Peter Thomas Bauer

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Peter Thomas Bauer, Baron Bauer (1915 - May 2, 2002) was a world-famous developmental economist. Bauer is best remembered for his opposition to the widely-held notion that the most effective manner to help developing countries advance is through state-controlled foreign aid.

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[edit] Life

Bauer was born Pieter Tamás Bauer in Budapest, Hungary in 1915. He studied Law in Budapest before embarking for England in 1934 to study Economics at Gonville and Caius College, Cambridge, from which he graduated in 1937. After a brief period in the private sector working for Guthrie & Co., a London-based merchant house that conducted business in the Far East, Bauer spent most of his long career at the London School of Economics and retired in 1983, as Emeritus Professor of Economics. In 1983, with the support of his friend and admirer Prime Minister Margaret Thatcher, he was indeed made a life peer as Baron Bauer, of Market Ward in the City of Cambridge. Lord Bauer was also a fellow of the British Academy and a member of the Mont Pelerin Society, founded by his friend Friedrich Hayek. He died in London, England on May 2, 2002. His work in developmental economics has greatly impacted foreign aid policies of many countries, as well as, the World Bank.

[edit] Contributions to economics

Nearly all of Lord Bauer's greatest contributions concerned development economics, international development and foreign aid. Bauer sought to convince other development experts that central planning, foreign aid, price controls, and protectionism perpetuate poverty rather than eliminate it, and that the growth of government intervention politicizes economic life and reduces individual freedom.

Bauer revolutionised thinking about the determinants of economic advance. Indeed, the World Bank, in its 1997 World Development Report, stated that the notion that "good advisers and technical experts would formulate good policies, which good governments would then implement for the good of society" was outdated: "the institutional assumptions implicit in this world view were, as we all realize today, too simplistic... Governments embarked on fanciful schemes. Private investors, lacking confidence in public policies or in the steadfastness of leaders, held back. Powerful rulers acted arbitrarily. Corruption became endemic. Development faltered, and poverty endured" (pp.10-11). This reflected the sort of arguments Bauer had been advocating for years.

For Bauer, the essence of development was the expansion of individual choices, and the role of the state to protect life, liberty, and property so that individuals can pursue their own goals and desires. Limited government, not central planning, was his mantra.

Accordingly, in 1957, Bauer wrote in Economic Analysis and Policy in Under-developed Countries:

"I regard the extension of the range of choice, that is, an increase in the range of effective alternatives open to people, as the principal objective and criterion of economic development; and I judge a measure principally by its probable effects on the range of alternatives open to individuals... The acceptance of this objective means that I attach significance, meaning, and value to individual acts of choice and valuation, including the individual time preference between the present and the future".

He went on to say that "my position is much influenced by my dislike of policies or measures which are likely to increase man's power over man; that is, to increase the control of groups or individuals over their fellow men."

Bauer placed himself firmly in the tradition of the great classical liberals. His adherence to the principles of free trade and free people reflected his deep respect for the dignity, rationality, and capabilities of the disadvantaged around the world.

In his many articles and books, including Dissent on Development, Bauer overturned many of the commonly held beliefs of development economics. He refuted the idea that poverty is self-perpetuating and showed that central planning and large-scale public investment are not preconditions for growth. In his clever fashion he noted, "It is more meaningful to say that capital is created in the process of development, rather than that development is a function of capital."

He criticized the idea that the disadvantaged could not and would not save for the future, or that they had no motivation to improve their condition. He opposed "compulsory saving," which he preferred to call "special taxation," and, like modern supply-side economists, recognized the detrimental effects of high taxes on economic activity. Bauer also saw that government-directed investment funded by "special taxation" would increase "inequality in the distribution of power."

Bauer's experience in Malaya (now Malaysia), in the late 1940s, and in West Africa influenced his views on the importance of individual effort by small landowners and traders in moving from subsistence to a higher standard of living. As he wrote in The Development Frontier:

"A developed infrastructure was not a precondition for the emergence of the major cash crops of Southeast Asia and West Africa. As has often been the case elsewhere, the facilities known as infrastructure were developed as the economy expanded... What happened was in very large measure the result of the individual voluntary responses of millions of people to emerging or expanding opportunities created largely by external contacts and brought to their notice in a variety of ways, primarily through the operation of the market. These developments were made possible by firm but limited government, without large expenditures of public funds and without the receipt of large external subventions."

Bauer was perhaps the first economist to recognize the importance of the informal sector and advocated the "dynamic gains" from international trade - that is, the net gains that result from exposure to new ideas, new methods of production, new products, and new people. He demonstrated that trade barriers and restrictive immigration and population policies deprive countries of those gains.

For Bauer government-to-government aid was neither necessary nor sufficient for development, and may actually hinder it. "To have money is the result of economic achievement, not its precondition," he argued. Trade, not aid, promotes long-run prosperity. The danger of aid, according to Bauer, is that it increases the power of government, leads to corruption, misallocates resources, and erodes civil society.

In a column published after Bauer's death, Theodore Dalrymple noted that "[a]lthough he always denied having said it, Bauer became known as the originator of the dictum that foreign aid is the means by which poor people in rich countries give money to rich people in poor countries."

Unfortunately, Bauer's tone is often seen as polemic and disparaging of the achievements of developing countries. This has limited his audience in the countries to which his arguments apply.

[edit] Major works

[edit] References

[edit] External links

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