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ADVENTURES OF THE MIND 52.
The Economic Revolution
The Economic Revolution
By BARBARA WARD
About the Author
Barbara Ward (Lady Jackson), writer on international affairs and economics, was educated in England, France and Germany, being graduated from Oxford University with an honors degree in philosophy, politics and economics in 1935. A onetime governor of the British Broadcasting Corporation and a participant in its Brains Trust program, Miss Ward has been an editor of The Economist for twenty years. Miss Ward gives an annual course of lectures at Harvard and is also widely known as a journalist and a speaker on economic subjects. She is now working on a Carnegie fellowship in the field of economic- assistance programs. She is married to Sir Robert Jackson, Commissioner of Development in Ghana, and lives in Accra. Sir Robert and Lady Jackson have a three-year-old son.
Photograph by W. Suschitzky
Three quarters of the human race today is involved in a vast movement of revolutionary economic upheaval. They are attempting to modernize their economies - to move from the old patterns of static agriculture and limited commerce which made up the general pattern of the " human economy for millennia on to the new productive, dynamic economy of modern industry, technology and science. The change is not so much a matter of choice as of stark necessity. Everywhere among the emergent peoples, populations are doubling every generation or so. Resources must at least keep pace if even present standards are to be maintained-and these, incidentally, allow each person an average income of no more than $120 a year. If life is to be a little more secure and healthy, a little better nourished, housed and clothed, a trebling of resources would hardly be sufficient. But there is no possibility of such expansion under the old economic methods. Static agriculture has only one means of growth - to take in more land. But most of Asia there is no more land. Unless economic methods are radically recast, the outcome in the next forty years must be deepening misery, anarchy, and despair.
This world-wide revolution of economic modernization is one in which the wealthy West is fundamentally involved. It was in the Atlantic area that the revolution began. It was under western influence that the first impact of the new methods reached the other continents and determined decisively the conditions under which they in their turn would seek to modernize their economies. Thus to ignore or to be indifferent to the present world-wide movement of economic change would be the equivalent of canceling at least 300 years of western experience. Worse, it would entail withdrawal from the greatest contemporary human effort to remold society and remake the face of the earth. And it is a fact of history that those who seek to withdraw from its great experiments usually end by being overwhelmed in them.
We cannot fix a date for the origins of the modern economic revolution. A hundred different conditions, influences and decisions set it in motion, and the changes came cumulatively over several centuries. In part, it was rooted in medieval Europe’s constitutional development which gave the merchant what he never had in the Orient-status, security and inducement to save. Calvinism played its part, teaching that hard work in pursuit of profit was bless by God and that money so earned should be saved, not spent in luxury. The scientific temper of the eighteenth century encouraged progressive landowners and aspiring artisans to experiment with new methods of production. In Britain toward the end of the eighteen century all of these separate streams-of acquisitiveness, of work, of invention-had begun to flow together into a flood of economic and technological change which we loosely call the Industrial Revolution.
The men who made this revolution did not know what they were doing in any general sense. Each pursued his own interest and profit. and the sum of interests made up the working of the system. But with our hindsight we can disentangle the essential principles, the changes without which dynamic growth is impossible-the preconditions, therefore. of modernization anywhere else.
The two most important principles underlying the revolution of economic growth are productivity and savings. Productivity results from any method which helps men to produce more goods for the same output of effort and resources. The decisive changes in productivity in Britain’s early industrial revolution were better agricultural methods and the application of a new form of power-steam from coal-to machines made by new processes of iron founding. The new machines began to flood the market with cheaper consumer goods-which incidentally wiped out handicrafts imported from Asia. Expanding trade created the need for better transport, bigger towns and harbors. New industrial techniques called for steadily increasing education.
These were the first steeps. Since then invention has multiplied a thousandfold the effect of every instrument of growth. Above all, vast new sources of energy have been discovered electricity, the atom. But the basic requirements of modernization have not changed. Now, as then, they are better framing, more education, “infrastructure”-roads, power, ports-and industrialization.
All these techniques of greater production depends upon saving-that is upon the postponement of consumption. I the eighteenth century, Coke of Holkharm postponed direct returns on his farms when he experimented with crop rotation. The fourfold increase in output paid him back handsomely and provided capital for further ventures. Similarly, when the duke of Bridgewater built the canal to Lancashire, he took laborers and material away from the immediate tasks of farming. When, as a result of the saving on transport, the price of coal in Manchester was halved, resources were available to recompense the duke and to provide for further experiments. John Wilkinson used his saving-and other people’s-all his life to pioneer new methods of iron founding and new uses for cast iron. One result was the steam engine and the first fundamental revolution in energy, that greatest of all sources of productivity.
Even the most primitive economies save a little-putting aside seed corn for the next harvest. Perhaps 5 percent of national income is saved this way. Economists reckon that, as a general rule, when the level of productive
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total Communist control, the balance of freedom in the world would be perilously upset. Not only would the emergent peoples lose their liberty. The West itself might suffer from that loss of nerve and breakdown in confidence which occurs when societies have the impression that their ways are not the ways of the future-that history is leaving them behind. .
What is perhaps less clearly realized is the extent to which the West has influenced and, if it will, can still influence the outcome. The conditions today under which the emergent peoples are trying to modernize their economies have been brought about almost entirely by western policies and western influence. As late as 1939 most of the world was still controlled either by settlers of European stock-as in all of America-or by colonial rulers of the same origin. In Asia, it is true, the westerners came out to trade, and it was only where local authority collapsed in Java and India-they took over political control. But their economic influence undermined Manchu power in China. And Japan could not have resisted them after 1850 if it had not forcefully westernized itself. In short, western control or western influence determined virtually the entire pattern of development in Asia from the seventeenth century to the end of the last war. Africa in the last hundred years has similarly been under total western domination.
The western contribution to the four levers of modernization proved uneven. Peasant agriculture remained static, and the new plantations mainly benefited western interests. Modern education began-especially in India-but in 1936 there were still only 516 university students among Java's 40,000,000 people. A start was made on infrastructure, roads, railways, ports and power-again, India led the rest-but industrialization lagged far behind.
At this point we reach one of the consequences of the western impact which, though unintended, may have given a decisive setback to Asian development. Until the nineteenth century China and India were exporters to Europe of manufactures - hand-loom textiles, silks, pottery. In addition, peasant income all through the vast countryside was supplemented by local handicrafts. In Britain such centers of artisan enterprise were often the starting points of mechanized industry. In Japan after 1870, they were to prove so again as thousands of small workshops were moving to production with power and machines. But in India and China as the nineteenth century developed, this widespread preindustrial system of manufacture was wiped out by the flooding in of machine-made textiles and gadgets from the West. Local centers were extinguished. Peasant income fell. Indigenous growth ceased. Later in the century, modern factory industry began; but often, as in China, it was overwhelmingly foreign. In India, given Britain's doctrines of free trade and laissez faire, Indian enterprise did not secure full tariff protection until after the First World War. Industrialization was thus slow in spreading and would have been even slower if two world wars had not hastened it a little.
The small extent to which modernization was encouraged by western colonial control can best be illustrated by the opposite experience of Japan, the one Asian country to exclude the westerners. After 1870, a policy of thoroughgoing modernization was carried through by the Japanese themselves. A land reform gave the peasant a stake in production, extension services helped him to increase output by 50 per cent between 1870 and 1910. Most of this surplus was transferred to, the towns, where the state expanded roads and ports, railways and power, began a drive for universal literacy, sent young men overseas to train, established industries, sold back the big concerns to the clans-the Zaibatsu-and encouraged cottage industry to supplement them. Every lever of modernization was thus brought into service, and in a few decades the Japanese economy was within sight of self-sustaining growth, saving enough each year to increase the volume of savings thereafter-and this in spite of a population which was increasing as rapidly as any in Asia.
We cannot fairly assess the western impact without this background of population pressure. China already had a vast population and gross rural poverty when western economic influence became predominant after 1850. But in India and Java it was western control that helped the spurt. A hundred years of peace probably doubled India's population between 1800 and 1900. In Java the numbers grew from just over 3,000,000 in 1795 . . to nearly 30,000,000 by 1914. In the twentieth century, sanitation and medical services began to speed the rate of growth. Keeping pace with this increase would have required measures as vigorous as those of Japan to insure that economy and population grew together, each kind of growth stimulating the other as it did in the West. But under the impact of partial modernization-which best sums up Asia's western inheritance-population growth in most of the Asian countries be- gan to accelerate before the economy had reached a position of self-sustaining growth. And this is perhaps the most fateful of all the legacies from the West.
Saving, it must be repeated, means not-consuming. The more mouths there are to feed in a static economy, the harder it is to postpone consumption. The only answer is to save more drastically and thus achieve growth. But how can this drastic saving be done when-after a century of rapid growth in population, combined with economic stagnancy-per-capita income has sunk to the margin? How can a government increase savings to 15 per cent of national income if-as in India- the citizen's average income is only sixty dollars? This is the dilemma which most of Asia has inherited from the West. And this is the dilemma which,could lead-as it has done in China-to the choice of the Communist alternative. In Communist discipline, in Communist techniques of forced accumulation, in Communist readiness to wring the last ounce of saving from the countryside, there seems to be a possible escape from the Asian impasse.
Equally the dilemma of saving could give the key to an effective western policy. The broad aim over the next two or three decades should be to bring the flow of investment in the emergent lands up to the level needed for self-sustaining growth. Thereafter there would continue to be foreign investment on a normal business basis; but the period of emergency help, designed to to overcome the obstacles by partial modernization, would have to come to an end.
If the present position is taken as a starting point, one can broadly estimate that the emergent peoples in the free world-l,000,000,000 of them-with their annual income of about $120,000,000,000, manage to save the 5 per cent traditional in static economies. To this $6,000,000,000 is added each year about $3,000,000,000 of outside capital, public and private. These figures are roughly half of what is needed. But they cannot be doubled immediately because the local people lack the margins for tougher saving and because the ground is not yet prepared-in public utilities, in transportation, in technical training-to absorb a sudden startling increase from outside.
The process is essentially long term. But a reasonable aim might be to double the flow of capital from outside over the next two decades. If this extra injection of saving-of the order of $6,000,000,000 a year, both public and private-were used to increase local skills and infrastructure, domestic capacity to save would certainly increase, although a doubling of the level is perhaps too optimistic. But even if domestic savings increased by 50 per cent over the ten years, the next decade would open with total savings at least within sight of the goal of 15 per cent of national income. The second decade could complete the, transformation of the local economies, and thereafter special assistance would taper off.
SUCH a scheme is, of course, no more than a statement of intent. The actual content of the program would vary from country to country and region to region, and would reflect the varying degrees of modernization achieved during the period of direct western control or influence.
Since the old colonial governments were not very active in the field of basic agriculture, most underdeveloped areas require at least a quintupling of expenditure on the land so that men and resources can be transferred from it to other sectors without imposing Stalinlike controls. Education, particularly in Africa, also needs really ambitious expansion. On the other hand, the colonial record of infrastructure is normally more lavish. Roads, railways, public utilities exist. It is usually a question not of starting from scratch, but of extending an existing system sufficiently to permit a frontal attack upon industrialization. Infrastructure is, incidentally, pre-eminently an area for public investment, since private enterprise is not attracted by the low returns over long periods which public services provide.
The sphere of private enterprise now as in the past is likely to be the development of raw materials for export and all the myriad forms of industry-processing plants, consumer goods-which expanding wealth can support.
Not all the emergent peoples are ready for all these policies at once, but whereas in India-much of the infrastructure in both men and services already exists, investment plans can be more immediate and ambitious, and outside assistance can be mobilized on a larger scale. In fact, India might well be made the model of a speedy, efficient, co-ordinated effort of internal investment and outside help. In spite of their desperate poverty, the Indians have increased their domestic savings by 50 per cent in the last decade and hope to have doubled the annual rate by 1966. Even so, it still falls below the 15 per cent needed for self-sustaining growth. If, however, outside capital from all sources-public, private, international, national-could reach $1,000,000,000 a year during the third Five Year Plan, the point of break-through would be in sight at the end of the period; and the largest free community in Asia, in which live 40 per cent of the free world's emergent peoples, would have demonstrated that without totalitarian discipline, without the suppression of freedom or the imposition of forced saving on a murderous scale, an underdeveloped land can achieve full modernization and the possibility of sustained growth.
There is one proviso to this hope. At some point in the next decades there must be a check to the rate at which India's population is increasing-a need of which the Indian Government is well aware.
But, in fact, the connection between rapid economic development and a more stable birth rate is exceedingly close, In a desperately poor society the birth of many children is an insurance against tragic rates of infantile mortality and, in some measure, an economic investment as well. It is only when parents, convinced of the chance of better health and rising standards, can hope to give their children surer prospects of survival and nurture, that they will feel inclined to raise a smaller family. It need hardly be stressed that in a free society, whatever measures are pursued by government, the decisive choice rests with the parents. Thus-as in the West-a measure of economic advance and expectation is virtually a precondition, of a slackening in the population's rate of growth.
A target therefore may be set for the western nations of $5,000,000,000 to $6,000,000,000 a year in investment of all forms-public and private, from national and international agencies-with an immediate plan to allot $1,000,000,000 of this sum each year to India's crucial experiment in growth. That such an aim is easily within the West's resources requires little demonstration. It is no more than 1 per cent of the combined national incomes of the western nations; and since the recent rate of growth of these incomes is of the order of 4 per cent a year, to allot 1 per cent to a world investment project requires no diversion of resources. It merely entails a slight postponement in the rate at which consumption is actually increasing. To call this a strain or a sacrifice is an abuse of language.
But the mere availability of resources will not determine the result. The fundamental political question has to be decided -whether or not the western powers accept the need for a sustained, long-term policy of world investment and world growth, The arguments from self-interest seem overwhelming. We are beginning- after a decade of uncertainty-to see that the direct political appeal of Communism is on the wane. Hungary and Tibet are reminders that Communism can be the stalking horse of a new form of imperial control. Communism's chief appeal is therefore social and economic-that it can throw out the landlords, revolutionize agriculture, build industries at breakneck speed and achieve modernization in a decade. To people caught in the impasse between saving and rising population, its techniques of forced accumulation can still appeal-unless there is an alternative, the alternative of western aid. Sustained world investment is thus a fundamental weapon in the struggle against Communist expansion.
But even if there were no Communists, the wealthy white western minority of the world could not hope to prosper if most of the rest of mankind were foundering in hopeless poverty. Islands of plenty in a vast ocean of misery never have been a good recipe for commercial success. As western industry and agriculture expand with rising investment and revolutionary changes in technology, wider markets, wider areas of consumption, greater sources of supply become a necessity. They cannot all be found round the North Atlantic. A developing world is now the precondition of prosperity for an expanding West.
It is not simply an economic interest. Times of misery and despair are also times of anarchy and war, as were the recurrent cycles of ancient China when population overtopped resources and the empire fell into a welter of civil war and destruction. The sterile expenditure on arms needed for security on a despairing planet would certainly far exceed any sums now proposed for world investment.
But more than economic profit or national security is at stake. In this century, owing to the work of historians and archivists, of archaeologists and explorers, we know more than men have ever known about the fate of civilizations. Our western forefathers could take their society for granted as the end product of a unique historical progress in which, little by little, the inventiveness and faith of free men had come to set up a world society under western influence and control. Today we know that progress is at best a fluctuating line; and that along the march of humanity many proud experiments in political organization, many essays in empire, many great and affluent societies have foundered by the way, We know, too, that again and again they failed not from any inherent lack of means and resources, but from something more subtle-a failure of the spirit, a loss of nerve or faith or inner control.
In the eighteenth century no society on earth seemed more splendid and self-confident than the Chinese Empire under the greatest of its Manchu emperors Chien Lung. European philosophers admired it without stint. Voltaire exclaimed, "They have perfected moral science." And Leibnitz asked for Chinese missionaries to teach Europe "the aim and practice of natural theology." But the high confidence, the apparent wealth covered a flaw. The Chinese rulers dismissed the rest of the world as barbarians. No isolationism in the West has ever equalled their contemptuous dismissal of every foreign thing. Yet these same foreigners revolutionized their scientific and industrial techniques, and before a century had passed, China's pride and China's wealth alike were humbled. Westerners controlled its policy and its economic life. The ignored and neglected outside world poured in. Traditional China disappeared in the torrent.
The temptation facing the western world today is comparable. It is supremely wealthy and, on the whole, supremely confident. A deep instinct is to let the rest of the world go hang, ignoring Communist efforts to organize it and the Communists' steady drive to secure growth and power. Can we be certain that the fate of the Manchus does not await us if, like them, we rely on our affluence and superiority and leave the world at large to its present prospect of deepening crisis and Communist manipulation, with the ultimate possibility of total loss to the side of freedom?
But the temptation of indifference and superiority to which China succumbed is not the end of the challenge to the human spirit in the West today. There is no greater defeat for a man or a society than to set a great experiment in motion and then to abandon it before it is half done. The modernization of the world is such an experiment. Casually, unconsciously, but with deadly effectiveness, western man all round the globe destroyed the traditional gods and the ancient societies with his commerce and his science. Now that the old world is dead, is he to make no special effort to bring the new world to life? He has plowed up the continents and scattered the seeds of new methods and hopes and ambitions. Is he indifferent to the harvest? Does it mean nothing to him if great areas of the world, where western influence has been predominant, emerge from this tutelage unable to return to the old life, yet unfitted for the new? It is hard to believe that the future could ever belong to men demonstrating irresponsibility on so vast a scale.
But the greatest challenge is also the simplest. The element above all others which western man has brought into history is the belief in its moral dimensions. When one considers the rise and fall of empires, the predatory imperialism, the violence, the irrational destructiveness which has marked so much of mankind's story, one is tempted to see in it only "sound and fury, signifying nothing." But in the Christian, rational and humane tradition of the West, the attempt has been made to rescue wider and wider areas of human existence from the tyranny of man's grasping, irrational and violent instincts-and a fundamental element in this search for moral order, of which Communism itself is a perverted by-product, is the belief that men should not prey on other men but that they are, in very truth, their brother's keeper.
In the past this principle has been limited by the few resources available in any society for active help. Private charity could lessen misery, but the levers of economic growth were not available for a frontal attack on poverty itself. The Industrial Revolution has removed this inhibition. Within western society the principle that the wealthier, luckier and healthier should assist the less privileged to acquire the education and well-being needed to advance themselves-the principle of general welfare-has brought about a wider and wider sharing of the new wealth.
Today resources exist in such abundance that a world-wide extension of the principle of welfare is physically possible. All that is lacking is the political decision to do so. Is it possible that a society which boasts of its humanity and its Christian inspiration should ignore the challenge? Is it conceivable that such a society, having done so, should deserve to survive?
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For readers who may wish to pursue the subject further, the following books are recommended:
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Ward, Barbara Interplay of East and West Norton $3.50
Ward, Barbara Five Ideas That Change the World Norton $3.75
Rostow, W. W. and Millikan, Max A Proposal: Key to an Effective Foreign Policy Harper $2.75
Zinkin, Maurice Development for Free Asia Essential Books $4.50
Stevenson, Adlai E. , Call to Greatness Harper $2.25
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The average price of a new home then was $12700 about 2.46 times the yearly average wage of $5162. Which was about 1.99 times the price of a new car $2600. And the future was progressive not regressive
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