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Sunday, December 1, 1985

A Reviewers Notebook: Reality and Rhetoric

The Labor peer in Britain, appointed to the House of Lords by Labor governments, is a twentieth-century phenomenon. Now, as the twenty-first century approaches, we are witnessing the creation of a Free Market peerage. Ralph Harris, now Lord Harris of High Cross, takes in finite delight in promoting the beliefs of Friedrich Hayek and the Mont Pelerin Society from a back bench. And P.T. Bauer, now Lord Bauer, a 1982 life peer appointment of Margaret Thatcher, makes it a one-two succession of punches for a classical liberalism that has long been out of fashion even among Tory lordships.

Lord Bauer is anything but an ideologue. He would gladly admit to a bias for freedom, but he works strictly from the facts when he criticizes the conventional wisdom about such things as foreign aid. His most recent book, Reality and Rhetoric (Harvard University Press, Cambridge, Mass., 184 pp., $15.00), takes off from his personal experiences as a student of British colonial office practices in the Twenties and Thirties in West Africa and Southeast Asia. Detailed as a young economist to make investigations of the rubber industry in Malaya and Sumatra and the cocoa industry in West Africa, Bauer was impressed with what a light hand the British colonial office ruled in the days before the Fabians took over its guidance. Both the rubber industry and the cocoa industry were the creation of native individuals who were glad to borrow where they could but who did the necessary clearing and planting on their own. The British “imperialists” gave the local entrepreneur a free hand as long as he did not engage in tribal warfare.

Bauer observes that before 1885 there was not a single rubber tree in Malaya or a single cocoa tree in Nigeria and the Gold Coast in Africa. There was nothing that might be called an infrastructure to enable peasants to get their goods to distant markets. The change came about through local initiatives, not through any top-down planning in London. Chinese traders were drawn to the rubber trade in Asia. “Some started their own plantations,” says Bauer, “while others brought seeds and consumer goods to the indigenous people of Malaya and Netherlands India (now Indonesia).” By the late Nineteen Thirties more than half the rubber acreage in Southeast Asia was owned by Asians. Foreign borrowing accounted for little of this: the acreage, says Bauer, “represented the results of capital formation through direct investment in the face of initially low incomes.”

In West Africa, says Bauer, there were (and are) no European-owned plantations. Cocoa, ground nuts, cotton and kola nuts have been produced on farms established, owned and operated by individual Africans. Local traders, financed by Europeans, have provided necessary capital. The local trader, unhampered by government, “made available consumer goods and production inputs, and provided the outlet for cash crops.” Bauer quotes Sir Keith Hancock as rightly calling West Africa “the Traders’ Frontier.”

A Fabian Legacy

It was the triumph of Fabian ideas in Europe in the late Thirties that changed everything in West Africa and Malaysia for the worse. Government marketing boards were set up with monopoly powers. The free trader was practically abolished. Little proprietors had to sell to the marketing boards at specified prices. The boards, with surpluses to use as the politicians saw fit, were, in a way, functioning as tax collectors. A younger generation of native intellectuals journeyed to London to study economics under Fabian professors such as Harold Laski. They returned home to become the advisers to government. When, in the last years of British colonial rule, the situation was described to colonial secretary Oliver Lyttleton and to Andrew Cohen, the head of the African Development Department of the colonial office, they remarked cynically that the African peasant had no future anyway.

So things stood in Africa when the British were busy turning over local governments to politicos such as Nkrumah. In a “one man, one vote, once” situation, Nkrumah used the Gold Coast-Ghana Cocoa Marketing Board as his financial power base for years to deadly effect. With traders prohibited, the economy stagnated.

Bauer writes of West Africa, but he is quite aware of the whole African—and Third World—situation in various detail. Not all Third World countries are alike, but the foreign aid policies of the West have had the unfortunate effect of dragging them down to a dead level. The Third World is a political concept, not an economic one. Tanzania, in East Africa, has good soil and good growing weather, but President Nyerere, a proponent of single party socialism, has used extensive aid from the West to ruin his economy. He has driven his peasants into villages and collectivized their farms. The result has been poor food production. In Zaire, another big aid recipient, President Mobuto has expelled independent traders. This has resulted in a reversion to subsistence production. The aid money from the West keeps Mobuto in power. Mobuto takes it as a bribe to keep him in the western political camp, but the money does not trickle down.

There is plenty of lavish spending of aid money in the Third World, but Bauer asks how the poor benefit from such brand new capitals as Brasilia, Islamabad, Abuja in Nigeria and Dodoma in Tanzania. New government-owned airlines provide prestige for the “in” politicos, but the vast majority of the people can’t use them or even operate them.

Bauer thinks it is a sophistry to say that foreign aid to the Third World keeps employment up in the donor countries. The provision of British ships to India, Poland and Vietnam in the Seventies did benefit labor and management in British shipyards, but the taxpayers put out the money. They will never get it back from the recipients of their largesse. Bauer thinks it would have been more sensible to use the shipyards for other purposes.

Bauer blames the politicians for much of our trouble, but he does not exempt his fellow economists. They generalize on the basis of demographic change and forget such “core” things as wages and prices. It is our good fortune that Bauer has a “bully pulpit” in the House of Lords to tell us what is wrong.

  • John Chamberlain (1903-1995) was an American journalist, business and economic historian, and author of number of works including The Roots of Capitalism (1959). Chamberlain also served as a founding editor of The Freeman magazine.