Book Review: Development Without Aid: Growth, Poverty And Government by Melvyn B. Krauss

JUNE 01, 1983 by TOMMY W. ROGERS

(McGraw-Hill Book Co., 1120 Avenue of the Americas, New York, NY 10020), 1983 • 208 pages • $17.95 cloth

The key to prosperity in less-developed countries is to utilize the principle of comparative advantage in combination with release of the incentive and creative opportunity presented by the free market. Unfortunately, the social-democratic influence has emphasized taxation and massive government spending coupled with intense bureaucratic intervention for “redistribution” of income and expansion of the public sector. There has been an almost religious commitment to “human capital” investment and “fine tuning.” Policies of high taxation and big government have been ruinous for Third World Countries.

Implementation of the welfare ethic in less-developed nations “often has resulted in economic chaos, political violence and eventual military dictatorships.” Economic development efforts have too often taken the form of zero-sum redistributionist programs. Preoccupation of a country with income distribution, wherein one group can obtain a larger share of a stale economic pie only at the expense of another group, “is to condemn it to a kind of Tanzanian tango of poverty and repression, redistributing an exceedingly small economic pie for an exceedingly long time to come.”

Krauss notes that it is bad enough when economists give out erroneous advice because the theories on which they base their advice is faulty. It is even worse, he states, when erroneous advice results from abuse of scientific authority to impose personal biases on others under the rule of scientific law. Krauss feels that acceptance of the advice of Prof. Walter Heller of the University of Minnesota has been particularly detrimental to Third World countries. Heller’s 1954 statement that the income distribution pattern of many less-developed countries is “a compelling case for redistributive government finance” would be dismissed as pure bunk if the speaker were not wrapped in scientific robes, but many naive persons, Krauss states, accepted Heller’s dictum as scientific truth simply because Heller had a strong scientific reputation.

Krauss demonstrates how foreign aid hurts and retards development in less developed nations. With respect to efforts to expand the World Bank, Krauss observes that “the World Bank has become an important vehicle by which the public sector has replaced the private one in much of the Third World. The simple truth is that several international banks . . . want U.S. and other taxpayers to bail them out from their past imprudent investments . . . by bailing out the borrowers from impending bankruptcy through the World Bank.”

Development Without Aid is a tremendous statement on the effect of the Welfare State as the enemy of the masses. Big government, as Krauss unequivocally demonstrates with telling comparison and documentation, is destructive of the economy in a multiplicity of ways. The author posits economic development without aid as “an essential condition for economic development.” Krauss makes a compelling and convincing argument that the international marketplace is a much more potent antidote to poverty in less developed areas than is the international transfer of income.


June 1983

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December 2014

Unfortunately, educating people about phenomena that are counterintuitive, not-so-easy to remember, and suggest our individual lack of human control (for starters) can seem like an uphill battle in the war of ideas. So we sally forth into a kind of wilderness, an economic fairyland. We are myth busters in a world where people crave myths more than reality. Why do they so readily embrace untruth? Primarily because the immediate costs of doing so are so low and the psychic benefits are so high.
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