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10 DEVELOPMENT ECONOMICS IN ACOONare largely derived from this source, pp. 192-212.

2S Ghana's ratio was estimated at 2'5:1 in 1960 whereas Kuznets, 1966, Table 2.7, pro-vides a figure for the US in 1950 of 21:1. Ratios he provides for other industrialcountries tend to be substantially higher, however, to say nothing of the dangers inmaking this type of international comparison.26 Assuming a one-year time lag, an incremental capital:outputratio (ICOR) of 3.85 fornet investments in 1955-60 can be estimated from Szereszewski's figures (Table8.4, cocoa capital included), as against average ratios rising from 22 to 25. TheICOR excluding cocoa capital was 32.27 ibid., Table 8.2, p. 203.28 ibid., Table 8.5, p. 208.29 See Meier and Baldwin, 1957, pp. 351-5, for a discussion of the notion of aneconomy's absorptive capacity for investment.

2 Development, Disequilibriumand State Interventionism

Attempts during the 19608 to accelerate the development of Ghana'seconomy did not take place within an intellectual vacuum. Policiesthere were informed by a set of ideas similar to, and affected by, theleading ideas on development which came to the fore aft er the SecondWorld War. Until the fall of President Nkrumah early in 1966, astrategy was employed which had many affinities with recommenda-tions then being made by professional economists. Their views thusilluminate much of what happened in Ghana during the sixties, and thecore of this book is concerned with a rather close examination of howsome of these ideas worked out in practice.The task of this chapter, then, is to present a statement of what bythe beginning of the sixties had come to constitute 'mainstream'development economics, leaving chapter 3 to demonstrate thesimilarities between these ideas and Nkrumah's strategy of develop-ment. Since the chief purpose here is to present a synthesisof the viewsof important writers on development problems, readers who alreadyhave a thorough familiarity with the literature will wish to skimthrough this ch apter quickly. Those less confident of their knowledgein this ar ea will find themselves confron tea with a text which, thoughnon-technical in its presentation, seeks to condense a large body ofwriting. The reader who finds himself on unfamiliar ground is there-fore urged to follow up the source references provided in the foot-notes, for in the originals he will find the full development of the ideas,and the qualifications with which they were surrounded, to which abrief survey of this kind cannot do justice.Mainstream developmen t economics is referred to in the past tense.This is not to imply that it is a thing of the past, but that the consensuswhich characterized the beginning of the sixties no longer exists. In

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12 13EVELOPMENT ECONOMICS IN ACTIONplace of a mainstream we now have a network of rivulets, and somestrong cross currents. Intriguingly, just as the economics professionbegan to grow sceptical of the prescriptions of earlier years, so toowere Ghana's new policy-makers forming doubts about certain ofNkrumah's policies. The second half of the decade saw a limitedattempt to move back to policy instruments operating through themarket mechanism, just as many economists were beginning to returnto the prescriptions of traditional Western economic theory. Thischapter therefore concludes with a very brief discussion of the morerecent renascence of neo-classicism in the development literature, andchapter 11 examines the difficulties (and ultimate failure) encounteredin Ghana in attempts to revert to a somewhat more freely operatingmarket economy after 1966.The Nature of the ProblemThe poverty of nations is the special concern of developmenteconomics. The question it seeks to answer is, 'why some countriesshould have developed while others remain more or less stagnant, orwhy some countries remain economically backward while othersexperience sustained secular advance. 1 Why does poverty tend to per-sist, how did the countries that have become wealthy manage to do it,how can poor countries also become rich?Throughout the 1950s various attempts to answer these questionscreated the body of literature which established developmenteconomics as a distinct specialization.2 Explanations of the persistenceof poverty were fairly unanimous: poverty sets up, or is associatedwith, various conditions which retard economic progress. It is thus self-perpetuating. We shall see that Nkrumah took a similar view.The most influential of early explanations along these lines wasNurkse's. He started from two propositions,one ancient,one modern.The first was Adam Smith's thesis that the division of labour is limitedby the extent of the market, which Nurkse reinterpreted as the prin-ciple that 'the inducement to invest is limited by the size of the

market,'3 i.e. that investment demand is a rising function of nationalincome. The second was a Keynesian consumption function, in whichsaving is determined by per capita income. A country starting in a stateof poverty is thus one with a small supply of investible resources and asmall demand for them too. Productivitywill therefor e remain low andso will income. The vicious circle is complete; poverty is perpetuate d.A later and equally influential theory of self-perpetuating povertywas provided by Leibenstein's notion of the 'low level equiljbriumtrap.'4 This was a good deal more subtle than Nurkse's vicious circleand repre sented an improvement in at least three importan t respects.Firstly, it did not depend so crucially on simplistic hypotheses aboutthe dem and an d supply of investible funds, and placed more emphaSison the importance of the creation of human as well as physical capital.

DEVELOPMENT, DISEQUILIBRIUM, STATE INTERVENTIONSecondly, it added a major new dimension to the pr oblem in the formof population growth. Thirdly, it was made more dynamic thanNurkse's model by the in troduction of the influence of expectations offuture rates of growth on investment decisions.5At the risk of doing less than full justice to the sophistication ofLeibenstein's model, it might be said that he added to a vicious circlesimilar to Nurkse's, a neo-Malthusian hypothesis that, at a low initiallevel of development, improvements in living standards would tend,after a time, to induce an accelerated rate of populat ion growth whichwould overtake the expansion of total income and thus force pe r capitaincome back down again. Since there is a biological limit to the speedwith which human populat ion can grow, in the range of 31 to 4 per cent,continuous increases in per capita income could be sustained at a levelabove the biological limit but 'a t low per capita income levels theincome-depressing forces are more significant than the income-raisingones' and thus these economies tend to 'return eventually to a statecharacterized by a near level of income.6Three other attempts to explain the persistence. of poverty deservemention. Myrdal developed his notion of circular causation to prop-ound the view that 'market forces will tend cumulatively to accentuateinternational inequalities.'7 Rostow stressed the 'income-depressingforces' at work at an early stage of development. The 'central fact'about traditional society, he wrote, 'was that a ceiling existed on thelevel of attainable output per head. This ceiling resulted from the factthat the po tentialities which flow from modern science and technologywere either not available or not regularly or systematically applied.'8Kuznets also drew attention to the special problems of present-dayunderdeveloped countries, endeavouring to develop with per capitaincomes perhaps only a half or a third of those in the rich countrieswhen they began their industrial revolutions.9The view of the level of investment as being strongly influenced byindividual investors' expectations of the future rate of growth of theeconomy, utilized by Leibenstein, has a long history and an unsavouryone for those of a laissez-faire persuasion. When decisions are madeatomistically individuals will take a more pessimistic view of the futureexpansion of t he market tha n they would if only they were aware of theinvestments being contempl ated by others. By t he same logic, a singleact of investment will tend to produce a stream of benefits in excess ofthe private returns to t he investor, by expanding the size of the marketand thus tending to induce further capital formation by others. Hence,the social value of an act of investment tends to exceed its privatevalue.This view of the complementary nature of investment decisions wasa most powerful contribution to the corpus of economic theory and, aswill be seen, was rich in policy implications. Almost all major writerson development in this period embraced it in one form or another,10

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154 DEVELOPMENT ECONOMICS IN AcnONbut it was most rigorously formulated by Scitovsky.l1He argued thatthe existence o f externalities in low-income countries involved a muchbroader and more important concept than the Marshallian-typeexternal economies usually treated in conventional marginal analysis.There were, in his view, three majo r reasons why this broader conceptof external economies might be important in these countries and why amarginalist, general equilibrium, approach to their problems wasinappropriate. Firstly, economies of scale or indivisibilities in invest-ment may induce a producer to choose more or less than profit-maximizing output, and his decision in the face of this dilemma will notnecessarily be the best from the point of view of the community.Secondly, the marginalist approach generally overlooks the dynamiccharacter of an investment decision in raising the rat e of return to cap-ital for other, future investors - a factor which later work by Chenerysuggested was likely to be Of substantial economic importance. 12Herewe are back to Nurkse's axiom that the inducement to invest is limitedby the size of the market. Scitovsky's third criticism of conventionalmarginalist theory was of particular interest to nationalist leaders informer colonies. Ther e was, he said, a big difference between nationaland international welfare considerations. When national interestspredominate, 'investment in exporting industries is always less, andthat in import-competing industries is always more desirable from thenational, than from the international point of view, '13 because part ofthe welfare gains of foreign trade are enjoyed by foreigners who alsohave to bear some of the costs of import substitution.We revert to the attack on the relevance of neo-classical mar-ginalism shortly. but at this point the reader is likely to be asking him-self whether this gloomy theorizing does not prove too much. Isdevelopment impossible, then, and, if so, how is it that the countries ofEurope and North America have managed to raise their living stan-dards t o levels previously undreamt of? Many of the first countries toindustrialize did so upon the basis of a greatly expanded volume ofexternal trade a nd large importations of foreign capital. The vicious-circle ideas of Nurkse and others seem almost to assume a closedeconomy, but does not access to the world economy offer an escaperoute to the low-income countries?The literature provided an almost unanimously negative answer.Nurkse's attitude is particularly interesting, for he was a committedinternationalist of a liberal mouldof thought, whose pessimism abo utthe practical possibilities of export-led development in low-incomecountries was formed despite his intellectual predilections. By 1953 hehad become convinced that the growth of world markets for theexports of the low-income countries would be too slow for export-ledgrowth to be feasible for all but a few (the oil-producing countriesbeing the chief exceptions), but it was in his 1959 Wickselliectures thathe developed his argument with a force all the more formidable for the

DEVELOPMENT, DISEQun.mRIUM, STATE INI'ERVENTIONmoderation with which it was presented. 14 The structure of productionwithin the industrial countries, he believed, is shifting away fromindustries with large raw material inputs; the income elasticity ofdemand for many agricultural products is low; technological progresshas achieved substantial economies in the use of material inputs andhas made available many synthetics strongly competitive with primaryproducts; the protectionism of industrial states aggravates these prob-lems and also reduces the scope for the low-income countries to switchto the exportation of manufactures .Nurske confined himself to arguing that the expansion of worlddemand for primary products was generally slow but others wentfurther. In 1949 a UN study appeared to demonstrate that there was asecular downward trend in the expor t prices of primary products rela-tive to manufacturesl5 and this theme was strongly taken up bySinger: 16

It is a matt er of historical fact that ever since the [eighteenJseventiesthe trend of prices has been heavily against sellers of food and rawmaterials and in favour of the' sellers of manufacture d articles.Thestatistics are open to doubt a nd to objection in detail, but the generalstory which they tell is unmistakeable.

The marginalist response would have been that persistentlydeteriorating terms of trade would result in adjustments of the patternof production to take advantage of changing comparative advantagesbut, as Singer and others17 pointed out, a characteristic of an underde-veloped economy is an inflexible productive system, a low capacity totransform. Here again, the traditional prescription seemed inapplic-able.Quite apart from any alleged long-term worsening in their terms oftrade, the low-income countries were seen to be at a disadvantagebecause the world markets for primary products are more volatile thanfor manufactures and because the typical low-income country isheavily dependent on just one or a few such commodities. Thiscombination of circumstances, it was argued, left their economiesvulnerable to externally generated instability, which, by increasinguncertainty and risk, discouraged investment. SNor did foreign private investment offer a promising avenue ofescape. Singer and o thers argued that foreign investment in the low-income countries; being generally concentrated in the production ofprimary products for export, ha d led to enclave typesof activity havinglittle effect on the general developmen t of the host economy and thatthe main benefits were enjoyed in the country in which the investmentoriginated.19Myint added an additional string to this bow, developinga plausible model in which labour remained low-paid and unskilled i nspite of foreign investment. 0The similarityof these arguments to clas-

http:///reader/full/Scitovsky.l1http:///reader/full/originated.19http:///reader/full/originated.19http:///reader/full/Scitovsky.l1http:///reader/full/originated.19

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16 17EVELOPMENT ECONOMICS IN ACI10Nsical and contemporary attacks on colonialism were very noticeableand this, in the eyes of many of us, made them all the more acceptable.We shall see in the next chapter that Nkrumah found them congenial tohis own views.The Rejection of MarginalismThe broadened concept of external economies deployed by Scitovskyand others to explain the persistence of international poverty dentedthe defences of traditional neo-classical theory. So too did the seeminginappropriateness of the free trade prescriptions of comparativeadvantage theory. But the attack of mainstream developmenteconomics was launched over a considerably broader front than this.Various additional reasons were advanced for doubting the relevanceof a traditional approach to the p roblems of the low-income countries.Scitovsky and others noted that the market size of many of thesecountries was very small by the standards of the industrial states,increasing the problems created by large (relative to the size of themarket), indivisible investments and increasing returns to scale.21Small markets furthe r tend to increase the incidence of monopolisticorsemi-monopolistic industries, thereby further reducing the efficacy ofmarket-orie nted policies. Factor marke ts were also likely to be highlyimperfect in the conditions of the underdeveloped countries, creatingdualistic economies, and factor prices substantially at variance withtheir social marginal products. 22 Information flows were also likely tobe poor, and these factors would tend to make for low elasticities ofsupply (which is why deteriorating terms of trade held such seriousimplications). Thus, the price signals of the market would, at best,meet with weak responses and, at worst, with responses that weresocially damaging.There was pessimism, too, about the supply of entrepreneurialtalent. Leibenstein's low-level trap envisaged small incentives for and,therefore, a limited supply of entrepreneurship; Lewis and Nurkse alsoconsidered there to be a general shortage of entrepreneurs; and

Hirschman based much of his case for unbalanced growth on the viewthat the capacity t o make investment decisions is among the scarcest'factors' in these countries.23 If a general shortage existed, it added afurther reason for elasticity pessimism and doubts about the efficacy ofa market-economy approach to development.Considerations such as these led the a uthors of a seminal UN reportto conclude in 1951 t hat the marginal principle, 'though still valid, isoften of secondary usefulness'.24 Unconstrained by the caution whichinfects the authors of official reports, Myrdal was willing to go muchfurther, arguing tha t 'criteria for the national planning are . . . entirelyoutside the price system. There do not exist any "ob jective" criteria foreconomic planning.'2s Myrdal further attacked the hidden value pre-mises of neo-classical theory, which he regarded as 'a rationalisation of

DEVELOPMENT, DlSEQUll..IBRIUM, STATE INTERVENTIONthe dominant interests in the industrial countries where it was first putforward and later developed'.26 He was especially hard on trade theorywhich predicted a gradual international equalization of factor pricesand incomes in a world of growing inequalities. Seers was ano ther whoattacked conventional theo ry ( and textbooks) as being based upon the'special case' of an industrial economy.27

Finally, and perhaps above all, marginalism was attacked as beingtoo static to be very relevant to the essentially dYlUlmic question ofdevelopment. Thus, Hirschman:28Instead of concentrating exclusively on the husbanding of scarceresources such as capital and entrepreneur ship, our approach leadsus to look for 'pressures' and 'inducement mechanisms' that willelicit and mobilise the largest possible amounts of these resources.

Indeed, the very title of his book, The Strategy ofEconomic Develop-ment, implied a break with marginalism, for an economy guided by anInvisible Hand no need of a development strategy, nor any meansof employing one. But no one was able to' put it better thanSchumpeter. The application of static analysis to the process of growthwas fruitless, in his view, for development 'is a distinct phenomenon ,entirely foreign to what may be observed in the circular flow or in thetendency towards equilibrium. It is spontaneous and discontinuouschange ... which forever alters and displaces the equilibrium statepreviously existing. 29 Capitalist development, as he saw it, was a pro-cess of 'Creative Destruction.'3o General equilibrium theory has littleto offer in a process of Creative Destruction.The Disequilibrium Strategy of DevelopmentIt is easier to obtain a consensus among doctors about what ails apatient than about how to cure him. So it is with economists, and itwould be idle to pretend that those members of the profession mostconcerned with development were unanimous in the advice theyoffered to low-income countries. There was, for example, an extensivedebate on the relative merits of balanced and unbalanced growth,especially between Nurkse, urging simultaneous advance on all fronts,and Hirschman, espousing a challenge-and-response argument for thedeliberate creation of disequilibria. 31 Despite the disagreements, it isnevertheless suggested that, at beginning of the sixties, a substan-tial (but not necessarily identical) majority could have been mustere din support of each of the following propositions - propositions which,as will be shown, Nkrumah also accepted:1. Economic development is a discontinuous process of structuraltransformation.2. Above a ce rtain critical level of per capita income, growth tends tobecome self-sustaining.

http:///reader/full/scale.21http:///reader/full/scale.21http:///reader/full/products.22http:///reader/full/products.22http:///reader/full/countries.23http:///reader/full/countries.23http:///reader/full/usefulness'.24http:///reader/full/economy.27http:///reader/full/disequilibria.31http:///reader/full/disequilibria.31http:///reader/full/disequilibria.31http:///reader/full/scale.21http:///reader/full/products.22http:///reader/full/countries.23http:///reader/full/usefulness'.24http:///reader/full/economy.27http:///reader/full/disequilibria.31

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198 DEVELOPMENT ECONOMICS IN AcnON3. To break out of the poverty trap an d achieve self-sustaining growth,a 'critical minimum effort' or 'big push' is required.4. While this push requires many inputs, its single most importantcomponent is a massive increase in the ratio of investment tonational income.5. Development entails industrialization, which, by choice or from

necessity, will concentrate on satisfying the home market formanufactures.The remainder of this section is offered by way of elaboration andsubstantiation.The first proposition was (and probably remains) the leastcontroversial. I n this but not in other respects the profession embracedSchumpeter's vision as its own. Nurkse, Lewis, Leibenstein,Hirschman and Rostow - all can be shown to have expressed senti-ments along these Iines,32 and an atte mpt was made to distinguish be-tween growth and development, with the latter but not the formernecessarily involving structural trans formationYThe second proposition has already been touched upon, at least byimplication, in the description of the views of those who saw theproblem of pover ty in terms o f vicious circles or analogous concepts. Ifone accepts Nurkse's view that both the inducement to invest and theability to save are a rising function of per capita income (or t he size ofthe market) and add to it Leibenstein's notion of a rate of populationgrowth which goes up with income until it reaches a biological limit,plus a fairly constant incremental capital:output ratio, then indeedthere is a critical point above which society can sustain levels of savingand investment sufficient to induce a growth of income in excess of theexpansion of population. All this was demonstrated most elegantly byLeibenstein. Even those who would find it difficult to accept theassumptions necessary for a formal demonstration of the point arenevertheless likely to find it an intuitively appealing one, as expressedin Rostow's notion of the take-off:34

The take-off is the interval when the old blocks and resistances arefinally overcome. The forces making for economic progress, whichyielded limited bursts and enclaves of modern activity, expand andcome to dominate the society. Growth becomes its normal condi-tion. Compound in terest becomes built, as it were, into its habitsandinstitutional structure.The third proposition, the need for a 'big push', is essentially a log-ical corollary of the second. The theory underpinning it is that aneconomy which has not achieved the 'take- off' will no t merely stag-nate, it will retrogress. Until the critical level of income is achieved,income-depressing forces tend to dominate and the economy is con-stantly oscillating around a subsistence level of income.35 Thus, there is

DEVELOPMENT, DISEoun..mRIUM, STAlE INTERVENTIONlikely to be a large gap between prevailing income levels and the ta ke-off point, which no effort of everyday dimensions can close.But of what might the 'big push ' consist? This brings us to the fourthproposition. The influence of Keynes was very appa rent here. Buildingon a Keynesian foundation and concerning themselves with thecircumstances of industrial capitalist economies, Harrod and Domarhad developed a theory of rowth featuring a stable incrementalcapital:output ratio (ICOR),3 and this proved a powerful simplifyingassumption for others who wished to derive a model for the develop-ment of low-income countries. Given a constant ICOR, a rate ofgrowth can be determined from a specified rate of investment, or viceversa. This being the case, a doubling, say, in the share of investment inGDP would also double the rate of growth of the economy and propelit towards the take-off point.In none of the writings was the reasoning as crude or unqualified asthis but certainly great stress was placed on capital formation as theprime mover. The 1951 UN report on measures for developmentstressed the need for net investment rates of at least 10 per cent ofnational income as compared with 5 per cent or less found in mostunderdeveloped countriesY The emphasis Nurkse placed on thisfactor is clear from what has already been said. Agreeing with the UN,Rostow saw the take-off as accompanied by a rise in net investment'from, say, 5 per cent of the national income to 10 per cent or more. ,38But the most famous formulation was that of Lewis: 39

The central problem in the theory of economic development is tounderstand the process by which a community which was previouslysaving and investing 4 or 5 per cent of its national income or less,converts itself into an economy where voluntary saving is running atabout 12 to 15 per cent of national income or more. This is thecentral problem because the central fact of economic development israpid capital accumulation (including knowledge and skills with cap-ital). We cannot explain any 'industrial' revolution (as the economichistorians pr etend to do) until we can explain why saving increasedrelatively to national income.Returning to the literature of the fifties on this topic, one is impressedby the fact that virtually all writers qualified their re marks on physicalcapital formation by drawing attention to the and institutionalfactors that were a necessary complement to it if it were to achieve thedesired rates of growth.40But it is the inevitable fate of authors to beremembered by their central ideas and not by the qualifying clausesthey so carefully insert, so the main message that came across was thata massive investment effort was needed to break out of the povertytrap.This brings us t o the fifth proposition of mainstream development

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2120 DEVEWPMENT ECONOMICS IN ACllONeconomics, that development entails industrialization. There are twologically distinct ways of understanding this. One can understand it as ahistorical statement, a generalization about the form which develop-ment too k in the now high-income countries. However, it is easy toslipfrom the objective patterns of the past to make prescriptivestatementsabout the form that development will or should take in the future, andseveral writers found the journey from positive to normative state-ments an easy one.The historical connection between industrialization and develop":ment is obvious. After all, the process by which the countries ofEurope modernized their economies is called the industrial revolution,and empirical research by Kuznets, Chenery and others has providedample demonstration of the past importance of the expansion ofmanufacturing. 41 Undeterred by the dangers of extrapolating historyinto the future, some found the historical connection so strong thatthey apparently took it for granted that history would repeat itself.Thus for Rostow the developmentof one or more substantial manufac-turing industries with a high rate of growth was one of the three-defining characteristics of the take-off, and Scitovsky simply referredto development theory as 'the theory of industrialisation. '42This is not surprising since, quite apart from historical experiences,there was a powerful battery of a priori arguments to be marshalled infavour of industrialization.43 It is more likely than agriculture to beassociated with a modernization of attitudes and the generation oftechnical progress.44 Productivity tends to be higher in industry. Thegrowth of industry generates a demand for agricultural goods, thusstimulating the development of agriculture, and provides materialincentives for agricultural expansion in the form of low-cost manufac-tured consumer goods. Industrialization is a precondition of agricul-tural progress in count ries with high population densities, by providingnon-agricultural avenues of employment to relieve pressure on theland. More generally, industrialization is a means of reducingunemployment.

But perhaps the most important argument was that developed byHirschman.4 His approach was to examine the power of various typesof economic activity to form linkages with other sectors of theeconomy of the type that would show up in an input:output table,either by creating a demand for their products as inputsor a supply thatmay lower the costs of other industries - an approach to the subjectwhich was a .far cry from that of comparative advantage. He producedevidence by Chenery and Watanabe in which manufacturing scoredheavily by these criteria. Primary production naturally comes outpoorly, for backward linkages are practically ruled out by definition,and so do various service activities.46Hirschman argued in favour of asequence of development in which investment in directly productiveactivities was generally in advance of the creation of complementary

DEVEWPMENT, DISEQUILIBRIUM, STATE INTERVENTIONsocial overhead capital and, as between industry and agriculture, con-cluded that the latter

stands convicted on the count of its lack of direct stimulus to thesetting up of new activities through linkage effects: the superiorityofmanufacturing in this respect is crushing. This may yet be the mostimportant reason militating against any complete specialisation ofunder-developed countries in primary production.Hirschman further advocated import-substituting industrialization,although several writers anticipated him in this. Prebisch was an earlyadvocate, in one of the first of his UN publications,47 and we havealready noted how writers like Nurkse and Scitovsky stressed theexpansion and satisfaction of the domestic market in their own writ-ings. In their view, import-substitution was both necessary in view ofthe protectionist policies of industrial countries and, given theimpracticability of achieving a successful export trade without firstestablishing a home base, also desirable as a means of internalizing forthe economy as a whole the externa l which they associated

with manufacturing.Again, it is not suggested that the profession was unanimous inadvocating the superiority of an industrialization based on manufac-turing import-substitutes. Some 'mainstream' writers, notablyl.cwis,48 had major reservations about it. But it is contended that therewas sufficient agreement to justify saying that this was the predo-minant view at the beginning of the sixties. I agree with Johnson whenhe describes an emphasis on the need for industrialization and on thepotency of protectionist policies as constituting the prevalent strand inthe contemporar y "conventional wisdom" of the theory of economicIlcvelopment policy.'49

It remains in this account of mainstream development economics toexamine the view which was taken of the role of the state in thet\c,veiopment process.Planning as a Substitute for the Market(,hc critique of marginalism set out earlier and the positive advocacy ofa hig push, disequilibrium strategy of industrialization predetermine diI very active role for the state. Arguments concerning externalitiesdClicribed above constit uted a powerful theoretical basis for stat e plan-ning which most of the writ ers were quick to deploy. The point was put- !'uccinctly by Scitovsky:50 - -

In an economy in which economic decisions are decentralized, asystem of communications is needed to enable each person whomakes economic decisions to learn about the economic decisions ofothers and co-ordinate his decisions with theirs. In the marketeconomy, prices are the signalling device that informs each person ofother people's economic decisions; and the merit of perfect

http:///reader/full/manufacturing.41http:///reader/full/manufacturing.41http:///reader/full/industrialization.43http:///reader/full/industrialization.43http:///reader/full/progress.44http:///reader/full/progress.44http:///reader/full/activities.46http:///reader/full/activities.46http:///reader/full/manufacturing.41http:///reader/full/industrialization.43http:///reader/full/progress.44http:///reader/full/activities.46

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22 23EVEWPMENT ECONOMICS IN ACTIONcompetition is that it would cause prices to transmit information reli-ably and people to respond to this information properly. Marketprices, however, reflect the economic situation as it is and not as itwill be. For this reason, they are much more useful forco-ordinatingcurrent production decisions, which are immediately effective andguided by short-run considerations, than they are for co-ordinatinginvestment decisions, which have a delayed effect and - lookingahead to a long future period - should be governed not by what thepresent economic situation is but by what the future economi c situa-tion is expected to be. The proper co-ordination of investment deci-sions, therefore, would require a signalling device to transmitinformation about present plans and future considerations as theyare deter mined by prese nt plans; and the pricing system fails to pro-vide this. Hence the belief that there is need either for centralizedinvestment planning or for some additional communication systemto supplement the pricing system as a signalling device.

It must be added that the argument of this section applies withespecial force to underdeveloped countries.He regarded the argument particularly relevant to low-income coun-tries because factor and product markets were likely to be even moreimperfect than in industrial economies, and entrepreneurial talent wasliable to be scarcer.

Even if the profession had taken a more positive view of the effi-ciency and dynamism of the market system, they were still practicallybound to have advocated a greatly enlarged role for the state by theirstrategy of development. For what institution could give theseeconomies a big push except the state? How could investment rates bedoubled, or more, except at the instigation of some central planningauthority? And how could industrialization which had been lacking bebrought to vigorous life unless, at the very least, the governmentoffered strong inducements for it? Moreover, increased emphasis onthe use of mathematical and econometric techniques in economics,including the development of input-output and linear programmingmethods, meant that economists had more to offer in this area and aprofessional interest in the application of these techniques.Thus, there sprang up a consensus in favour of development plan-ning and in 1957 Myrdal could write that it was 'universally urged' th atlow-income countries 'should have an overall, integrated nationalplan.' Moreover, he said, 'Because of the various deficiencies in abackward country it is also accepted by everyone that the governmentwill have to take over many functions which in most advanced coun-tries in the Western world were left to privat e business.'51 We will seethat Nkrumah fully shared these views.The emphasis in the literature on the development strategiesdescribed in the previous section was placed heavily upon macro-economic magnitudes and this had its effect on those who wrote in this

DEVEWPMENT, DISEQunmRIUM, STATE INTERVENTIONperiod on the techniques of planning. Stress was placed upon aggrega-tive concepts like saving and investment ratios, average and incre-mental capital:output ratios, and import propensities. The planningliterature was also biased towards the development and application ofeconometric techniques, with less concern for the policy content ofplans or their micro-economic implementation.52The task of planning included compensation for the distortions of. actual prices, which characteristically over-valued labour (along thelines of the article by Lewis already cited), and under-valued capitaland foreign exchange. A similar task was to foster import-substitutingindustries by reducing the openness of the economy. The plannerswere also to impart a longer time-horizon to investment and consump-tion decisions than the typically myopic view consumers and entrep-reneurs of low-income countries would tend to take. And, sinceentrepreneurship was generally expected to be scarce, the state wouldhave to fill the ,gap with a large investment programme of its own.Whether its lRvestment programme should take the state intodirectly productive activities was a matter on which there was unease.Several writers identified here as of the mainstream took the view thatit would probably be preferable for state investment to be concen-trated on the conventional provision of social overhead capital, butt hat it could well happen that the state would often have to playa moreactive role in the industrializa tion drive.53A somewhat similar attitudewas displayed towards administrative controls. A few writers advo-cated import restrictions as a means of buttressing the balance of pay-ments and of stimulat ing domestic industrialization;S4 other s remainedsilent or agnostic on the issue.While most mainstream writers argued in support of more aid fromthe industrial nations, they also stressed the importance of a muchimproved domestic savings effort to the achievement of self-sustaininggrowth. Here , too, the st ate was seen as having a major responsibility,in promoting banks and other financial institutions to mobilize volun-tary saving, and through t ax policies. An increased tax effort was quitecommonly taken as equivalent to an increase in domesti c saving,on the(usually unstated) assumptions that a trivial amount of the additionalrevenue would otherwise be saved (or would not be invested produc-tively) and that the government would devote the extra revenue tocapital formation rather than increased public consumption.5sOtherspointed to the potential of deficit financing as.a means of mobilizingresources for develo pment. Lewis, for example, argued tha t in a closedeconomy the use of inflation to finance productive capital formationlends to be self-correcting: the supply of goods catches up withdemand and prices cease to rise or may even fall.56 Similarly, the LatinAmerican structuralist school saw inflation asan inevitable, if undesir-uble, symptom of an adequately large development effort.57rn brief, the mainstream development economics of the fifties was

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24 25EVELOPMENT ECONOMICS IN ACTIONhighly interventionist. It established powerful theoretical and practicalarguments against reliance upon the market mechanism and advo-cated a strategy of development which placed the sta te in the centre ofthe stage. A central planning agency was to provide inducements orcommands superior to the price signals of the market. There was muchless agreement on whether the instrumentalities of the state should belargely indirect, Le. modifying but working through the marketmechanism by such means as tariff policy and the provision of taxincentives for investment, or direct, i.e. replacing the market byadministrative controls and the establishment of state-owned indus-tries. It is not possible, in my view, to identify a consensus of this issue.But there was virtual unanimity on the large role of the state - a unani-mity which extended to Ghana.Dissident VoicesThis survey of the development literature o f the fifties would be at faultif it conveyed the impression that the profession was completelyagreed abou t all the ideas presented above. I have tried to indicate inthe text and its footnotes the degree of agreement that was achieved onthe chief propositions of the literature and some of the reservationsthat were expressed. The task here has been to identify the main thrustof the writings on development during the period un der study. Variouswriters made important contributions to aspects of this thrust withoutnecessarily agreeing with the rest of it. Probably only a minority of thewriters in question could be identified as agreeing with the whole of themainstream view as here presented. It is nevertheless submitted thatthere was a sufficient consensus on each of the important elements ofthe argument for the message to be clear to those studying develop-ment or practising it in planning agencies and the like.

The existence of a dissident school should, however, be acknow-ledged. Its earliest and most vigorous spokesman was Bauer, who hasspent most of the last twenty years swimming against the mainstreamand now finds himself coming into fashion. His attacks on such hal-lowed notions as the vicious circle of poverty, central planning andinternational aid, and his defences of the decentralized decision-making process of the marke t are well known but perhaps too stronglyexpressed to command more than minority sUpport.58 Bruton, Myintand Viner were among more mode rate early sceptics, and the outlineswere beginning tp be discernible of a distinctive C.hicago school.59 Butif theirs were not exactly voices in the wilderness, they were too muchin the minority to be heard easily, and too much out of fashion to beheeded.The Congruence with MarxismThe views of Marxist economists have been deliberately neglected tnthe foregoing paragraphs, for there is clearly a sense in which they

DEVELOPMENT, DISEQun.mRlUM, STATE INTERVENTIONcould not plausibly be said to belong to the mainstream of Westerneconomic thought on the problems of development. Yet mainstreamdevelopment economics was at many points highly congenial to Marx-ists. This is of considerable importance when we tum to examineeconomic policies in Ghana during the Nkrumah period, for Nkrumahcalled himself a Marxist and was clearly influenced by Marxian ideas.

Perhaps the congruence of mainstream and Marxian views was nottoo surprising, for inequality has long been one of the principal con-cerns of Marxian thought, and the hidden value premise of develop-ment economics is an egalitarian one - that world inequalities in livingstandards ought to be reduced and that policy alternatives should beassessed chiefly according to whether or not they have the tendency toachieve this result. Whatever the reason, it is probably true to say thatcontemporary Marxian thought was in general agreement with themain tenets of mainstream development economics.60It too regardedpoverty as a self-perpetuating vicious circle which could only bebroken by structural transformation. Naturally, they embraced thearguments which led to a rejection of marginalism and the openeconomy. The idea (although not t he phraseology) of the big push wasalso in their writings, together with emphasis on the need for majorincreases in saving and investment, and a process of developmentwhich emphasized industrialization. They were also, of course, amongthe advocates of centralized planning and of very wide-ranging stateinvolvement in the economy.61However, to the non-Marxian body of thought they brought somedistinctive insights of their own. The existence of past colonialexploitation, the economic distortions (dependence on primaryproduction) to which it gave rise, and t he highly skewed distribution ofincome within many low-income countries were dimensions which theMarxists added to the notion of the vicious circle.62 Similarly, theystressed the large potential that existed for raising national savings bytapping the excess incomes of the wealthy and by expropriating foreigninvestors.63 And they went considerably further than most in theirarguments for central planning and governmental control of theeconomy. All in all, though, the congruence of Marxian and non-Marxian thought on the development issue was a rather remarkableand mutually reinforcing one."{he Congruence with .We should also note how easily the literature of the fifties could benued into the anti-colonial struggle of the same period, from whichGhana had just emerged. The congruence of the ideas of mainstreamdevelopment economics (reinforced by the Marxian analysis) with1hose of the new nationalist leaders of Africa and Asia is one whichwriters as far apa rt as Myrdal and Johnson have noticed.64Someof theeconomists in question were quite explicit about their anti-

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276 DEVELOPMENT ECONOMICS IN ACl10Ncolonialism. Lewis, for example, in his celebrated essay on the labour-surplus economy argued that 'the record of every imperial power inAfrica in modem times is one of impoverishing the subsistenceeconomy, either by taking away the people's land, or by demandingforced labour in the capitalist sector, or by imposing taxes to drivepeople to work for capitalist employers. 65 Myrdal similarly relatedeconomic backwardness to colonjalism.66The arguments deployed tothe effect that there was a secular tendency for the terms of trade oflow-income countries to deteriorate, and that foreign investmenttended merely to create enclaves, the main direct and indirect benefitsof which were enjoyed in the investing country, also provided goodintellectual ammunition to those embattled against the colonialpowers.

The type of development strategy summarized earlier also provedhighly attractive to nationalist leaders. The anti-colonial struggle, andthe subsequent achievement of independence by many Asian andAfrican countries, generated expectations of rapid improvements inliving standards, and the 'big push' type of strategy gave the impressionthat quick results were there to be had. I f the new nations couldcapitalize upon the patriotic fervour created by the struggle forindependence then, after a heroic initial effort, the take-of f could beachieved and the benefits enjoyed. The stress on import-substitutingindustrialization was especially congenial, for a belief in this was (andprobably remains) common ground among nationalist leaders seekingalso 'economic independence' whose active support and politicalpower is often derived from the growing number of city-dwellers.67The fact tha t development economics lent support to the nationalistcause in low-income countries ensured that these ideas would have awide currency and would exert much influence there. This helps toexplain why the new nations, Ghan a among them, implemented manyof the policy recommendations of the literature. Western economistscan normally expect to be opposed or (more usually) ignored by the irown governments because they are often urging policies involvingsome real or imagined political unpopUlarity. In the newly emergingnations of the third world, politics and economics marched together.The profession enjoyed unaccustomed popularity and the leadingfigures in deve lopment economics were in great dem and as advisers tothe governments of underdevel,?ped countries.68

Destruction of the ConsensusAny maj or thrust o f new ideas generates a counter-revolution, whichhas duly occurred in development economics. Beginning around themiddle of the sixties, it has gathere d sufficient force and support so thatit is no longer possible to talk of a mainstream of developmenteconomics.69 Instead we have an interplay of many ideas; the con-sensus has been destroyed.

DEVELOPMENT, DISEQUILIBRIUM., STATE INTERVENTIONIt would be beyond the scope of this chapter to go at all deeply intothe controversies which have arisen since the mid-sixties but, since itwill be a contention of a late r chapter that economic policies in Ghanain 1966-71 did in some measure reflect the changing fashions indevelopment economics, some account of the new literature should begiven. What follows, however, is only a brief, schematic presentation.To some degree the counter-revolution was based upon a rejectionof the theoretical basis of the old orthodoxy. Nurkse's theory ofbalanced growth was an early casualty, ceasing to have much practicalimportance with the admission that his theory was 'an exercise ineconomic development with unlimited supplies of capital' 70 Un-limited supply of capital is scarcely one of the attributesof low-incomecountries, with the exception of some of the petroleum producers.Nurkse might also have added that his theory assumed unlimitedabsorptive capacity for investment, and that assumption, too, scarcelycommends itself. Rostow's historical theory of the stages o f economicgrowth was also rejected quickly, especially afte r a devastat ingcritique by Kuznets71 which was all the more ironic becauSe Rostowhad named Kuznets as father of the child. The hypothesis of a seculardeterioration in the terms of tra de of low-income countries also came

under severe attack and would not today command wide acceptance.72Another factor was the influence of historical findings whichappeared to show that factor inputs, as such, were unimportant sourcesof economic growth by comparison with the accumulation of know-ledge and the application of technical progress.73The very heavy stresson inputs of new factors, especially capital formation, and the neglectof technological progress was called into question.Nevertheless, much of the theoretical basis of the early orthodoxyremains intact (a fact which should cause some unease among its crit-ics) and a far more important cause of the counter-revo lution was an1I11eged failure of several of the earlier ideas as practical policy solu-tions. The chief areasof disillusionment concerned t he effectiveness ofimport-substituting industrialization (lSI) and planning. Evidencefrom Latin America and elsewhere has shown that lSI can imposeheavy welfare costs upon the domestic economy without providing thedynamic effects expected of it. 74 Even the political left, influenced bythe Chinese model in which 'agriculture is the foundation and industryI.hc leading sector', has begun to adopt a more cautious approach toindustrializ3tion.75 .There is a similarly widespread acceptance that the early advocatesof development p lanning under-emphasized its practical limitations.Waterston provided a coolly detached study drawing attention to thelarge gap between the promise and performance of planning; 6 we hearnow of a 'crisis in planning',77 and Healey probably speaks for amajority when he describes the results of twenty years of planneddevelopment as, 's adly disillusioning for those who believed that plan-

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28 DEVELOPMENT ECONOMIC) IN AcnONning was the only way' 78 Inadequate flows of information and ineffi-cient administration are now seen as severely limiting the capacity ofplanning to reap the benefits which it should theoretically haveachieved, and a fairly common combination of import and exchangecontrols plus an over-valued currency is increasingly seen as intro-ducing unwanted distortions into a number of low-incomeeconomies. 79Similarly, the naive presumption that an increase in taxrevenues is equivalent to an almost equal increase in domestic savinghas given way to a realization that governments also have high mar-ginal propensities to consume.80With this disillusionment has come, from some quarters; a re-assertion of the relevance of conventional Western economic theory.The inefficiencies generated by undiscriminating lSI and by unsuccess-ful attempts at planning and controlling have led to a revival of interestin the fundamental concern of neo-c1assical theory - the efficientallocation of resources. 8l Bruton's 1965 textbook is largely cast in amarginalist mould and devotes just one sceptical chapter to strategiesof development, under the heading of 'Some Special Topics'.82 Themore recent textbook of economic theory written for students in low-income countries by Bell and Todaro is even more explicit in itsreassert on of marginalism,83 and the principles of comparative advan-tage seem to be coming back into favour. However, the debate over therelevance of conventional economic theory is by no means settled andthe disequilibrium school retains a good deal of support. 84 .This disillusionment and the occurrence of a few 'developmentdisasters,' such as the break-up of Pakistan, has led many to re-examine the traditional scope of development economics. A wholeissue of the Journalof Development Studies was devoted to the defini-tion and measurement of development,85 and many researchers haveturned away from the former preoccupation with growth to investigatethe problems of unequal income distribution and unemployment inlow-income countries.86

In general, it seems reasonable to characterize th e shift in opinionssince th e mid-sixties as a movement towards a greater stress onshorter-te rm allocative efficiency and equity, which are no longer seenas antithetical to dynamic growth. Rather little thought, however,appears to have been devoted to the practical problems of movingfrom an economy in which there are large price distortions to one inwhich the mark et more truly reflects relative scatcity values, althougha rapidly burgeoning literature on social cost-benefit analysis seeks toprovide ways for compensating for differences between private andsocial valuations.87 In Ghana, too, there was from the mid-sixties agreater concern with shorter-run efficiency but there were manydifficulties about attempting a transition from a command to a moremarket-oriented economy. Chapters 11 and 12, which deal with thistopic, thus provide a commentary on the practicability of some of the

29DEVELOPMENT, DISEQUILIBRIUM, STATE INTERVENTIONideas which have come to the fore in the literature during the last fewyears. The next task, however, is to examine Nkrumah's developmentstrategy and its affinities with the earlie r ideas of mainstream develop-ment economics.

NOTESI Leibenstein, 1957, p. 4.2 Rosenstein-Rodan's 1943 article perhaps marked the starting point and, of course,earlier writers, especially in the classical period, were also much concerned withdevelopment. Keynes and ( as will be shown) Schumpeter were also particularlyinfluential on later writers. (See Arndt, 1972, on development economics before1945.) But development economics 'took off' in the fifties, beginning perhaps withthe UN's Measures for the Development of UmJ.erdeveloped Countries (1951) andincluding major works by Nurkse (1953), Lewis (1954 and 1955), Scitovsky(1954), Myrdal (1956 and 1957), Leibenstein (1957) and Hirschman (1958). Thisperiod of 'grand theorising: strongly marked by the boldness of its ideas, mightconveniently be said to have concluded with Rostow's Stages of Economic Growth(1960), with Prebisch's 1964 UNCfAD document seen as a late entry into the

field.1 Nurkse, 953, p. 6. See especially chapter 1 for a statement of the position sum-marized in this paragraph. .4 See Leibenstein, 1957, especially chapters 3 and 8.5 This was well within the Keynesian tradition, as it had been developed by Harrod

(1948) and Domar (1957).1 Leibenstein, pp. 186- 7. He also postulated that beyond some relatively high incomelevel population growth would begin to decline (see especially his 1954 Theory ofEconomic-Demographic Development) but that is less relevant to the purposes ofthe present study.

1 Myrdal, 1957, p. 55 and passim. See also Myrdal, 1956, especially pp. 15-16.8 Rostow, 1960, p. 4.9 Kuznets, 1964.

10 The idea can be traced directly back to Allyn Young (1928) - who in turn traces itback to Adam Smith - and is central to the views propounded by Rosenstein-Rodan (1943), Nurkse (1953, see especially pp. 13-15), Leibenstein (1957, seeespecially p. 106) and, in a somewhat transmuted form, Hirschman (1958, seeespecially p. 71).

II Scitovsky, 1954, passim. See Mishan, 1971, pp. 6-7, for a brief, dismissive discussionof this extension of the concept of externalities.

12 Chenery, 1959.I.l Scitovsky, p. 307.14 Nurkse, 1959, especially lecture 2."UN, 1949.III Singer, 1950. quotati on is from p.165. While written in quite a different context,Bhagwati's 1958 article on 'immiserizing growth' added another layer of doubt.11 Myrdal (1956, cha pter XIII), Kindleberger (1962, chapter 7, especially p. 178), andPrebisch (1964, passim). . .18 See UN, 1953, pp. 6-11 and 14-21, and Myrdal, 1956, pp. 238-46. for examples ofthis type of argument. The literature is well summarized in Macbean, 1966, chapter

l. 'I. Singer (1950) and Myrdal (1956, chapte r XIII and 1957, especially p. 60).10 Myint, (1954). See also Myint, 1967, chapter 4.11 See Rosenstein-Rodan, 1943, passim.22 For a good account of theories of dualism see Higgins, 1959, especially pp. 325-33.2J Leibenstein (1957, chapter 9), Lewis (1955, pp. 99 and 350), Nurkse (1953, p. 10,

n.l), and Hirschman (1958, pp. 24-8).

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3130 DEVEWPMENT ECONOMICS IN AcrION24 UN, 1951, p. 49.25 Myrdal, 1957, p. 89.26 Myrdal, 1957, p. 99. See also Joan Robinson, 1969, who deals brilliantly with thevalue biases of economic theory.21 Seers, 1963, passim.28 Hirschman, 1958, p. 6.29 Schumpeter, 1934, p. 66.30 Schumpeter, 1950, p. 83.31 In practice, Ghan a employed a disequilibrium strategy and he r experience is diScussedin relation to Hirschman's writings in chapters 8 and 12.32 NuJ'kse's notion of balanced growth was an example of a belief in structuraltransformation, as was Leibenstein's critical minimum effort. Rostow's notion ofthe 'tak e-off ' involved major changes in the socio-economic structure (see Rostow,1960, p. 39). Lewis (1955, pp. 142-7) also expected growth to occur in discon-tinuous surges involving major changes in economic institutions and other vari-ables. Hirschman's conception of unbalanced growth can also be interpreted as atheory of induced structural transformation. On the relevance of a Schumpetarianmodel to the circumstances of low-income countries see Wallich, 1958, andRimmer, 1961.33 For an example of the application of this distinction, see Clower et ai., 1966.34 Rostow, 1960, p. 7.35 See footnote 6, above.3li See Harrod. 1948, and Domar, 1957; also Kurihara, 1959, especially)1 UN, 1951, p. 35.38 Rostow, 1960, p. 8.39 Lewis, 1954, p. 416. In this article Lewis developed the theory in which there is a largereserve army of unemployed labour with a zero social margin product, where therate of growth is determined by the rate of capital formation, and the latter isdetermined largely by the share of profits in the national income. The belief thatmany developing countries have a large reservoir of unemployed labour encour-aged the view that capital was the key ingredient which was missing in order th atthey might grow. Lewis was careful to define capital as including knowledge andskills but, again, the main emphasis was on physical capital.40 In his 1955 bo ok Lewis discusses many determinants of growth besides capital forma-tion. See also Nurkse, 1953, pp. 5 and 156-7. Rostow (1960) has a lotto say aboutthe human and institutional pre-conditions for the take-off, and Leibenstein exp-licitly declined to give his concept of the critical minimum effort any singlespecification (1957, p. 105).41 See Kuznets, 1964, chapt er II, and 1965, especially pp. 95-7 and 194-5. In the indexof the earlier of these two we find the entry 'Industrialisation. See EconomicGrowth.' Also, Chenery, 1960, passim.42 Rostow, 1960, p. 39; Scitovsky, 1954, p. 299. Rosenstei n-Rodan, 19 43 and 1944, wasamong the earliest of the writers of this persuasion. See also Mandlebaum, 1947,passim.43 For an excellent survey of these arguments and their origin, see Sutcliffe, 1971,chapter 3.44 Myrdal (1956, p. 227) quotes Galbraith with approval: 'a purely agricultural countryis likely to be unprogressive even in its agriculture.'45 Hirschman, 1958, passim. The following quotation is from pp. 109-10.46 Yotopoulos a nd Nugent, 1973, using improved measurement techniques, confirm theinferior linkage effects of primary and service activities, and the superiority ofmanufacturing by this criterion (alth ough there are significant differences betweenindividual manufacturing industries), UN, 1950, p. 6.48 Lewis, 1955, especially pp. 276-83 .49 Johnson, 1967, p. 132.

DEVEWPMENT, DISEQU1LIBRIUM. STATE INTERVENTION50 Scitovsky, 1954, pp. 305-6. Rosenstein-Rodan (1943, p. 248) similarly argued that'the whole of industry to be created is to be treat ed and plann ed like one huge firmor trust', but Nurkse had his reservations and was uncomfortable with the idea thathis arguments led to an interventionist conclusion. Whethe r b alanced growth' wasto be achieved by centra l planning he prefer red to view as a matter of administra-tive form and, with an obviously greater belief in the efficacy of a m arket economy,he constantly reverted to the historical example of Japan, where the state played amajo r initiating role and then gradually phased outofdirectly producti ve activities.

See, for example, Nurkse, 1953, pp. 15-16.Myrdal, 1957, p. 79.52 Tinbergen and his colleagues were influential in this direction (see for example, Tin-

bergen, 1958).53 See footnote 50. See also Rostow, 1960, p. 25, and Hirschman, 1958, p. 203.54 See Myrdal. 1956. p. 283, and Nurkse (with qualifications). 1953, chapter V." The equation of taxation with saving is particularly strong in Nurkse. 1953, pp.142-52, and is also evident in the UN, 1951.Sf> Lewis, 1954, pp. 427-31.51 See Furtado, 1954, especially pp. 335-6, for an example, and also Hirschman, 1958,

pp.158-9.,. See, for example, Bauer and Yamey, 1957. and, more recently Bauer, 1972.,. See, for example, Bruton, 1955, Myint. 1967, Viner, 1952, and Wa,I, 1972."" I have taken the distinguished British economist Maurice Dobb, and Paul Baran as thechief spokesmen of the Marxian school (see especially Dobb, 1963, an d Baran,1952 and 1957). Note that these writers are of the traditio nal, Soviet-oriented,school; Maoist and other more recent variations take a rather different view onsuch matters as industrialization and central planning.61 On the vicious circle, see, for example, Dobb, 1963, pp. 17-18. On the need forstruc-tural transformation and a big push, Baran. 1957, pp. 3-4 and 1 3-14. For a mostsubtle and persuasive statement of the Scitovsky-type externalities argument forplanning see Dobb, 1960, chapter 1; see alsoBaran, 1952, pp. 85-6. O n the impor-tance of increased investment and saving, see Baran, 1957, pp. 20-21, and Dobb,1963, p. 41. On industrialization, see Baran, 1957, pp. 273-82, and Dobb, 1963, p.47 (although both these writers saw the pace of industrialization as being con-ditioned by the ability of agriculture to generate the surplus needed to provide the

resources for industrialization).62 Dobb, 1963, pp. 17-18 and 41, and Baran, 1952, pp. 88-91.63 Baran, 1957, pp. 261-7.... See Johnson, 1967, pp. 135-6 and Myrdal, 1968, pp. 1150-5.M Lewis, 1954, p. 410.M Myrdal, 1957, p. 60. Myint was another to deploy a modified critique of colonialism toexplain the lack of development in certain types of economy, although he falls only

rather awkwardly into the mainstr eam school (see Myint, 1967, especially chapters3-5)..7 Sutcliffe, 1971, p. 64, notes in respect of the agriculture versus industry debate, that'the most widely held and influential opinions on this controversial subject arepolitical or sociological rather than economic,' and goes on to provide examples.t,K As will be shown in the next chapter, Seers, Lewis, Kaldor and Hirschman wereamong the leading economists consulted by the Nkrumah government in Ghana,plus the chief Hungarian expert on development, Joszef Bognar. We noticehere a potential conflict between development economics and nationalism in thatthe former was concel!led to argue for more international aid whereas nationalistsoften professed to be suspicious of the economic dependence it might entail ('wewant trade not aid') . In practice, however, development plans looke d for inflowsofaid, sometimes so large as to be quite unfeasible.". In addition to the works ref erred to in footnotes 58 and 59, the publication of Bruton'sPrinciples of Development Economics in 1965 and Myrdal's Asian Drama in 1968

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32 DEVELOPMENT ECONOMICS IN ACTIONmay be regarded as of importance in the break-up of the old consensus. A recentarticle by Healey (1 972) surveys the battlefield well. although I would not agreewith him that there is yet a new consensus.

70 Nurkse. 1961, p. 250.11 See chapter 2 of Rostow (ed.), 1963.12 For a highly critical review of Prebisch (1964) see Johnson, 1967, pp. 249-50, and thestudy by Lipsey to which he refers. In similar vein, Macbean (1966, passim) was

surprised to discover that export instability apparently had few of the adverseeffects on development that earlier writers had predicted.13 See Kuznets, 1964, chapter II, and Dennison, 1967 .14 Bruton and his colleagues at Williams College have done much work on this (seeBruton, 1970). See also Hirschman, 1968, and Little et al., 1970.15 Sutcliffe, 1971, p. 66.16 Waterston, 1966A, particularly chapter IX.71 See a book of that title edited by Faber and Seers, 1972.78 Healey, 1972, p. 761.19 See Myint, 1967, p. 120, and Johnson, 1967, pp. 69-70.80 See Please, 1967, and subsequent IBRD papers on this topic.Sl See Little et aL, 1970, especially p. 227, and also the associated country studies.82 Bruton, 1965.83 Bell and Todaro, 1969. See especially pp. xii, 3 and 469-70.84 For a recent and fairly unabashed statement of a structuralist case see-Green, 1970,and, with various qualifications, Sutcliffe, 1971. Even in his Asian Drama (1968)Myrdal echoes much of the earlier thinking, as well as some of the subsequentdisillusionment. See also the highly critical review of Bell and Todaro by Stewart,1971.85 When I was an undergraduate a dozen years ago attempts such as that by Frankel(1953) to question the usefulness of national accounting aggregates as measure-ments of development or its absence were regarded as being deeply reactionary;now this seems in order. The summary of a recent article by Seers probablyexpresses an important body of opinion:

Development m eans creating the conditions for the realisation of human person-ality. Its evaluation must therefore take into account three linked economiccriteria: (i) poverty; (ii) unemployment; (iii) inequality. GNP can grow rapidlywithout any improvement on these criteria; so development must be measuredmore directly. (Seers, 1972)86 About half of the 'development economists' who attended a meeting at Williams Col-lege in October 1972 to describe their research work turned out to be working inthe unemploymentfincome distribution area. Mahbub-el Haq (1971) and Healey(1972) provide good statementsof the recent growth o f concern with these topics.81 See Henderson, 1968, for a good general survey of this literature. Little et al., 1970,chapter 10, provide the only explicit discussion of the problems of transition that Ihave seen.

3 The Economic Strategies ofNkrumah and his SuccessorsThe previous chapter asserted that economic policies in Ghana duringthe sixties coincided with many of the leading ideas on developmentpolicy then in vogue. The task of this chapter, then, is to set out theeconomic strategies of successive governments in Ghana and todemonstrate their affinities with the ideas surveyed in chapter 2. Theemphasis here, as in the whole book, is on the Nkrumah period,because the drive for development was then at its strongest andpolicies were at their most ambitious.There is, however, a problem of authentication. The views ofNkrumah, his colleagues and his professional planners did not alwayscoincide, were not always internally consistent or even coherent, andchanged with time. The same can be said, although with less force, ofthose who ruled from 1966. How, then, is it possible to offer a descrip-tion of these views that has a plausible claim to be accurate? Examina-tion of the declared aims of the development plans will not do, foroften they did not accurately state the actual intentions of the govern-ments which published them.1 For the Nkrumah period I have takenthe most consistently expressed viewsof Nkrumah himself as the basisfrom which to work. Pa rty publications, the views of other members ofhis government and party during the last years of his rule makessupplementary sources but only when they were consistent with theknown views ofThe Leader. The complete domination of the man overhis government and party during the last last years of his rule makesthis a more fruitful way of going about the problem. However, evenNkrumah's public views cannot be taken uncritically, for stat esmen'sactions frequently depart from their declared intentions.2 Followingthe advice of a member of President Nixon's first administration,'Don't listen to what we say, watch what we do ; I have taken theactions of the governments of Ghana as a better guide to their inten-

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34 DEVELOPMENT ECONOMICS IN ACI10Ntions than their public pronouncements, whenever there was a majordifference between the two.I Nkrumah's Development StrategyChanges in Ideology and Policy, 1959-62Ghana became self-governing in 1951 and achieved full independencein 1957. Nkrumah and his Convention People's Party (CPP) were inpower continuously from 1951 until the 1966 coup. But the period inwhich Nkrumah' s policies were distinctively different from those of thecolonialists he had fought s o vehemently was much shorter, a nd 1961can conveniently, if a little arbitrarily, be nominated as the year inwhich Nkrumah broke definitively with the policies inherited fromthe British.

By 1961 Nkrumah needed a change of direction. Ghanaians hadbeen encouraged to believe that removal of the despised colonialistsand their replacement by Ghanaians would bring manna to all. 'I f weget self-government,' Nkrumah said in 1949, 'we'll transform the GoldCoast into a paradise in ten years,'3 and an observer had noted thatevery trade union meeting he attended was devoted to politics: 'Theirstandard o f living could not be thought of as being separate from theircolonial status . . . >4 With full political independence now achieved andwith his party in undisputed control, Nkrumah's dilemma was the clas-sical one of a nationalist leader: how to maintain the momentum andhow to satisfy appetites whetted by a successful anti-colonial crusade?In fact, the growth of the economy in the fifties was far fromneglig-ible, as is shown in chapter 4, but still there were unsatisfied expecta-tions, and there is evidence that at the beginning of the sixtiesNkrumah was worried about possible loss of support.5 In particular itwas necessary to repay the party activists who had worked in the beliefthat they would benefit materially. Owusu's description agrees withthe finding of most students of the CPP when he says that the hard coreof the party's support came from people 'who felt that they were suffe-ring from relative economic deprivation and had strong desires forimproving their economic (o r class) status.'6 While the party had some

aspects of a genuine mass movement, drawing wide support from mostwalks of life (except the intelligentsia and the chiefs), it drew in par-ticular from a young generation of Ghanaians with insufficient educa-tion to give them literacy or vocational skills, but enough to aspire to awhite collar post or at least.a city job. 7 'Standard VII boys' they werecalled, emphasizing both the significance of their education and itslimitations. A more pejorative term was 'verandah boys', for they weresaid to sleep on the verandahs of their masters or relatives, unable t oafford anything better.The struggle for independence8 increased political consciousnessand spe eded up the process of modernization already un der way. This

ECONOMIC S1RATEGIES OF NKRUMAH AND IllS SUCCESSORSbrought to the fore relatively well-organized, articulate and politicallyinfluential interest groups who put pressures on the government andexpected more sympathetic responses than the ones which theyreceived from the colonialists.9 Since it appeare d that paradise would,after all, take a little longer than ten years, Nkrumah was brought faceto face with the impossibility of meeting all their claims. One responseto this dilemma was t o internalize the more powerful pressure groupsby making them wings of the party,1O and (as the distinction betweenparty arid state became increasingly blurred) of the government itself.Thus Nkrumah succeeded in capturing the lobbies; in making themdependent on him instead of himself on them. But only up to a point,since they still exertp-d pressures and wrung concessions. 11No one was more acutely aware than Nkrumah of the fragileeconomic basis of his sUpport: 12

One may sometimes wonder if the Western Powers fully unders tandthe dilemma facing political leaders in the emergent lands. Theyhave gained independence for their peoples. The hazards andexcitements of the struggle lie behind. Ahead lies the workadayworld in which people must live and eat and hope and prosper.Independenc e of itself does not change this world. It simply crea testhe right political atmosphere for a real effort of national regenera-tion. But it does no t supply all the economic and social tools. Theleaders are now expected, simply as a result of having acquiredindependence, to work miracles.(He forgot to add that miracles were what he had promised. ) Again:13

We cannot tell our peoples that material benefits and growth andmodern progres& are not for them. If we do, they will throw us outand seek other leaders who promise more. And they will abandonus, too, if we do not in reasonable measure respond to thei r hopes.Modernization, we have hinted, can be a disintegrative force.Economic specialization throws up powerful interest groups.Urbanization and education, which are almost defining characteristics

of modernization, break up traditional authority and create sociallychaoti

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36 DEVELOPMENT ECONOMICS IN AcnONrepresentation in the legislature15 and just a few months beforeindependence the opposition National Liberation Movement hadthreatened to declare a separate independence for Ashanti and calledfor a partition commission to apportion the assets and liabilities of thecountry. There were similar divisive tendencies among Ewe-speakingresidents in the Volta region, with a substantial movement in favour ofseceding from Ghana and joining Togo, also largely Ewe-speakingand

administered as a French colony. There wer e even some rumblings inthe North, and the opposition in these three areas joined forces againstthe CPP in the 1954 election.16 Even suppression of organized opposi-tion, well under way by the end of the fifties, did not put an end to thistype of problem, for Apter notes that after 1961 't he Ashanti regionalorganisation of the CPP began to take over the grievances whichhitherto had been a hallmark of the opposition.>l7So the pressure was on Nkrumah. He wanted to build a modernnation-state but to do this he needed power, an undoubte d authority.To ensure his authority he had to provide at least a glimpse of thatparadise he had promised - he had to make jobs and demonstrate someeconomic progress - and t o do so quickly. This he had to achieve with aworld cocoa market turning sour and while maintaining social cohe-sion. On the other hand, because he was now in charge of a sovereignstate, his dominance of the party and government fully assured by theend of 1961, and with many of the opposition having either changedsides, in prison, or destined to go there, he had greater freedom ofaction than before. A change of direction was thus both politicallynecessary and possible.

Coincidental with this phase was a shifting balance of power withinthe ruling party and a movement towards more radical policies. Theposition of the more conservative old guardofthe CPP was weakening.In 1959 Nkrumah delivered a speech to the CPP which placed morestress and urgency on socialism as the ideology of the CPP,18 in thefollowing year Nkrumah's long-standing but conservative MinisterofFinance, Komia Gbedemah, was demoted (and in 1961 fled thecountry), and various other long-standing members of the party wentout of favour. The men who replaced them were often more radical.Some of the old guard were later rehabilitated, but this did not restorethe status quo ante, and economic policies after 1961 were littleaffected by internal power struggles within the ruling party.20

The change in the government's attitudes and actions was exemp-lified by greater efforts to expand trade with Russia and other Com-21munist countries. and by the view it took of the roles of private enter-prise and the state. DUring the fifties an Industrial DevelopmentCorporation was established which set up a numbe r of publicly ownedcommercial enterprises. The government had always taken the viewthat these should be sold to private operators when they had become22viable. In 1960, however, Nkrumah announced that his government

ECONOMIC SlRATEGIES OF NKRUMAH AND HIS SUCCESSORSwould henceforth 'place far greater emphasis on the development ofGhanaian cooperatives rather than encourage Ghanaians to start pri-vate business enterprises,' the state enterprises would not be handedover to private interests, and that private businesses 'must now standon their own feet'.23 Various other measures had been taken topromote and assist Ghanaian entrepreneurs, and as late as 1958 thegovernment set up a committee to investigate the 'best means ofassisting Ghanaian businessmen to overcome their diffic),llties'.24ButNkrumah became disillusioned with these efforts and came to believe-correctly in my view - that there was little realistic prospect offosteringan indigenous entrepreneurial class capable of industrializing thecountry at the speed he wanted.25Even had th ere been the possibility, it is doubtful whether Nkrumahwould have wanted to create such a class, for reasons of ideology andpolitical power. He was very explicit about this, saying, 'we would behampering our advance to socialism if we were to encourage thegrowth of Ghanaian private capitalism in ou r midst.'26 There is evi-dence that he also feared the threatthat a wealthy class of Ghanaianbusinessmen might pose to his own political power.27 On the otherhand, he could scarcely prohibit private Ghana ian business altogether,for many small traders had supported the CPP in the fifties and werethus owed economic rewards. Nkrumah conceived an ingenious solu-tion. Ghanaia n private ente rprise was to be limited to small-scale con-cerns, 'provided that they are not nominees or sleeping partners forforeign interests. 28 Its existence was to be contingent upon its willing-ness to operate within the socialist framework which he wished tocreate,29 but the opportunities for Ghanaians to operate small-scalebusinesses were to be increased by restricting foreigners in this type ofactivity.30 It was a brilliant tactic, for most Ghana ian businessmen andwomen do not aspire to an enterprise larger than one which they candirectly control themselves,31 and the exclusion of 'Lebanese' and'Nigerians' from small trade would have been a popula r move. How-ever, it was leftto later governments to implement this policy and winthe applause.32 Given Nkrumah's desire to keep Ghanaian privatebusinesses small, his argument that 'Capital investment must be soughtfrom abroad since there is no bourgeois class amongst us to carry onthe necessary investments'33 was disingenuous. But whilst his attitudeto local private ent erprise was made clear in t he early sixties, his viewson foreign private in.vestment remained extremely ambivalent. Heurged the need for foreign direct investment, pointing out that itbrought in much-needed managerial and technical skills which couldbe passed on to Ghanaians.34A Capital Investments Act was passed in1963, offering a wide range of fiscal and other concessions to would-be investors. But it was not the old, 'colonial' type of investmentthat was sought; tRere were strings to be attached as indicated byNkrumah:3s

http:///reader/full/feet'.23http:///reader/full/diffic),llties'.24http:///reader/full/wanted.25http:///reader/full/wanted.25http:///reader/full/wanted.25http:///reader/full/power.27http:///reader/full/power.27http:///reader/full/activity.30http:///reader/full/applause.32http:///reader/full/applause.32http:///reader/full/applause.32http:///reader/full/Ghanaians.34http:///reader/full/Ghanaians.34http:///reader/full/Ghanaians.34http:///reader/full/Ghanaians.34http:///reader/full/feet'.23http:///reader/full/diffic),llties'.24http:///reader/full/wanted.25http:///reader/full/power.27http:///reader/full/activity.30http:///reader/full/applause.32http:///reader/full/Ghanaians.34

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3938 DEVELOPMENT ECONOMICS IN ACI10NThe Governm ent accepts the operation in the country of large-scaleenterprises by foreign interests, provided that they accept the fol-lowing conditions: first, that foreign private enterprises give thegovernment the first option to buy their shares, whenever it isintended to sell all or part of the equity capital; and secondly thatforeign private enterprises and enterprises jointly owned by thestate and foreign private interests be required to reinvest 60 per centof their net profits in Ghana.No investor, of course, would be allowed to interfere with thedomestic or external affairs of the country and, more generally, careshould be taken to keep 'sufficient control to prevent undue exploita-tion' and to preserve 'integrity and sovereignty without cripplingeconomic or political ties to any country, bloc, or system.'36While Nkrumah insisted that 'our ideas o f socialism can coexist withprivatc enterprise',31 he also inveighed against neo-colonial foreigndomination,38 his government starved the private sector of importedraw materials, spares and equipment,39 and used exchange controls toprevent t he repatriation of after-tax profits. It was, moreover, difficultto reconcile a coexistence of socialism and foreign investment with hisstatement that, 'The domestic policy ofmy government is the complete

ownership of the economy by the state . . .'40 It is hardly surprising,then, that he had little success in persuading investors that Ghana wasthe country for them, and in order to obtain the participation of foreignaluminium companies in the Volta River Project he was forced tomake concessions to them which seemed humiliatingly like the type ofneo-colonialist arrangement which he so strongly attacked.41Nkrumah took a similarly schizophrenic view of aid. He asked forforeign aid42 and it was envisaged that about a quarter of his govern-ment's Seven-year Plan should be financed by this means. But how toreconcile these facts with the views he published in Neo-colonialism?Aid is described there as 'the latest method of holding back the realdevelopment of the new countries .. . the paraphernalia of neo-co-lonialism . . . ' Multilateral aid is 'Still anothe r neo-colonialist trap . . . 'and the US is 'the very citadel of neo-colonialism', whose objective isto 'achieve colonialism in fact while preaching independence,.43 Andthis at a time when the World Bank, the US and the UK were betweenthem financing the external costs of the Volta project! Tormented bythe desire for economic independence and the fact of dependenceNkrumah was at his least coherent.Nkrumah 's suspicion of private enterprise and foreign capital sprangfrom his increasing preoccupation with a need for economic indepen-dence and a desire to create a socialist society. The emphasis onsocialism was much stronger in the 1962 programme o f the CPP than ithad been in the past. It described socialism as the 'principle aroundwhich the Party is pivoted>44 and devoted many paragraphs toelaborating the meaning of socialism in the Ghanaian context. And in

ECONOMIC STRAlEGIES OF NKRUMAH AND HIS SUCCESSORSintroducing the development plan which was prepared shortly after-wards Nkrumah stated tha t one of its tasks was 'T o genera te a socialisttransformation of the economy through rapid development of the stateand cooperative sectors'. 5Some writers explain Nkrumah' s policies almost entirely in terms ofnationalism and regard his socialism as so much rhetoric, without sub-stance. Genoud, for example, argues that to discuss Nkrumah in termsof socialism is misleading and that there was no significant shift abou t1961 to a more socialist orientation. 'Day after day and year afteryear,' he complains, 'what is anti-colonial nationalism is beingrenamed socialism.'46 There is something in this. The rhetoric ofsocialism, the policies of industrialization and the mechanization ofagriculture can be traced back to what Nkrumah and his party had saidin the fifties and even earlier. After all, Nkrumah in 1947 had con-cluded the first of his books with a Marxian flourish, 'People s of theColonies Unite: The working men of all countries are behind you,'41and the 1951 election manifesto of the CPP claimed that 'Theindustrialization of the coun try is one ofthe principal objectivesof theParty . . .,' envisaging factories 'springing up in all parts of thecountry,.48 Moreover, 'Africa n socialism' claimed some strange adhe-rents in the early sixties, and one only has to look at t he African conti-nent to find countries that did many of the things that Nkrumah didwithout any but the most nominal pretence of a socialist ideology.Nationalism was undoubtedly a major driving force behind thepolicies of Nkrumah and his party. Indeed, Owusu argues that,49

Gold Coast nationalism was primarily economic. Politics, or. thepower to decide how economic resources are t o be distributed, whois to get what job and the like, was seen initially by many as perhapsthe only effective means, given colonialism, to the real national'good', economic power.The desire for jobs - urban jobs - was a strong reinforcement to thenationalist urge to industrialize. 50 Note also that in the fifties theopposition to o was advocating industrialization, the mechanization ofagr)culture and more schools, while rejecting the notion of socialism. 51Nkrumah's stress on the need for economic independence also hadan obviously nationalistic content. 'The aim