World Bank, 1984, "Pioneers in Development" (Public Disclosure Authorized - June 1984)

Contents
Foreword A. W. Clausen v
Preface Gerald M. Meier ix
Introduction
The Formative Period Gerald M. Meier

THE SUBJECT MATTER OF DEVELOPMENT ECONOMICS is at once among the oldest and newest branches of economics. Beginning with Adam Smith's Inquiry into the Nature and Causes of the Wealth of Nations, classical economists sought to discover the sources of economic progress and to analyze the long-run process of economic change. As Nobel laureate Arthur Lewis reminds us, what Smith called "the natural progress of opulence" is what we today call "development economics." During a long interim, however, the marginalist analysis of neoclassical economists introduced a static frame of thinking and shifted interests to the narrower problems of resource allocation and the theory of exchange. And the depressed conditions of the interwar period gave rise to the Keynesian analysis of short-period business cycles and the possible threat of secular stagnation in mature capitalist nations. A return to growth and development as the grand theme of economics did not come until after the Second World War. The late 1940s and 1950s then became in many respects the pioneering period for the "new" development economics that focused on the development problems of Asian, African, and Latin American countries.'

THE FOLLOWING is a reasonable summary of the principal components to the burgeoning development literature of the early postwar years. External trade is at best ineffective for the economic advance of less developed countries (LDCS), and more often it is damaging. Instead, the advance of LDcs depends on ample supplies of capital to provide for infrastructure, for the rapid growth of manufacturing industry, and for the modernization of their economies and societies. The capital required cannot be generated in the LDCS themselves because of the inflexible and inexorable constraint of low incomes (the vicious circle of poverty and stagnation), reinforced by the international demonstration effect, and by the lack of privately profitable investment opportunities in poor countries with their inherently limited local markets. General backwardness, economic unresponsiveness, and lack of enterprise are well-nigh universal within the less developed world. Therefore, if significant economic advance is to be achieved, governments have an indispensable as well as a comprehensive role in carrying through the critical and large-scale changes necessary to break down the formidable obstacles to growth and to initiate and sustain the growth process.

My first publication on British national product, covering the years 1924-31, appeared in 1932; a more thorough study, which appeared in 1937, also made provisional attempts at long-period historical comparisons and at quarterly information for recent periods. This publication, however, caused a break in the international studies which I had already commenced and which were to conclude in the publication of The Conditions of Economic Progress in 1940.
At that time, and for many years afterwards, it was believed that the key factor in economic growth was the accumulation of capital. As early as 1937 I began profoundly to question this doctrine, in the concluding paragraphs of the book National Income and Outlay. We know now that such an accumulation is a necessary but not a sufficient condition for economic progress, an important logical distinction. On this more below.

WHEN I RECEIVED THE INVITATION to participate in the symposium as one of the "pioneers" alongside Raul Prebisch, Gunnar Myrdal, Arthur Lewis, and other such luminaries of development economics, my first reaction was one of surprise. Not that I doubted my status as a luminary; but, in my own mind, I still saw myself as a rebel against authority, as a secondgeneration dissenter from the propositions that, while being themselves novel and heterodox, were rapidly shaping up in the 1950s as a new orthodoxy on the problems of development. Had my once daring and insurgent ideas then become classic, respectable, that is, "distressingly honorable" and "boring" in the manner of Nietzsche's plaint? Perhaps. In any event, I must somewhat revise the picture I had of myself. Viewed in perspective, my dissent, however strong, was in the nature of a demurrer within a general movement of ideas attempting to establish development economics as a new field of studies and knowledge.' My propositions were at least as distant from the old orthodoxy (later called neoclassical economics) as from the new. In retrospect, therefore, it is only natural that my work should be lumped with the very writings I had chosen as my primary targets

THE MANDATE GIVEN TO ME is to advertise myself; to recall what I was thinking about in the 1950s and how things have turned out. This has its attractions since some of my earlier books are still in print and could do with such a boost, but I have resisted this temptation. I have chosen instead to write a brief sketch of the problems with which development economists were then wrestling, with only occasional references to my own part. I have also narrowed the agenda to the two major obsessions of the day: what is the appropriate size of the industrial sector, and how is modernization to be financed.

THIS PAPER is directed toward rendering an account of growing pangs of conscience.' At the beginning of my research interest in the development problems of underdeveloped countries, I gave unqualified support to the idea that the developed countries should give financial assistance for their development. In my own country, Sweden, I had been active in urging a relatively generous and untied aid program for this purpose. Development aid gradually reached the level, sometimes internationally declared to be a goal, of 1 percent of the national income, and it was planned to reach even higher in the future. Recent happenings in the underdeveloped countries and in the world at large, however, have caused me to doubt whether I was right. Political problems have regularly a moral kernel, and questions of aid are essentially dependent upon moral judgment.

WHEN I STARTED MY LIFE as a young economist and professor during the 1920s, I was a firm believer in neoclassical theories. However, the first great crisis of capitalism-the world Depression-prompted in me serious doubts regarding these beliefs. It was the beginning of a long period of heresies, as I tried to explore new views on development matters. The second great crisis of capitalism, which we are all suffering now, has strengthened my attitude.
In the long lapse of time between these two great crises, my thinking on development has gone through five successive stages under the influence of a changing reality and the broadening of my own experience.
During those hectic years of the Depression I had some influence on the economic policy of my country, Argentina, first as under secretary of finance and later with the Central Bank. During the 1930s I recommended orthodox anti-inflationary measures to eliminate the fiscal deficit and suppress inflationary tendencies, but at the same time I departed from orthodoxy when I had to face a serious balance of payments disequilibrium and advocated a resolute industrialization policy as well as other measures to this end.

DURING THE SECOND WORLD WAR, I proposed in London the formation of a group to study the problems of economically underdeveloped countries instead of the more usual work on current economic problems related to the war. If we were to emerge alive, we should want not to return to the previous status quo but to form a better world. A study group was organized at the Royal Institute for International Affairs (Chatham House) and worked from 1942 till 1945 on problems of "underdeveloped countries." This term appeared then for the first time. My 1943 article in the Economic Journal served as a basic document for the group and is now in many anthologies of economic studies of the Third World.' Eastern and Southeastern Europe were selected as a model not because of any special interest in those countries, but because their governments in exile were in London and because Eastern and Southeastern Europe (like Latin America) constitute a group of similar but not identical models. If one compares India, Spain, and Ecuador everything is different. What is cause and what is effect is anybody's guess. When one takes a group of similar countries, they differ from each other in one or two but not in all respects; it is then easier to examine what is cause and what is effect.

WORK ON DEVELOPMENT THEORY AND POLICY in the 1950s forced me to mobilize and bring together all I had learned in responding to the two large questions I posed in 1933-34 to frame my professional agenda: the application of economic theory to economic history, and the interplay of economic forces with the other components of the life of whole societies.
The story begins in my first two years as an undergraduate at Yale. I decided to major in history and wrote lengthy papers on facets of the English Revolution of the seventeenth century and the French Revolution which imparted some sense of the complexities of history and the inadequacy of any simple theory of causation, including economic causation.

THE FIRST PART of this paper is mainly autobiographical, as seems justified by the occasion: How did I come to be in the United Nations during those early years, and why did I do what I did? The second part deals with my 1949-50 paper on the "Distribution of Gains between Investing and Borrowing Countries," with the benefits of an extra thirty-two years of hindsight. It is argued that the views then expressed have been well vindicated, and that a reformulation in more contemporary terms would now command increasing support. The third part deals with the story of the Special United Nations Fund for Economic Development (SUNFED) and the International Development Association (IDA), the World Bank affiliate, as it appeared to one involved in the discussions of soft financing of development in the 1950s and from the viewpoint of someone on the U.N. side. According to my dictionary, a pioneer is "somebody who prepares the road for the main body"; it is exactly my contention that the "wild men" in the U.N. with their SUNFED prepared the road for the main body, the World Bank.

My understanding is that this book deals with a twofold learning process: the one through which, in the last half-century, all who participate in the process of cooperation have gone and the one that goes on inside each of us. The former could not have existed without the latter: in order to change one's mind one has to be honestly convinced of the necessity for accepting the change.
Like a number of others in the field of economics I deserted the subject of my education, physics, under the influence of the phenomena of povertyto begin with, in my own country. I made this switch in 1929, the very year the Great Depression started. The latter created still more poverty, even in the industrialized world. Intellectually, it was the cyclical component in economic movements that first caught our minds. I had the privilege to work, first, at the Netherlands Central Bureau of Statistics on business cycle research, and from 1936 to 1938 at the League of Nations secretariat at Geneva (so my first experience abroad was not exactly in a poor country).

THE WORLD IS DIVIDED into two groups of people: those who divide the world into two groups of people, and those who don't. As I evidently belong to the former, I believe that the nature of various divisions can throw light on what has come to be known as the rise and decline of development economics.
Albert Hirschman, in his stimulating contribution to the international symposium on Latin America at Bar Ilan University in 1980,' used two criteria for classifying development theories: whether they asserted or rejected the claim of mutual benefits in North-South relations; and whether they asserted or rejected the claim of monoeconomics that there is a single economic discipline, applicable to all countries and at all times. Using this classification, he derived four types of theories. Orthodox (neoclassical) economics asserts both claims. Neo-Marxist and dependence theories reject both claims. Development economists tend to reject the monoeconomics claim-the reason for their existence calls for a distinct subject-but to assert the mutual benefit claim, whereas paleo- Marxists assert the monoeconomics claim (except insofar as class determines consciousness) but reject the mutual benefit thesis.