The Lost Massey Lectures (6 page)

There is a measure of overstatement in any attempt to establish categories. No country is without some small group of honest and competent people in some area of economic activity or government. 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. All that is needed is for the perilously small group of competent and honest people to be overwhelmed by those who see government in predatory and personal terms. Once the latter are in possession of the available instruments of power—the army, government payroll, police—it is not clear when (or even whether) the process of disintegration can be reversed by internal influences. This disintegration, not Communism for which these countries are as little prepared as for capitalism, is the form of failure in this Model.

In the first two lectures, I spoke of the homogenizing influence of poverty on individual and social behavior. I suggested that it might be more important in explaining how people react—biologically, socially and politically—than any other factor including their decision to be communists, socialists, free enterprisers or some judicious combination of all three. It is not easy walking through a South Asian jungle, or across the Andean
altiplano
, to determine whether the country is capitalist or communist. And the people themselves tend to be clear only on one principal point, which is that they are poor. The more sophisticated distinctions as to social structure acquire importance only as one approaches world capitals, including Washington.

But in the last lecture I argued that one must not mistake similarity in effect for similarity in cause. The causes of the
poverty of different countries are, in fact, very different. I started in to make a rude classification of underdevelopment based on the principal barrier to advance. I dealt last time with what I called the Sub-Sahara African Model where the obstacle to advance is the very narrow cultural base—the very small number of trained and educated people and the very limited capacity for getting more. I come now to Model II—what I have called the Latin American case.

The great mass of the people in these countries is also very poor. But in most of them there is also a sizable minority that is well-to-do. And associated with this well-to-do minority is a rather large number of people with a diverse assortment of qualifications and skills—lawyers, physicians, accountants, engineers, scientists, economists and managers. As compared, in other words, with the Model I countries, the cultural base is quite wide. And back of this group there is a limited, undemocratic and otherwise imperfect, but still substantial, educational system. Peru, Ecuador and Guatemala are, by any calculation of per capita income, very poor countries. Argentina, Brazil and Chile are well below North American and European levels. But all have trained and educated personnel and facilities for its replacement that are far better than those of the new African states. As a further aspect, they have a strong intellectual tradition. As is also true of the United States or Canada, they could use more people of the highest caliber and training. Public servants of high competence are rarely in surplus. But in these countries—as also in the Arab states and Iran where the pattern is similar—the absence of trained and educated people is not the obvious barrier to development.

The far more evident barrier to advance is the social structure.
The elite, though sizable, depends for its economic and social position on land ownership, or on a
comprador
role in the port or capital cities, or on government employment or sinecure, or on position in the armed forces. Beneath this elite is a large rural mass and, in some cases, an unskilled and often semi-employed urban proletariat. The rural worker, in the characteristic situation, either earns the right to cultivate a small plot of land by giving service to the estate on which he resides or he is part of the
minifundia
—a cultivator of a small plot on which he has some form of permanent tenure. In either case he has no effective economic incentive. He thoughtfully renders the landlord the minimum service that will earn him the right to cultivate his own plot. The latter plot was anciently arranged to be the minimum size consistent with survival. The same tends to be true of any holding to which he has title. So any possibility that he might improve his position by increasing output is excluded by what amounts to a systematic denial of incentives.
¹
In a number of countries—Peru, Guatemala and Ecuador for example—the fact that most of the rural mass is Indian adds a sense of racial exclusion to this denial.

But the elimination of economic incentives is not confined to the rural masses. Beginning, at least in time sequence, with them, it tends to become comprehensive. The landlord, since he has a labor force that is devoid of incentive, cannot do much to increase production. Often he lives in the capital city and does not try. Instead of the revenues of a small area farmed efficiently, he enjoys those of a large area that is inefficiently farmed. (It is strongly characteristic of this Model that agriculture, some plantation operations apart, is labor intensive and technologically stagnant.)
²

Income derived from government position or the armed forces is also unrelated to economic service. It depends, rather, on distribution of power, and this leads to the further likelihood of struggle over the division of power. Feudal agriculture is so constituted as
to survive unstable or avaricious government. Modern industry—again unless under external protection—is much more vulnerable. So instability in government and its use as a source of personal income has a further adverse effect on industrial incentives. In this Model, substantial rewards accrue to traders. But this, also, is at least as dependent on a strong monopoly position—the franchise for the sale of a North American or European branded product or the strong position in financing and procurement of some local product—as on efficient economic service.

It is the normal working assumption of economists in advanced communities that income rewards economic effort. Since it induces that effort, it is functional. There has been ample dispute over whether particular functions are over- or under-rewarded, and this is the foundation of the ancient quarrel between Marxians and non-Marxians. But the problem of the adequacy of reward for service is not the issue in this Model; the problem is that numerous claimants—landlords, members of the armed services, government functionaries, pensioners—render no economic service.
³
And the best rewarded businessman is not the one who performs the best service but whose political position or franchise accords him the most secure monopoly. It is useful to have a term for the income which is so divorced from economic function and one is readily at hand. It may be called non-functional income.

Not only is this income large but strong forces act to limit the amount of functional income. The rural worker gets the maximum established by custom; greater endeavor brings him no more. The landlord, as noted, is confined by a labor force that is without incentive. The efficient urban entrepreneur risks being regarded as a better milch cow by those who live on the state. He can protect himself only by developing the requisite political power; this means that his income comes to depend not alone on economic performance but also on political power. His return, or
that part of it which derives from political influence, thus also becomes economically non-functional.

The position of the controlling elite is commonly associated with the ownership of land. And this, certainly, has been the traditional source of power. But, in its modern manifestation, it is a mistake to identify it exclusively or even predominantly with land. The armed forces, hierarchical wealth other than land, the bureaucracy and shifting of permanent coalitions between these groups can provide the requisite sources of power. Government will then be in the interest of the controlling group or groups; and since these groups are economically non-functional, it will not be in the interest of economic development.
⁴

In a number of countries of this Model, most notably Argentina, Brazil and Chile, the non-functional groups are in competition with each other and more recently franchised economic groups for the available income. (In each of these countries an incomplete revolution accorded political power to urban white collar and working classes without disestablishing the old non-functional groups. Chileans often speak of the “‘struggle' or even ‘civil war' between the country's major economic interest groups.”)
⁵
The total of these claims bears no necessary relationship to the income that is available. Since productivity is low, the tendency is for claims to exceed what is available, and invariably they do. The easiest way of reconciling competing claims is to meet that of each group in money terms and allow them to bid against each other for real product in the market. As a result, in these countries inflation is endemic. In countries such as Ecuador and the Central American countries where the urban white collar and working classes are weak, inflationary pressures are much less strong. This,
however, reflects the weakness of these classes, not their better position under non-inflationary conditions.

With variations as to the composition of the non-functional elite, and its source of power, Model II has general application in Central and South America and in Iran, Iraq and Syria. In few if any of these countries—and one or two Central American countries are possible exceptions—is the cultural base the decisive factor; in none would economic advance appear to be barred by the absence of trained and educated people. A shortage of capital is assumed almost intuitively by economists to be the normal barrier to advance. Iran and Iraq have rich sources of income from oil and Peru from oil and minerals. This has not rescued them from backwardness and some of the oil-rich countries are among the poorest in the world.
⁶

In Latin America two countries do break decisively with this pattern. One is Mexico and the other is Costa Rica. Mexico, by revolution, destroyed its old power structure based on land ownership. Costa Rica was always, in the main, a country of modest land holdings. Costa Rica has no army; the Mexican army is insignificant in size, cost and influence. Neither has any other strongly vested non-functional group which combines power with a claim on income. In consequence, income in both countries is—by all outward evidences—far more closely related to economic performance than in the remainder of Latin America. They are the two countries which enjoy the most favorable rate of economic development.

For purposes of identification, I have associated Model III with South Asia. The clearest prototypes are, indeed, India and Pakistan, although it has application to the United Arab Republic, in limited measure to Indonesia, and, since its characteristics transcend political organization, to China.

In this Model, the cultural base is very wide. India and Pakistan have systems of primary and secondary education that are far superior to those of Latin America. There are at least as many fulltime professors in the University of Delhi alone as in all Latin America. Both countries tend to a surplus rather than a shortage of teachers,
⁷
administrators, scientists and entrepreneurs. In recent years, these countries have been substantial, if inadvertent, exporters of medical and scientific talent to the United States and the United Kingdom. Without the doctors provided by this informal educational exchange, the hospitals of both countries would be in even worse shape.

In both India and Pakistan, there is a substantial volume of non-functional income. But it is not, as in Latin America, associated with political power. In India the political power and nonfunctional claims on land revenues of the princes, jagirdars, zamindars and large landlords were terminated or greatly curtailed at the time of independence or in ensuing reforms. The armed forces, though costly, do not have decisive political power.
⁸
In consequence, producers can generally count on receiving much of the return to their efforts. Economic incentive is thus reasonably operative. The endemic inflation which characterizes many of the Model II countries is absent. The social structure in these countries is not at the highest level of compatibility with economic advance. But it is clearly not the operative barrier.

The barrier in this Model is drastically bad proportioning of
the factors of production. Demographic forces which extend deeply into the past have given these countries a large and dense population. The supply of arable land in India, Pakistan and Egypt has been subject to repeated and very great increases through irrigation. But this increase has been followed, as harvest follows planting, by a relentless increase in population. As a result, per capita agricultural production and incomes have remained small and, as a further consequence, savings are limited and so consequently is the supply of capital. Capital shortage, in turn, has retarded and continues to retard industrial development. The small land and capital base provides effective employment for only part of the available labor force. People who live close to the margin of subsistence, as I have noted, cannot afford any risk that they might fall below subsistence levels. This is a further inducement to backwardness.

The Model III 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.