Paul Baran - On the Political Economy of Backwardness

7/28/2019 Paul Baran - On the Political Economy of Backwardness

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On the Political Economy ofBackwardness

IThe capitalist mode of production and the social andpolitical order concomitant with it provided, during the latter

part of the eighteenth century, and still more during the entirenineteenth century, a framework for a continuous and, in spiteof cyclical disturbafices and setbacks, momentous expansionof productivity and material welfare. The relevant facts arewell known and call for no elaboration. Yet this material(and cultural) progress was not only spotty in time but mostunevenly distributed in space. I t was confined to the Westernworld ; and did not affect even all of this territorially anddemographically relatively small sector of the inhabited globe.Germany and Austria, Britain and France, some smallercountries in Western Europe, and the United States andCanada occupied places in the neighbourhood of the sun.The vast exeanses and the multitude of inhabitants of EasternEurope, Spain and Portugal, Italy and the Balkans, LatinAmerica and Asia, not to speak of Africa, remained in thedeep shadow of backwardness and squalor, of stagnation andmisery.

Tardy and skimpy as the benefits of capitalism may havebeen with respect t o the lower classes even in most of theleading industrial countries, they were all but negligible inthe less privileged parts of the world. There productivityremained low, and rapid increases in population pushed livingstandards from bad to worse. The dreams of the prophets ofcapitalist harmony remained on paper. Capital either did notmove from countries where its marginal productivity was iowto countries where it could be expected to be high, or if it did,it moved there mainly in order to extract profits frombaekward countries that frequently accounted for a lion'sshare of the increments in total output caused by the originalinvestments. Where an increase in the aggregate nationalproduct of an underdeveloped country took place, the existing

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Paul Baran, On the Political Economy of Backwardness,

The Manchester School of Economy and Social Studies, January, 1952, V.XX, No. 1: 66-84.


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O n the Political Economy of Backwavdnessdistribution of income prevented this increment from raisingthe living standards of the broad masses of the population.Like all general statements, this one is obviously open tocriticism based on particular cases. There were, no doubt,colonies and dependencies where the populations profited frominflow of foreign capital. These benefits, however, were fewand far between, while exploitation and stagnation were theprevailing rule.

But if Western capitalism failed to improve materiallythe lot of the peoples inhabiting most backward areas, itaccomplished something that profoundly affected the socialand political conditions in underdeveloped countries. I tintroduced there, with amazing rapidity, all the economic andsocial tensions inherent in the capitalist order. I t effectivelydisrupted whatever was left of the "feudal" coherence of thebackward societies. I t substituted market contracts for suchpaternalistic relationships as still survived from century tocentury. I t reoriented the partly or wholly self-sufficienteconomies of agricultural countries toward the production ofmarketable commodities. I t linked their economic fate withthe vagaries of the world market and connected i t with thefever curve of international price movements.

A complete substitution of capitalist market rationalityfor the rigidities of feudal or semi-feudal servitude would haverepresented, in spite of all the pains of transition, an importantstep in the direction of progress. Yet all that happened wasthat the age-old exploitation of the population of under-developed countries by their domestic overlords, was freed ofthe mitigating constraints inherited from the feudal tradition.This superimposition of business mores over ancient oppressionby landed gentries resulted in compounded exploitation, moreoutrageous corruption, and more glaring injustice.

Nor is this by any means the end of the story. Suchexport of capital and capitalism as has taken place had notonly far-reaching implications of a social nature. I t wasaccompanied by important physical and technical processes.Modern machines and products of advanced industries reachedthe poverty stricken backyards of the world. To be sure most,


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68 The Manchcster Schoolif not all, of these machines worked for their foreign owners-or at least were believed by the population to be working forno one else-and the new refined appurtenances of the goodlife belonged to foreign businessmen and their domesticcounterparts. The bonanza that was capitalism, the fullnessof things that was modern industrial civilization, were crowdingthe display windows-they were protected by barbed wirefrom the anxious grip of the starving and desperate man inthe street.

But they have drastically changed his outlook. Broadeningand deepening his economic horizon, they aroused aspirations,envies, and hopes. Young intellectuals filled with zeal andpatriotic devotion travelled from the underdeveloped lands toBerlin and London, to Paris and New York, and returned homewith the "message of the possible."

Fascinated by the advances and accomplishments observedin the centers of modern industry, they developed, andpropagandized the image of what could be attained in theirhome countries under a more rational economic and social order.The dissatisfaction with the stagnation (or at best, barelyperceptible growth) that ripened gradually under the still-calmpolitical and social surface was given an articulate expression.This dissatisfaction was not nurtured by a comparison of realitywith a vision of a socialist society. I t found sufficient fuelin the confrontation of what was actually happening with whatcould be accomplished under capitalist institutions of theWestern type.

I IThe establishment of such institutions was, however,beyond the reach of the tiny middle classes of most backwardareas. The inherited backwardness and poverty of theircountries never gave them an opportunity to gather the

economic strength, the 'insight, and the self-confidence neededfor the assumption of a leading role in society. For centuriesunder feudal rule they themselves assimilated the political,moral, and cultural values of the dominating class.


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On the Political Economy of Backwardness 69While in advanced countries, such as France or GreatBritain, the economically ascending middle-classes developedat an early stage a new rational world outlook, which theyproudly opposed to the medieval obscurantism of the feudal

age, the poor, fledgling bourgeoisie of the underdevelopedcountries sought nothing but accommodation to the prevailingorder. Living in societies based on privilege, they strove fora share in the existing sinecures. They made political andeconomic deals with their domestic feudal overlords or withpowerful foreign investors, and what industry and commercedeveloped in backward areas in the course of the last hundredyears was rapidly moulded in the straitjacket of monopoly-the plutocratic partner of the aristocratic rulers. Whatresulted was an economic and political amalgam combiningthe worst features of both worlds-feudalism and capitalism-and blocking effectively all possibilities of econo~nic rowth.

I t is quite conceivable that a "conservative" exit fromthis impasse might have been found in the course of time. Ayounger generation of enterprising and enlightened businessmenand intellectuals allied with moderate leaders of workers andpeasants-a "Young Turk" movement of some sort-mighthave succeeded in breaking the deadloclr, in loosening thehide-bound social and political structure of their countries andin creating the institutional arrangements indispensable for ameasure of social and economic progress.

Yet in our rapid age history accorded no time for such agradual transition. Popular pressures for an amelioration ofeconomic and social conditions, or at least for some perceptiblemovement in that direction, steadily gained in intensity.To be sure, the growing restiveness of the underprivileged wasnot directed against the ephemeral principles of a hardly yetexisting capitalist order. I ts objects were parasitic feudaloverlords appropriating large slices of the national product andwasting them on extravagant living ; a government machineryprotecting and abetting the dominant interests ; wealthybusinessmen reaping immense profits and not utilizing themfor productive purposes ; last but not least, foreign colonizers


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70 T b Manchcster Schoolextracting or believed to be extracting vast gains from their"developmental" operations.

This popular movement had thus essentially bourgeois,democratic, anti-feudal, anti-imperialist tenets. I t foundoutlets in agrarian egalitarianism; i t incorporated "muck-raker" elements denouncing monopoly ; it strove for nationalindependence and freedom from foreign exploitation.

For the native capitalist middle-classes to assume theleadership of these popular forces and to direct them into thechanaels of bourgeois democracy-as had happened in WesternEurope-they had to identify themselves with the commonman. They had to break away from the political, economic,and ideological leadership of the feudal crust and the mono-polists allied with i t ; and they had to demonstrate to thenation as a whole that they had the knowledge, the courage,and the determination to undertake and to carry to.victoriousconclusion the struggle for economic and social improvement.

In hardly any underdeveloped country were the middle-classes capable of living up to this historical challenge. Someof the reasons for this portentous failure, reasons connectedwith the internal make-up of the business class itself, werebriefly mentioned above. Of equal importance was, however,an "outside" factor. I t was the spectacular growth of theinternational labor movement in Europe that offered thepopular forces in backward areas ideological and politicalleadership that was denied to them by the native bourgeoisie.It pushed the goals and targets of the popular movements farbeyond their original limited objectives.

This liaison of labor radicalism and populist revoltpainted on the wall the imminent danger of a social revolution. "Whether this danger was real or imaginary matters very little.What was essential is that the awareness of this threateffectively determined political and social action, I t destroyedwhatever chances there were of the capitalist classes joiningand leading the popular anti-feudal, anti-monopolist movement.By instilling a mortal fear of expropriation and extinction inthe minds of a21 property-owning groups the rise of socialistradicalism, and in particular the Bolshevik Revolution in


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On the Political Economy of Backwardn~ss 71Russia, tended to drive all more or less privileged, more or lesswell-to-do elements in the society into one "counter-revolutionary" coalition. Whatever differences and anta-gonisms existed between large and small landowners, betweenmonopolistic and competitive business, between liberalbourgeois and reactionary feudal overlords, between domesticand foreign interests, were largely submerged on all importantoccasions by the over-riding common interest in staving offsocialism.

The possibility of solving the economic and politicaldeadlock prevailing in the underdeveloped countries on linesof a progressive capitalism all but disappeared. Entering thealliance with all other segments of the ruling class, the capitalistmiddle-classes yielded one strategic position after another.Afraid that a quarrel with the landed gentry might be exploitedby the radical populist movement, the middle-classes abandonedall progressive attitudes in agrarian matters. Afraid that aconflict with the church and the military might weaken thepolitical authority of the government, the middle-classesmoved away from all liberal and pacifist currents. Afraid thathostility toward foreign interests might deprive them offoreign support in a case of a revolutionary emergency, thenative capitalists deserted their previous anti-imperialist,nationalist platforms.

The peculiar mechanisms of political interactioncharacteristic of all underdeveloped (and perhaps not onlyunderdeveloped) countries thus operated at full speed. Theaboriginal failure of the middle-classes to provide inspirationand leadership to the popular masses pushed those masses intothe camp of socialist radicalism. The growth of radicalismpushed the middle-classes into an alliance with the aristocraticand monopolistic reaction. This alliance, cemented by commoninterest and common fear, pushed the populist forces stillfurther along the road of radicalism and revolt. The outcomewas a polarization of society with very little left between thepoles. By permitting this polarization to develop, byabandoning the common fnan and resigning the task ofreorganizing society on new, progressive lines, the capitalist


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The Manchester Schoolmiddle-classes threw away their historical chance of assumingeffective control over the destinies of their nations, and ofdirecting the gathering popular storm against the fortresses offeudalism and reaction. Its blazing fire turned thus againstthe entirety of existing economic and social institutions.

I11The economic and political order maintained by the rulingcoalition of owning classes finds itself invariably at odds with

all the urgent needs of the underdeveloped countries. Neitherthe social fabric that i t embodies nor the institutions that restupon it are conducive to progressive economic development.The only way to provide for economic growth and to preventa continuous deterioration of living standards (apart frommass emigration unacceptable to other countries) is to assurea steady increase of total output-at least large enough tooffset the rapid growth of population.

An obvious source of such an increase is the utilization ofavailable unutilized or underutilized resources. A large partof this reservoir of dormant productive potentialities is thevast multitude of entirely unemployed or ineffectively employedmanpower. There is no way of employing it usefully inagriculture, where the marginal productivity of labor tendsto zero. They could be provided with opportunities forproductive work only by transfer to industrial pursuits. Forthis to be feasible large investments in industrial plant andfacilities have to be undertaken. Under prevailing conditionssuch investments are not forthcoming for a number ofimportant and interrelated reasons.

With a very uneven distribution of a very small aggregateincome (and wealth), large individual incomes exceeding whatcould be regarded as "reasonable" requirements for currentconsumption accrue as a rule to a relatively small group ofhigh-income receivers. Many of them are large landownersmaintaining a feudal style of life with large outlays on housing,servants, travel, and other luxuries. Their "requirements forconsumption" are so high that there is only little room for


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0%he Political Economy of Backwardness 73savings. Only relatively insignificant amounts are left to bespent on improvements of agricultural estates.Other members of the "upper crust" receiving incomesmarkedly surpassing "reasonable" levels of consumption arewealthy businessmen. For social reasons briefly mentionedabove, their consumption too is very much larger than it wouldhave been were they brought up in the puritan tradition of abourgeois civilization, Their drive to accumulate and toexpand their enterprises is continuously counteracted by theurgent desire to imitate in their living habits the sociallydominant "old families," to prove by their conspicuous outlayson the amenities of rich life that they are socially (and thereforealso politically) not inferior to their aristocratic partners inthe ruling coalition.But if this tendency curtails the volume of savings thatcould have been amassed by the urban high-income receivers,their will to re-invest their funds in productive enterprises iseffectively curbed by a strong reluctance to damage theircarefully erected monopolistic market positions through creationof additional productive capacity, and by absence of suitableinvestment opportunities-paradoxical as this may sound withreference to underdeveloped countries.The deficiency of investment opportunities stems to alarge extent from the structure and the limitations of theexisting effective demand. With very low living standards thebulk of the aggregate money income of the population is spenton food and relatively primitive items of clothing and householdnecessities. These are available a t low prices, and investmentof large funds in plant and facilities that could produce thistype of commodities more cheaply rarely promises attractivereturns. Nor does it appear profitable to develop majorenterprises the output of which would cater to the requirementsof the rich. Large as their individual purchases of variousluxuries may be, their aggregate spending on each of them isnot sufficient to support the development of an elaborateluxury industry-in particular since the "snob" character ofprevailing tastes renders only imported luxury articles truemarks of social distinction.


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The Manchestcr SchoolFinally, the limited demand for investment goods precludesthe building up of a machinery or equipment industry. Suchmass consumption goods as are lacking, and such quantities of

luxury goods as are purchased by the well-to-do, as well as thecomparatively small quantities of investment goods needed byindustry, are thus imported from abroad in exchange fordomestic agricultural products and raw materials.This leaves the expansion of exportable raw materialsoutput as a major outlet for investment activities. There the

possibilities are greatly influenced, however, by the technologyof the production of most raw materials as well as by thenature of the markets to be served. Many raw materials, inparticular oil, metals, certain industrial crops, have to beproduced op a large scale if costs are to be kept low and satis-factory returns assured. Large-scale production, however,calls for large investments, so large indeed as to exceed thepotentialities of the native capitalists in backward countries.Production of raw materials for a distant market entails, more-over, much larger risks than those encountered in domesticbusiness. The difficulty of foreseeing accurately such thingsas receptiveness of the world markets, prices obtainable incompetition with other countries, volume of output in otherparts of the world, etc., sharply reduces the interest of nativecapitalists in these lines of business. They become to a pre-dominant extent the domain of foreigners who, financiallystronger, have at the same time much closer contacts withforeign outlets of their products.

The shortage of investible funds and the lack of investmentopportunities represent two aspects of the same problem.A great number of investment projects, unprofitable underprevailing conditions, could be most promising in a generalenvironment of economic expansion.

In backward areas a new industrial venture mustfrequently, if not always, break virgin ground. It has nofunctioning economic system to draw upon. I t has to organizewith its own efforts not only the productive process within itsown confines, it must provide in addition for all the necessary


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On the Political Economy of Backwardness 75outside arrangements essential to its operations. It does notenjoy the benefits of "external economies."

There can be no doubt that the absence of externaleconomies, the inadequacy of the economic milieu in under-developed countries, constituted everywhere an importantdeterrent to investment in industrial projects. There is noway of rapidly bridging the gap. Large-scale investment ispredicated upon large-scale investment. Roads, electric powerstations, rail-roads, and houses have to be built before business-men find it profitable to erect factories, to invest their fundsin new industrial enterprises.

Yet investing in road building, financing construction ofcanals and power stations, organizing large housing projects,etc., transcend by far the financial and mental horizon of

, capitalists in underdeveloped countries. Not only are theirfinancial resources too small for such ambitious projects, buttheir background and habits militate against entering commit-ments of this type. Brought up in the tradition ofmerchandizing and manufacturing consumers' goods-as ischaracteristic of an early phase of capitalist development-businessmen in underdeveloped countries are accustomed torapid turnover, large but short-term risks, and correspondinglyhigh rates of profit. Sinking funds in enterprises where profit-ability could manifest itself only in the course of many yearsis a largely unknown and unattractive departure.

The difference between social and private rationality thatexists in any market and profit-determined economy is thusparticularly striking in underdeveloped countries. Whilebuilding of roads, harnessing of water power, or organization of

.housing developments may facilitate industrial growth and thuscontribute to increased productivity on a national scale, theindividual firms engaged in such activities may suffer lossesand be unable to recover their investments. The nature of theproblem involved can be easily exemplified : starting a newindustrial enterprise is predicated among other things uponthe availability of appropriately skilled manpower. Engagingmen and training them on the job is time-consuming and


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76 The Munchester Schoolexpensive. They are liable to be unprbductive, wasteful, andcareless in the treatment of valuable tools and equipment.Accepting the losses involved may be justifiable from the stand-point of the individual firm if such a firm can count withreasonable certainty on retaining the services of those menafter they go through training and acquire the requisite skills.However, should they leave the firm that provided the trainingand proceed to work for another enterprise, that new employerwould reap the fruits of the first firm's outlays. In a developedindustrial society this consideration is relatively unimportant.Losses and gains of individual firms generated by labor turnovermay cancel out. In an underdeveloped country the chances ofsuch cancellation are very small, if not nil. Although societyas a whole would clearly benefit by the increase of skills of a tleast some of i ts members, individual businessmen cannotafford to provide the training that such an increase demands.

But could not the required increase in total output beattained by better utilization of land-another unutjlized orinadequately utilized productive factor ? '

There is usually no land that i l both fit for agriculturalpurposes and at the same time readily accessible. Suchterrain as could be cultivated but is actually not being tilledwould usually require considerable investment before becomingsuitable for settlement. In underdeveloped countries suchoutlays for agricultural purposes are just as unattractive toprivate interests as they are for industrial purposes.

On the other hand, more adequate employment of landthat is already used in agriculture runs into considerabledifficulties. Very few improvements that would be necessaryin order to increase productivity can be carried out within thenarrow confines of small-peasant holdings. Not only are the'peasants in underdeveloped countries utterly unable to pay forsuch innovations, but the size of their lots offers no justificationfor their introduction.

Owners of large estates are in a sense in no better position.With limited savings at their disposal they do not have thefunds t~ finance expensive improvements in their enterprises,


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O n the Political Economy of Backwardnessnor do such projects appear profitable in view of the highprices of imported equipment in relation to prices ofagricultural produce and wages of agricultural labor.

Approached thus v ia agriculture, an expansion of totaloutput would also seem to be attainable only through thedevelopment of industry. Only through increase of industrialproductivity could agricultural machinery, fertilizers, electricpower, etc., be brought within the reach of the agriculturalproducer. Only through an increased demand for labor couldagricultural wages be raised and a stimulus provided for amodernization of the agricultural economy. Only through thegrowth of industrial production could agricultural labor dis-placed by the machine be absorbed in productive employment.

Monopolistic market structures, shortage of savings, lackof external economies, the divergence of social and privaterationalities do not exhaust, however, the list of obstaclesblocking the way of privately organized industrial expansionin underdeveloped countries. Those obstacles have to be con-sidered against the background of the general feeling of uncer-tainty prevailing in all backward areas. The coalition of theowning classes formed under pressure of fear, and held togetherby the real or imagined danger of social upheavals, provokescontinuously more or less threatening rumblings under the 'outwardly calm political surface. The social and politicaltensions to which that coalition is a political response are notliquidated by the prevailing system ; they are only repressed.Normal and quiet as the daily routine frequently appears, themore enlightened and understanding members of the rulinggroups in underdeveloped countries sense the inherent instabilityof the political and social order. Occasional outbursts ofpopular dissatisfaction assuming the form of peasant uprisings,violent strikes or local guerrilla warfare, serve from time totime as grim reminders of the latent crisis.

In such a climate there is no will to invest on the partof monied people ; in such a climate there is no enthusiasm forlong-term projects ; in such a climate the motto of all parti-cipants in the privileges offered by society is ca@c diem.


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The Manchester SchoolIV

Could not, however, an appropriate policy on the part ofthe governments involved change the political climate andfacilitate economic growth? In our time, when faith in themanipulative omnipotence of the State has all but displacedanalysis of i ts social structure and understanding of its politicaland economic functions, the tendency is obviously to answerthese questions in the affirmative.

Looking at the matter purely mechanically, it wouldappear indeed that much could be done, by a well-advisedregime in an underdeveloped country, to provide for a relativelyrapid increase of total output, accompanied by an improvementof the living standards of the population. There is a number ofmeasures that the government could take in an effort to over-come backwardness. A fiscal policy could be adopted that bymeans of capital levies, and a highly progressive tax systemwould syphon off all surplus purchasing powerland in this wayeliminate non-essential consumption. The savings thus enforcedcould be channelled by the government into productive invest-ment. Power stations, railroads, highways, irrigation systems,and soil improvements could be organized by the State with aview to creating an economic environment conducive to thegrowth of productivity. Technical schools on various levelscould be set up by the public authority to furnish industrialtraining to young people as well as to adult workers and theunemployed. A system of scholarships could be introducedrendering acquisition of skills accessible to low-income strata.Wherever private capital refrains from undertaking certainindustrial projects, or wherever monopolistic controls block thenecessary expansion of plant and facilities in particularindustries, the government could step in and make therequisite investments. Where developmental possibilities thatare rewarding in the long-run appear unprofitable during theinitial period of gestation and learning, and are therefore beyondthe horizon of private businessmen, the government couldundertake to shoulder the short-run losses.

In addition an entire arsenal of "preventive" devices isst the disposal of the authorities. Inflationary pressures


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On the Political Economy of Backwardness 79resulting from developmental activities (private and public)could be reduced or even eliminated, if outlays on investmentprojects could be offset by a corresponding and simultaneouscontraction of spending elsewhere in the economic system.What this would call for is a taxation policy that wouldeffectively remove from the income stream amounts sufficientto neutralize the investment-caused expansion of aggregatemoney income.

In the interim, and as a supplement, speculation in scarcegoods and excessive profiteering in essential commoditiescould be suppressed by rigorous price controls. An equitabledistribution of mass consumption goods in short supply couldbe assured by rationing. Diversion of resources in highdemand to luxury purposes could be prevented by allocationand priority schemes. Strict supervision of transactionsinvolving foreign exchanges could render capital flight,expenditure of limited foreign funds on luxury imports, pleasuretrips abroad, and the like, impossible.

What the combination of these measures would accomplishis a radical change in the structure of effective demand inthe underdeveloped country, and a reallocation of productiveresources to satisfy society's need for economic development.By curtailing consumption of the higher-income groups, theamounts of savings available for investment purposes couldbe markedly increased. The squandering of limited suppliesof foreign exchange on capital fight, or on importation ofredundant foreign goods and services, could be prevented, andthe foreign funds thus saved could be used for the acquisition

.of foreign-made machinery needed for economic development.The reluctance of private interests to engage in enterprisesthat are socially necessary, but may not promise rich returnsin the short-run, would be prevented from determining theeconomic life of the backward country.

The mere listing of the steps that would have to beundertaken, in order to assure an expansion of output andincome in an underdeveloped country, reveals the utterimplausibility of the view that they could be carried out by thegovernments existing in most underdeveloped countries. The


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80 The Manchester Schoolreason for this inability is only to a negligible extent the non-existence of the competent and honest civil service needed forthe administration of the program. A symptom itself of thepolitical and social marasmus prevailing in underdevelopedcountries, this lack cannot be remedied without attacking theunderlying causes. Nor does it touch anything near the rootsof the matter to lament the lack of satisfactory tax policies inbackward countries,or to deplore the absence of tax "morale"and "discipline" among the civic virtues of their populations.

The crucial fact rendering the realization of a develop-mental program illusory is the political and social structureof the governments in power. The alliance of property-owningclasses controlling the destinies of most underdevelopedcountries,cannot be expected to design and to execute a set ofmeasures running counter to each and all of their immediatevested interests. If to appease the restive public, blueprintsof progressive measures such as agrarian reform, equitable taxlegislation, etc., are officially announced, their enforcement iswilfully sabotaged. The government, representing a politicalcompromise between landed and business interests cannotsuppress the wasteful management of landed estates and theconspicuous consumption on the part of the aristocracy; cannotsuppress monopolistic abuses, profiteering, capital flights, andextravagant living on the part of businessmen. I t cannotcurtail or abandon its lavish appropriations for a military andpolice establishment, providing attractive careers to the scionsof wealthy families and a profitable outlet for armamentsproduced by their parents-quite apart from the fact that thisestablishment serves as the main protection against possiblepopular revolt. Set up to guard and to abet the existingproperty rights and privileges, it cannot become the architectof a policy calculated to destroy the privileges standing in theway of economic progress and to place the property and theincomes derived from it at the service of society as a whole.

Nor is there much to be said for the "intermediate"position which, granting the essential incompatibility of a well-conceived and vigorously executed developmental programwith the political and social institutions prevailing in most


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O n the Political Economy of Backwardness 81underdeveloped countries, insists that at least some of therequisite measures could be carried out by the existing politicalauthorities. This school of thought overlooks entirely theweakness, if not thebcomplete absence, of social and politicalforces that could induce the necessary concessions on the partof the ruling coalition. By background and political upbringing,too myopic and self-interested to permit the slightest encroach- 'ments upon their inherited positions and cherished privileges,the upper-classes in underdeveloped countries resist doggedlyall pressures in that direction. Every time such pressures growin strength they succeed in cementing anew the alliance of allconservative elements, by decrying all attempts at reform asassaults on the very foundations of society.

Even if measures like progressive taxation, capital levies,and foreign exchange controls could be enforced by the corruptofficials operating in the demor&zed business communities ofunderdeveloped countries, such enforcement would to a largeextent defeat its original purpose. Where businessmen do notinvest,unless in expectation of lavish profits, a taxation systemsucceeding in confiscating large parts of these profits is boundto kill private investment. Where doing business or operatinglanded estates are attractive mainly because they permitluxurious living, foreign exchange controls preventing theimportation of luxury goods are bound to blight enterprise.Where the only stimulus to hard work on the part ofintellectuals, technicians, and civil servants is the chance ofpartaking in the privileges of the ruling class, a policy aimingat the reduction of inequality of social status and income isbound to smother effort.

The injection of planning into a society living in thetwilight between feudalism and capitalism cannot but resultin additional corruption, larger and more artful evasions of thelaw, and more brazen abuses of authority.

vThere would seem to be no exit from the impasse. Theruling coalition of interests does not abdicate of its ownvolition, nor does it change its character in response to


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82 The Manchester Schoolincantation. Although its individual members occasionallyleave the sinking ship physically or financially (or in bothways), the property-owning classes as a whole are as a rulegrimly determined to hold fast to their political and economicentrenchments.

If the threat of social upheaval assumes dangerous pro-'portions, they tighten their grip on political life and moverapidly in the direction of unbridled reaction and militarydictatorship. Making use of favourable international oppor-tunities, and of ideological and social affinities t o ruling groupsin other countries, they solicit foreign economic and sometimesmilitary aid,in their efforts to stave off the impending disaster.

Such aid is likely to be given to them by foreign govern-ments regarding them as an evil less to be feared than thesocial revolution that would sweep them out of power. Thisat titude of their friends and protectors abroad is no less short-sighted than their own.

The adjustment of the social and political conditions inunderdeveloped countries to the urgent needs of economicdevelopment can be postponed; it cannot be indefinitelyavoided. In the past, i t could have been delayed by decadesor even centuries. In our age it is a matter of years.Bolstering the political system of power existing in backwardcountries by providing i t with military support may temporarilyblock the eruption of the volcano; it cannot stop thesubterranean gathering of explosive forces.

Economic help in the form of loans and grants given tothe governments of backward countries, to enable them topromote a measure of economic progress, is no substitute forthe domestic changes that are mandatory if economic develop-ment is to be attained.

Such help, in fact, may actually do more harm than good.Possibly permitting the importation of some foreign-mademachinery and equipment for government or business sponsoredinvestment projects, but not accompanied by any of the stepsthat are needed to assure healthy economic growth, foreignassistance thus supplied may set off an inflationary spiral


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On he Political Ecoltomy qf Backwardness 83increasing and aggravating the existing social and economictensions in underdeveloped countries.

If, as is frequently the case, these loans or grants fromabroad are tied to the fulfilment of certain conditions on thepar t of the receiving country regarding their use, the resultinginvestment may be directed in such channels as to conformmore to the interests of the lending than t o those of theborrowing country. Where economic advice as a form of"technical assistance" is supplied to the underdevelopedcountry, and its acceptance is made a prerequisite to eligibilityfor financial aid, this advice often pushes the governments of .underdeveloped countries toward policies, ideologically orotherwise attractive to the foreign experts dispensing economiccounsel, but not necessarily conducive to economic develop-ment of the "benef it ted countries. Nationalism and xeno-phobia are thus strengthened in backward areas-additionalfuel for political restiveness.

For backward countries to enter the road of economicgrowth and social progress, the political framework of theirexistence has to be drastically revamped. The alliance betweenfuedal landlords, industrial royalists, and the capitalist middle-classes has to be broken. The keepers of the past cannot bethe builders of the future. Such progressive and enterprisingelements as exist in backward societies have to obtain thepossibility of leading their countries in the direction of economicand social growth.

What France, Britain, and America have accomplishedthrough their own revolutions has to be attained in backwardcountries by a combined effort of popular forces, enlightenedgovernment, and unselfish foreign help. This combined eff01%must sweep away the holdover institutions of a defunct age,must change the political and social climate in the under-developed countries, and must imbue their nations with a newspirit of enterprise and freedom.Should it prove too late in the historical process for thebourgeoisie to rise to its responsibilities in backward areas,should the long experience of servitude and accommodation tothe feudal past have reduced the forces of progressive capitalism


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- 84 The Munchester Schoolto impotence, the backward countries of the world 'willinevitably turn to economic planning and social collectivism.If the capitalist world outlook of economic and social progress,propelled by enlightened self-interest, should prove unable t otriumph over the conservatism of inherited positions andtraditional privileges, if the capitalist promise of advance andreward to the efficient, the industrious, the able, should notdisplace the feudal assurance of security and power to thewell-bred, the well-connected and the conformist-a new sbcialethos will become the spirit and guide of a new age. I t willbe the ethos of the collective effort, the creed of the pre-dominance of the interests of society over the interests ofselected few.

The transition may be abrupt and painful. The land not*given to the peasants legally may be taken by them [email protected] incomes not confiscated through taxation may beeliminated by outright expropriation. Corrupt officials notretired in orderly fashion may be removed by violent action.Which way the historical wheel will turn and in whichway the crisis in the backward countries will find its finalsolution will depend in the main on whether the capitalistmiddle-classes in the backward areas, and the rulers of theadvanced industrial nations of the world, overcome their fearand myopia. Or are they too spell-bound by their narrowlyconceived selfish interests, too blinded by their hatred ofprogress, grown so senile in these latter days of the capitalistage, as to commit suicide out of fear of death ?

PAULA. BARANStanford University.

Paul Baran - On the Political Economy of Backwardness

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Transcript of Paul Baran - On the Political Economy of Backwardness