, Can Anyone Hear Us? (New York: published for The World Bank by Oxford University Press, 2000, available at http://go.worldbank.org/6Z9P1DKL51); Crying Out for Change (New York: published for The World Bank by Oxford University Press, 2000, available at http://go.worldbank.org/XMWSK7EMS0); and  Voices of the Poor: From Many Lands (New York: published for The World Bank by Oxford University Press, 2000, available at http://go.worldbank.org/JYUSMEJ0M0).

[18]   Lawrence Summers has had long-term influence on the way development assistance programs are formulated and assessed by virtue of his service as the World Bank’s Chief Economist and Senior Vice-President for Development Economics (1991-1993) and, within the United States’ Treasury, Undersecretary for International Affairs (1993-1995) and Deputy Secretary (1995-1999) prior to his ultimate appointment as Secretary of the Treasury from 1999 to 2000 and, most recently, President Obama’s Chief Economic Advisor from January 2009 to January 2011.

 [19]    Cited in Stephen Fidler, Who’s Minding the Bank?, Foreign Policy 126 (September-October 2001), p. 40-50.

Keywords: authoritarian regimes, central planning, Cold War, DAC, decolonization, Department for International Development, dependent territories, development, development assistance, Development Assistance Committee, DFID, Egypt, Food for Peace, IBRD, IDA, IMF, India, Indonesia, industrialization, International Bank for Reconstruction and Development, international development, International Development Association, International Monetary Fund, international organizations, international relations, Marshall Plan, modernizing elites, ODA, OECD, official development assistance, Organization for Economic Cooperation and Development, China, poor people, sovereign-states, Soviet Union, states, United States Agency for International Development, USAID, USSR, World Bank.

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