| Hans
Staudinger 1889-1980
On
February 25th of this year, a few months after his 90th birthday, the
Nestor and for three decades the guardian spirit of the Graduate
Faculty of the New School succumbed to a long illness. It is never easy
to present an eminent personality and his achievements in the limited
space and the pale words of an obituary. In the case of Hans Staudinger
it is outright impossible.
Should one speak of the scholar who as a young man startled social
scientists and politicians alike with his novel views of the structure
and spirit of the labor movement, as he did in Individuum und Gemeinschaft, his
doctoral dissertation? Or who worked almost to his dying day on his
memoirs, a book that in fact is a political and economic history of the
Weimar Republic as seen by one of its protagonists?
In thus calling attention to his political life I also point to quite
another field of activity in which this uniquely versatile mind
distinguished himself. From 1917 to 1932 he was a civil servant in the
Weimar government, rising from a modest position in the Ministry of
Food to the rank of Secretary of State in the Prussian Ministry of
Commerce. It was there that his organizational talents came to full
fruition in the restructuring of large sections of the German economy.
Of lasting importance was the establishment of a comprehensive network
of electrical power that has survived the Nazi regime and the Second
World War. What Staudinger demonstrated in this undertaking was the
fact that public enterprises, far from deadening initiative, can be
pioneers in technical and social progress and yet yield good
dividends--a thesis he himself elaborated in his widely known book Der Staat als Unternehmer.
Or, to turn another leaf, should one speak of the academic
administrator as which he is perhaps best known in this country? During
a decade of permanent deanship in the Graduate Faculty he not only
guided its transformation from a University in Exile to a genuinely
American institution, but more than once preserved its existence by his
exceptional gift for rallying financial supporters.
But no image would be accurate that did not bear the features of a
passionate teacher, equally devoted to his topics and to his students.
Perhaps the enthusiastic response to his teaching was due to the fact
that, contrary to a tradition of academic inbreeding where the
professorial son succeeds to the professorial father or even
grandfather, here was a man whose political and economic ideas were
pervaded with practical experience.
And yet how misleading it would be to cram Hans Staudinger into the
confines of professional activity, scholarly, pedagogical or
administrative. From a feeling of deep responsibility to his fellow
victims of Nazi persecution he and his late wife Else founded, first,
Selfhelp for Emigres from Central Europe and, later, the American
Council for Emigres in the Professions, both of them flourishing to
this day. Equally characteristic of Staudinger was that he never forgot
that there was also another Germany. He made it his business to
initiate political, economic, and cultural relations with the new
Federal Republic, an endeavor to the success of which the Heuss Chair
in the Graduate Faculty and the New York German Theater testify. His
so-far-unfulfilled wish was to found at the New School an
American-German Research Institute for the study of intercontinental
relations.
I may confine myself to these incidental remarks because there is hope
that the full story will soon be generally available when his memoirs
will be published. But what I, blessed with his friendship for more
than sixty years, cannot omit is a word about Hans the person. Mindful
of the immense variety of his activities, his engagement in more than
one civilization, his absorption not only in politics and economics but
also in nature and art, one may well wonder what was the underlying
impulse that unified those diverse strands.
To find an
answer we must go back to his early years and to the influences that
molded his character. He was born into an exceptional family, with a
father who was a noted social philosopher and an early champion of the
rising cooperative movement--with an elder brother who won a Nobel
Prize--with a sister who was a renowned sculptress. Listening to him
speaking about those days one sensed a spiritual atmosphere in which
devotion to the good and the beautiful was more than a pious pretense.
However, what ultimately placed its stamp on Staudinger's personality
was the German youth movement, of which he became one of the most
popular leaders.
It is significant that this youth rebellion that preceded the First
World War, though opposing the philistine spirit of middle-class
society, by no means repudiated the values of traditional ethics. It
protested against the cant that made people forget during the week the
lesson of the Sunday sermon.
Even those who knew Hans only superficially detected this idealistic
heritage. It made him an active socialist though never a Marxist
revolutionary. It made him the model civil servant totally devoted to
the public interest. It made him laugh at Goering's invitation to join
the Hitler regime, but it also kept him calm under the beatings of his
jailers. Above all, it inspired his unbreakable optimism in the search
for solutions, when others had long resigned themselves to letting the
problems take care of themselves.
On the occasion of his 80th birthday I quoted a passage from Schiller's
Don Carlos in which the
Queen sends her final message to the departing Prince: "Tell him that
he should cherish the dreams of his youth when he will be a man." That
Hans did cherish those dreams gave him the courage to persevere in
adversity. That he could make so many of them come true was the
ultimate reward of a long and happy life.
Adolph Lowe
Issues in Development Economics: An Introduction
Development
economics as an academic discipline appeared after World War 11. Of
course, it existed earlier, in a sense, since the writings of some of
the nineteenth-century classical economists are very much concerned
with aspects of development--a long-run problem. But during the last
third of the nineteenth
century economics changed its focus. The intellectual frontier shifted
to the problem of price determination--a short-run problem. This
interest persists into the twentieth century as one of the central
elements of economic analysis. Concern with unemployment in the 1920s
and early 1930s led to the development of macroeconomic ideas with no
special concern for the problem of growth. Thus no body of knowledge
was developed which was of special
use in considering long-run economic-development issues.
A case could be made for the position that when economists shifted
their concern to development their chest of analytical tools was not
specifically suited, for the most part, to that particular set of
problems. In the first place, the tools available were mostly designed
for static modes of analysis (i.e., price theory and Keynesian theory).
In addition, the problems for which they had been fashioned, the
explanations of price and Keynesian unemployment, were not really the
central problems of the less-developed countries. However, this view
probably overstates the case since, it could be argued, there is
nothing unique about the problems of developing countries, and
development economics is nothing more than the application of economic
analysis to countries with low per-capita incomes. Regardless of how we
feel about the nature of these arguments, one thing is certain: the
intellectual tools that were applied were, for the most part, the tools
that were available. These were the analytical tools of price theory
and of macroeconomics. Whatever the deficiencies of these tools, we
must keep in mind an important strength that they possess: they contain
a well-worked-out, consistent language which permits scholars to
discuss the problems of economic development in a careful way. At least
some of the major confusions due to fuzzy or inconsistent terminology,
so often a plague in other fields, have been avoided.
The relationship of the standard tools of the economist and those
required for the analysis of developing economies are considered in the
paper by Philip W. Bell. Clearly, the simplifications of standard
economics can create difficulties for the development economist. There
is more to the problem than complexity. Standard economics has worked
out well the polar cases of competition and monopoly. But many sectors
in developing economies involve imperfect markets and partial
monopolies. Should we force the competitive model onto areas where it
ceases to fit properly? No general answer can be given. It depends on
the degree to which the intellectual model fits the reality.
Another problem is that of focus. Standard theory will suggest a focus
on certain variables and not on others; for example on prices, and not
on conditions of work or the nature of contracts. Bell considers the
difficulties created by the problems of welfare and equity. My own work
has dealt with the issues and explanations that arise if we relax the
maximization assumptions of standard theory, as well as the assumptions
associated with employment contrasts. Once we do this, new
possibilities for the explanations of low productivity levels in
developing countries come to the fore. Poor organizational
arrangements, and contexts (e.g., monopoly) in which the need for
internal efficiency is low, help us to see why fairly good investment
rates sometimes yield disappointing results.
Some have argued that very little has been learned about economic
development in the last three decades. This, I believe, is not quite
the case. I want to indicate at least three areas about which we have
learned some significant things through the study, by economists, of
the development experience. These are areas about which there are
frequently serious differences of viewpoint between educated laymen and
development economists.
It is common to be told that the essential problem of development has
to do with population. If we cannot handle the population problem we
cannot expect development to take place. The experience of the last
three decades shows that this is not the case. Pessimistic
extrapolations about the consequences of rapid population growth have
not proven true. The matter is primarily factual. Experience has shown
that it is possible for developing countries to have rates of national
income growth which are considerably greater than the high rates of
population growth. For a number of decades average rates of population
growth in less-developed countries were less than 2.5 percent while
rates of national income growth were, on the average, between 4 and 5
percent. Of course, in the case of some countries the rate of national
income growth was considerably above 5 percent per year.
Experience, in fact, suggests that rapid population growth is not an
insurmountable obstacle to economic development. At the same time it is
true that countries would find the path to high per-capita-income
levels easier with lower rather than higher rates of population growth.
We should also keep in mind that to some degree development carries
within it the seeds of fertility decline. This fertility decline is
especially evident in urban areas, although it also occurs in
agricultural areas. This is the topic of Samuel S. Lieberman's article
in this issue.
There is a tendency for noneconomists to look at resources as a
critical variable that determines prospects for development. No doubt
more natural resources are better than less. However, countries such as
Japan and Switzerland, with extremely limited natural resources, have
achieved very high rates of growth. Both have now reached very high
levels of per-capita income as well. Thus a lack of resources, above
some minimal level, is not a deterrent to rapid growth. The process of
development is sufficiently complex so that no single factor explains
the lack of it, nor is the availability of any one factor sufficient
for development to take place. In general there appears to be a
principle of substitutability at work here. A deficit or partial
deficit in one dimension can be made up by greater effort in other
dimensions.
The essential explanation for the achievement of rapid growth rates by
countries facing considerable obstacles such as high rates of
population growth or limited resource bases lies in the fact that all
countries may borrow from the huge store of technological knowledge
developed in the last two or three centuries--especially knowledge
developed in the Western world. In some sense there is an advantage to
a late start in the use of technology. Late starters do not have to
live through the technological mistakes made by those who experimented
with technologies earlier. They can, as it were, choose from that
subset of techniques that have proven themselves.
The possibility of borrowing from a large and growing stock of
available technological options that exists outside the country in
question is probably the central fact of economic development of
less-developed countries. It contains both the promise of high rates of
development as well as problems involved in choosing options sometimes
ill adapted to the resources of the country in question. Continuing to
focus on the optimistic aspects, we should keep in mind that there is a
sense in which the possibilities for growth improve all the time as the
stock of knowledge increases. In other words, highly developed
countries which can only use technology currently being invented face
greater growth limitations than those who can borrow from the huge
stock of techniques built up in the past. The development problem may
be viewed as the problem of borrowing techniques in a sensible manner.
On the negative side, it has probably become clear that existing standard economic theory is
not as helpful as it might be in understanding development problems and
in fashioning development policies. The theory of price is concerned
with how markets operate. Its lessons teach us how to achieve
equilibrium prices and to appreciate the virtues of such equilibria. No
doubt these considerations are also significant in developing
countries. Markets matter in LDCs as well as in advanced countries.
However, the theory does not tell us how we may generate and marshal
the resources to expand the
capacity of the economy to produce goods and services. How to increase
the stock of entrepreneurial talent is still a mystery. How to generate
high rates of saving, especially in the private sector, is not really
well understood. There are a number of similar questions having to do
with increasing capacity that can be raised. Basically, we seem to
understand much better how
to run an economy of a given capacity than how to change that capacity.
The main lesson of the conventional theory suggests that we need high
rates of investment to achieve high rates of growth.
Are high rates of investment sufficient for rapid growth? In some
quarters it may have been believed that, if only the rates of
investment could be raised to a high enough level, economic development
would be assured. Some of the earliest models of the development
process focused on the determinants of the investment rate.
Furthermore, investment seemed
the variable most amenable to change. In addition, the possibility of
grants, or borrowing from abroad, as a means to augment domestic
investment was emphasized as a policy in various quarters. Hence it is
not surprising that this should have been a major focus of a good deal
of development theory. However, it is probable that this view no longer
holds sway.
A little reflection suggests that the outcome of investment must also
depend on how investment funds are used. For some time now this was
taken to mean how investment funds were allocated among projects.
Obviously it is possible in extreme cases for less investment of higher
productivity to yield greater results than more investment of lower
productivity. Hence the development literature reflects considerable
concern about how to assess alternative projects. A great body of work
exists on the cost-benefit analysis of development projects. While the
results of this work were unquestionably useful, there was something
that was generally left out. The writers usually did not consider the
"who" and the "how" of carrying out the projects.
By the "who" and "how" we refer to the interests of those in charge of
projects and the organizational forms used. For example, does it make a
difference if a given project is carried out by a private entrepreneur
within the environment of a highly competitive industry or if it is
carried out by a private monopolist or state enterprise? In a sense
this is a complex organizational question. We can separate it into two
components: the nature of the environment (e.g., competition or a lack
of competition) and the nature of the organizational form (e.g., wholly
owned private enterprise, state enterprise, or government ministry).
This is a difficult question for economists because intrafirm
organizational matters have not been carefully considered by the
profession. It is a question that involves differential incentives for doing
different things. Part of the problem has been the standard theoretical
assumption that firms minimize costs. Clearly, this too is a matter of
the incentives contained in the environment. While competition involves
an environment that emphasizes a high degree of cost containment, this
does not necessarily hold for other environments such as state
enterprises.
In general, private monopolies and state enterprises need not be cost
efficient (or what the present writer has referred to as X-efficient)
in their production activities. In other words, the survival of such
enterprises is not threatened by relatively high costs of production
compared to possible minimal costs. They can pass through cost
inefficiencies in the form of higher prices to consumers or other
buyers. In fact, in some cases the enterprise may have no idea of the
extent to which its production costs could be lower.
An extreme case is that of some types of state enterprises. Here all of
the incentives may, under some circumstances, favor high costs. Costs
per unit may, in some cases, even be greater than the selling price per
unit. Of course such a firm will lose money. However, it is frequently
possible for such enterprises to be subsidized by their governments for
social or political reasons. For instance, arguments are sometimes made
to the effect that the economy or polity could not stand the increase
in unemployment that would occur if such enterprises were not
subsidized. A variety of other reasons are frequently put forth for
governments to absorb these losses. One might argue that state
enterprises lack the incentives both from "below" or from "above." The
incentives for low costs from below usually do not exist because
consumers or buyers have no alternatives but to purchase from the state
monopoly. The incentive from above does not exist as it would with a
private monopoly wanting to keep costs low in order to reap higher
profits from the enterprise. An inefficient private firm faces the
prospect of bankruptcy, but this prospect is not necessarily faced by the state
enterprise. We are not trying to argue that state enterprises are
necessarily highly inefficient. A brilliant administrator with the
right political support may operate a state enterprise in a fashion
superior to its private-enterprise counterpart. Furthermore, some
administrative arrangements may put pressure from "the top" on state
enterprises. What we are trying to suggest is that the greatest
possibility for variations in cost exist with the state-enterprise mode
of operation. These concerns are especially important since a great
deal of new investment, as well as investment that comes through
international borrowing, are for projects which are carried out by
state enterprises. Obviously, the study of such enterprises is
extremely important. From this viewpoint the paper by Malcolm Gillis
contained in this issue is of special interest.
To what extent should development planning or development policy
emphasize agriculture? Economists have gone back and forth on this
issue. In the early period there was a tendency to emphasize
industrialization. It seemed that it was in the new industries
established in urban areas that most change took place. Thus
industrialization was viewed by some as the cutting edge of the
development process. Of course, it is really a matter of balance.
However, it is now felt that we have to understand change within the
agricultural setting much more than we do. In addition, agricultural
changes ought to receive much more emphasis in fashioning overall
policy. I believe that these current trends are in the right direction.
The papers by Lieberman and Thorbecke in this issue seem especially
useful from this viewpoint.
An extremely thorny issue in the development debates of the last three
decades has been the question of income distribution. This is in part a
matter of values. But is it entirely a value problem? The question that
arises is whether we want growth if it means less equality. However,
equality is a relative term. After all, we can have less equality while
everyone receives a higher income as a consequence of growth. Of
course, some growth processes may mean lower absolute incomes for some,
but it is hard to see that this extreme outcome cannot be corrected for
by some types of direct redistribution. Thus the relative-income
question without a long-run absolute worsening income for some is
really the critical question. From this point of view, the paper by
Irma Adelman is especially interesting. To what extent can we change
income distribution? The Adelman paper suggests that we can do
something but not very much. Hence the problem is not entirely one of
values. Economic systems are not, apparently, infinitely malleable.
Something gives if we try to change the income distribution too much.
One thing which may give is the strength of the incentive system. It
appears that income distributions can be altered only within a limited
range. How we try to change the income distribution also matters. For
the most, it seems, economic growth is the best road to human
betterment.
A great many more issues than those considered here can be discussed.
In fact, economic development is a field plagued by too many issues.
This problem is further aggravated when we add political considerations
to our economic concerns. Since we cannot cover all issues we have
chosen to focus, in the essays that follow, on a few important ones and
hope that they indicate to some degree where the field is "going."
Harvey Leibenstein
Guest Editor
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