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NATIONAL CENTER FOR POLICY ANALYSIS
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Economist Saw A Different Path For Development
Daily Policy Digest

International Issues / Foreign Aid

Wednesday, May 08, 2002
Development economist Peter Bauer died May 2, shortly after it was announced he was the first recipient of the $500,000 Milton Friedman Prize for Advancing Liberty.

He did his most important work during the immediate postwar era, in which the intellectual climate favored government planning. In Europe, virtually all countries adopted highly centralized economic policies, including widespread nationalization of industry. Many of them, such as France and Great Britain, exported these ideas to their colonies, where they continued after independence.

Concerns about Communism led western nations to initiate huge foreign aid programs. Aid was available for projects favored by development economists and denied to countries that insisted on going their own way -- cementing government planning as the dominant approach to development.

Bauer studied the rubber industry in Malaya and trade in West Africa. His very detailed field research ran sharply counter to the teachings of development economics.

  • Bauer saw how poor, uneducated peasants built a vast rubber industry in Malaya and cultivated millions of acres for growing cocoa and other export crops in West Africa.
  • But the less developed countries (LDCs) were told to tightly control trade, when free trade had been a cornerstone of European development, and they discouraged the inflow of private capital in favor of foreign aid.
  • Bauer saw price controls, high taxes and government regulations kill vibrant native industries, while aid financed industrial "white elephants" that became bottomless pits for the precious little capital available.
Bauer argued that all these countries had to do was let the market, rather than government, guide development. The fact that most LDCs are poorer today than they were at independence is sufficient proof that the postwar central planning consensus was terribly wrong.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, May 8, 2002.

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