The Wealth of Nations

Economic Development: Theory, Policy, and International Relations

by Ian M.D. Little
Basic Books, 452 pp., $22.95

The economics of “development” goes back hardly a generation. It emerged with the dissolution of the European empires following World War II, and was given stimulus by cold war politics and claims made for the Marshall Plan in reconstructing Western Europe. On the pattern of the Marshall Plan, relatively small amounts of aid over a short period, it was thought, would set the “newly emergent nations” firmly on a course toward material prosperity without the necessity for social and economic revolution. The task of development economics was to chart that course.

Ian M.D. Little describes his book as a “rather comprehensive, critical survey of development economics, including the main international economic issues that have given rise to North–South confrontation.” A fluent and clear writer, he identifies two basic approaches, one “structuralist,” the other “neoclassical.” “The structuralist,” according to Little, “sees the world as inflexible. Change is inhibited by obstacles, bottlenecks, and constraints. People find it hard to move or adapt, and resources tend to be stuck. In economic terms, the supply of most things is inelastic,” i.e., unresponsive to changes in price. The emphasis of this approach is on planning and controls. “The structuralist view of the world provides a reason for distrusting the price mechanism and for trying to bring about change in other ways…. It primarily seeks to provide a reason for managing change by administrative action.”

In contrast, “a neoclassical vision of the world is one of flexibility,…people adapt readily to changing opportunities…. Most markets usually tend to achieve an equilibrium without wild price fluctuations. In short, the price mechanism can be expected to work rather well.” Milton Friedman and his disciples could accuse Little of insufficient faith; one must, he cautions, “be on the watch for aberrations and ways of correcting them.” But for all his qualifications, Little is firmly in the neoclassical camp. In his judgment, development has been impeded where structuralist policies of planning and controls have superseded the market mechanism. His clarity on this point is one of the book’s virtues.

Much of Little’s book is taken up not with the actual economic conditions of the poor nations but with the rise and fall of structuralist theory and the subsequent rise of neoclassical theory. He attributes the success of structuralist diagnoses in dominating development economics until the 1960s to two factors. First was the general distrust of the market in the aftermath of the Great Depression and World War II. One might say that structuralism was to the developing world what Keynesian economics was to the developed. The second factor was the apparent success of the Soviet Union in transforming a backward agricultural country into a powerful industrial one; the quantitative deficiencies of Soviet growth were still in the future. (The elites of third-world countries who looked to the Soviet Union were probably not as blind to the human costs of the Soviet experience as Little suggests; they expected to avoid these costs while enjoying the benefits …

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