Jagdish Bhagwati on Development Economics

In 1984. Jagdish Bhagwati gave a talk on 'Development Economics- what we have learned'. Strangely, he didn't say 'Development Economists are fucking retarded. That's what we have fucking learned, mate.'  I suppose, he didn't need to. Consider the following

Of the two classes of development theories, there was one set that focused on how to get investment going.

Bring in smart peeps from developed countries to do it. This entails creating incentive compatible mechanisms so they have confidence they can repatriate profits. Local entrepreneurs will copy the foreigners or, if they don't, enterprising people from some other shithole country will turn up and do so. The difference is, they will be happy to settle in your slightly less shitty country.   

These theories identified the problem of development as simply one where investment had failed to materialize,

because of low 'general purpose productivity' which was caused by and contributed to low total factor productivity. This may be because the society had bad 'mimetic' targets. If everybody wants to be Mahatma Gandhi, then you will get a lot of beggars but precious little industry.  

and the task of the planner or policymaker was to identify the constraint that led to this unfortunate outcome and to break it. Paul Rosenstein-Rodan's thesis was that this constraint came from what we would call today a Prisoners' Dilemma problem and what he characterized as the problem of decentralized entrepreneurs

like the good folk at General Motors or Dow Chemicals- right?  

failing to invest since none of them in isolation had the assurance that others would invest simultaneously and create demand for one's output.

If smart Americans are investing in your backyard, you throw caution to the winds.  

Thus came Paul Rosenstein-Rodan's celebrated prescription for a coordinated plan of investments by the government

coz the governments of shithole countries are considered very smart- right?  

- a "balanced growth" scenario ~ and with it, of course the intellectual rationale for planning in the development literature.

Underdeveloped countries had shitty governments. They could steal and they could rape and murder. But they couldn't balance the books let alone grow the economy.  

Curiously, Albert Hirschman's 1958 critique of the RosensteinRodan approach, in The Strategy of Economic Development, shared the same diagnosis of the basic developmental problem .

Because they wouldn't get paid for saying 'darkies are shit at running things'. 

It viewed the developmental task as one of creating the inducement to invest.

That inducement is to be able to take the profit out of the shithole country and spend it somewhere nice. That's what Colonial Empires were about. You put up with ten or twenty years of malaria and dysentery  and returned home a rich man. 

However, it fell into the anti-planning mode of thinking, suggesting that the necessary inducement to invest was created readily by cutting off imports and dangling the resulting assured markets before domestic entrepreneurs.

But domestic entrepreneurs knew that their new leaders and their army of bureaucrats would suck their blood. In India this was made explicit. You had to get permission to produce more. In other words, growth was off the table. You'd never get economies of scope and scale.  

I have called this, following the agricultural strategy of "slash and burn", the import substitution development strategy of "slash and grow", though I fear the resulting growth is likely to be so inefficient that it may well turn eventually into a self-defeating strategy of "slash and stagnate,".

Just call it a 'Tudor monopoly'- i.e. rent extraction by the new rulers and their minions.  

These theories of development were complemented soon by theories that focused, not on how to get investment going, which might be termed the Primitive Problem of Accumulation,

Fuck accumulation. What was needed was guys who had built big industries in advanced countries coming and doing the same in poor countries.  

but on the subsequent, separate but interlinked, problems of: how much to invest (the Optimal Savings Problem),

Life in shithole countries features higher Knightian Uncertainty. What is optimal is capital flight.  

where to invest (the investment Allocation Problem),

places where property was safe and profits did not attract a host of official vampires. 

and what techniques to employ (the Choice of Techniques Problem).

You can only chose techniques you are skilled in applying. Otherwise, bring in foreigners. Not foreign economists. Foreign businessmen. 

Amartya Sen has been pretending, for many years that all the other economists are very nasty and care only about Growth and not Poverty. Bhagwati rejects this view- 

If I may turn to my own writings, on hearing the claims that poverty had only recently been discovered aııd elevated as a target of development, I fully expected to find that Chapter I of my 1966 volume on The Economics of Underdeveloped Countries would be titled Growth; behold my surprise when it turned out to be Poverty and income Distribution! (Bhagwati, 1966). That was no accident, a chance stumbling into what would become the new orthodoxy many years later. For, when I was working in the early 1960s with the great Indian planner, Pitambar Pant, who propagated the phrase "minimum incomes" and stressed that the goal of planning should be meeting basic needs by providing minimum incomes to ali, we were looking at income distribution, functional and general, in different countries to see if we could learn anything about the income generation and distributive process that would suggest policy measure to make a sustained impact on (absolute) poverty .

The answer was obvious. Grow more food. Have a fucking Green Revolution already.  Don't piss your money away on 'heavy industry'. 

The strategy of rapid growth was decided upon,

which was like Nehru's strategy for defeating China by fucking up the Indian Army.  

in light of the resulting reflections, as providing the only sure way of making a dent on poverty: by providing jobs,

Clerical jobs? 

we would provide incomes and pull more into gainful employment and above the poverty line. While this strategy would provide the central thrust of the assault on poverty,

by saying mean things about it. 

it was to be combined with land reforms that would include politically feasible redistribution and with increasing levels of public distribution of social consumption such as clean water, sanitation, health services and education.

None of this was 'incentive compatible'- i.e. the guys supposed to be doing it got no reward for actually doing it which is why they didn't do shit.  

This is the "pull up" strategy for attacking poverty, and it seemed to make eminent sense in India where even the immediate impact on poverty from simply redistributive measures could not be expected to be significant.

Because it had no money to redistribute. Still, by some magic, it could provide clean water and sanitation and health services and education to poor villagers.  

As Michal Kalecki, the distinguished Polish economist remarked to me in India at the time, "The trouble with India is that there are too few exploiters and too many exploited"!

Because the exploiters were exploited by a host of bureaucrats, politicians, crazy trade union leaders etc.  

Tlıe "pull up' strategy is, of course, what has come to be described in recent Western discussions as the "trickle down" strategy. In combining it with an assault on the Welfare State, in the world, s most advanced economy, President Reagan has made this a strategy of opprobrium. But put into the context of developiııg countries, and combined with feasible redistributive reforms and some provision of social consumption, it can hardly be considered less than progressive.

It failed. It was pie-in-the-sky. It's all very well to say 'we will send our people into the villages where, by magic, they will provide clean water and sanitation etc.' The fact is, the village is fucking horrible. There's a good reason people run away from there.  

Indeed, our optimism extended to this game plan: that growth would be rapid and sustained enough to pull up an increasing number of people above the poverty line, and that the dent made on poverty at the end of a generation of such planning efforts would be very substantial.

Provided you didn't have to go live in a fucking village. But then, even life in New Delhi was becoming unbearable. Best to run away to America. 

As I look back at the early era of optimism in development economics, I must qualify for two 'important strands of pessimism: one disappeared soon but the other was to prove ceııtral to much developmental thought. The pessimism that vanished related to the notion that the underdeveloped areas were inhabited by a species that belonged doubtless to horno sapieııs but which had no claim to the virtues with which tlıe Economic Man was endowed.

The Brits made a profit on India because Indians are just as responsive to price signals as anyone else. What people were pessimistic about was the quality of the new leaders. They were as stupid as shit. Under Lal Bahadur Shastri- a tiny, emaciated, man- the Government announced its new policy was 'skip a meal'. The next step, obviously, would be to demand that people eat grass- or mud, if all the grass had been eaten by holy, bureaucratic, cows. 

Thus, if price incentives were offered, farmers would not respond with more production;

India's leaders believed that if the farmer had a good harvest he would murder his neighbour and use his extra cash to pay a lawyer to get himself acquitted. This is because India's leaders had started off as just such lawyer.

The second source of pessimism related to the external environment in which the developing countries would operate in the postwar period. Astonishingly, many majör development economists

i.e. stupid shitheads 

were pessimistic about foreign trade opportunities.

This wasn't astonishing at all. Stupid shitheads are bound to be wrong about everything.  

Either they argued, like Ragnar Nurkse, that the era of export led growth was över and that trade could not be expected to be an "engine of growth";

It wasn't. General purpose productivity could rise where total factor productivity was rising- i.e. shitheads weren't holding down the economy and fucking it over.  

or they argued, in varying ways, that trade opportunities became so restricted that development strategies would have to turn increasingly inward-looking, import-substituting and the like.

India did have to substitute stupid Indian bureaucrats for bigoted British officials. 

This "export-pessimism" is explicit in Ragnar Nurkse's 1953 work, as also iıı his 1959 Wicksell Lectures where he deduces from it his prescription that the underdeveloped countries must pursue balanced growth

nothing wrong with raising productivity in agriculture while absorbing displaced peasant girls into giant factory dormitories.  

reflecting the internal demand configuration (Nurkse 1959).

Sadly, if people in shithole countries keep demanding shitty policies, that's exactly what they will get.  

It is explicit also in Raul Prebisch's writings which advocated import substitution in Latin America because he feared that the terms of trade were steadily worsening for primary exports.

Actually, manufactured goods were getting better.  

It is implicit in the writings of both Paul Rosenstein-Rodan and Albert Hirschman because the inducement to invest is hardly likely to be a difficult problem if potential entrepreneurs face fixed world prices at which they can seli with assurance. 

Why were the Indians listening to stupid Americans? They knew there was a big demand for wage goods in their own neighbourhood. They could do what Japan had done and what South Korea and Taiwan would do. The difference was that they already had a diaspora or other distribution network in parts of Africa, the MENA, and South East Asia. Moreover, the City of London had been dealing with leading Indian firms since the nineteenth century. Why did India prevent its Presidency cities from capitalizing on this 'acquired advantage'? The answer is political. Nehru wanted to centralize power in Delhi. The Presidency cities must be cut down to size. The textile industry, which had financed Gandhi, must not be allowed to grow because it might switch support to a different party. The peasants, too, must not be allowed to rise up because they would want 'Backward Caste' leaders to take over from the 'Forward Castes'.

Regimes that assume political control through direct, authoritarian means are less likely to be bothered by the fact that external orientation of industries generally implies less political power and patronage than inward looking, home market-dependent, import-substituting industries that can be controlled through licensing and quantitative allocations and whose control then yields rents and, hence, political power to the parties that can appropriate these rents.

Authoritarian regimes can shake down anyone they like. However, if they aren't in Washington's good books, they may face sanctions and thus 'export led growth' may be off the table. Still, Bhagwati makes it clear that he understood that the Indian 'license-permit Raj' had a political purpose. But, even politically speaking, there was a better way forward. The ruling party could have put up Backward Caste candidates and appeased wage good exporters in various ways.  

The authoritarian regimes may thus be much more willing to shift to the EP strategy,

provided Uncle Sam says its okay. But even then, Human Rights activists in the West may reverse this outcome.  

whereas the pluralistic ones are not. But, this is to say that, paradoxically and unhappily, the authoritarian regimes may be more likely to adopt the superior EP strategy;

unless, like North Korea, the Soviets subsidize the regime or else there is a 'resource curse'.  

it is simply a non sequitur to count this as a shining point in favour of the import substitution strategy and as a dark blot in the EP book.

I think the 'sweated labour' argument in the West coupled with allegations of Human Rights abuse, made EP less attractive. Some countries- e.g. South Korea & Taiwan faced an existential security threat. Moreover, the Yanks were unreliable allies. This meant they either collapsed almost immediately as a result of corruption or else turned authoritarian and forced 'rents' to be ploughed back into export industries rather than being dissipated in ostentatious consumption and capital flight. 

Under Bretton Woods, Governments had a direct hand in capital flows and thus something like 'Overseas Aid' was inevitable. India in the late Thirties was already getting something like this from the Brits. 

There were two classes of such theories at the time (i.e. the mid-Fifties) both focusing on capital formation as the key to growth. I shall return later to the question: Why growth and not poverty or income distribution?

Because capital formation requires capital flows. Poverty requires transfers. Sadly, those from whom we propose to transfer money may tell you to fuck off or, if you threaten to kill them, they slyly fuck off 

Indeed, I shall argue that growth was regarded by many of us then, not as an objective in itself but as a way of making a sustained assault on poverty,

by getting the poor to stop having sex or, at least, stop having so many babies. This is profitably done by transferring rural girls into giant factory dormitories.  

and that it is no more than ignorance to suggest otherwise when we address these issues today.

It is not ignorance. It is malice. Sen made this clear 30 years later when he bitterly attacked Manmohan for 'trying to turn India into an Economic super-power even though Indians were very malnourished, sick, and lacked even a basic PhD in Social Choice Theory from a redbrick University. 

But let me turn presently to the question of different development theories. Of the two classes of development theories, there was one set that focused on how to get investment going.

Tell someone else to do it. This is also a good way of getting death abolished.  

These theories identified the problem of development as simply one where investment had failed to materialize,

like immortality. Why is it taking so long to materialize? I told the neighbour's cat to abolish death over a week ago.  

and the task of the planner or policymaker was to identify the constraint that led to this unfortunate outcome and to break it.

The constraint was the low or negative expected rate of return. Raise the return and the thing turns up by itself from somewhere or the other.  

Paul Rosenstein-Rodan's thesis was that this constraint came from what we would call today a Prisoners' Dilemma problem and what he characterized as the problem of decentralized entrepreneurs failing to invest since none of them in isolation had the assurance that others would invest simultaneously and create demand for one's output.

The solution was Muth Rational Expectations. Peeps expect the prediction of the correct economic theory. If nutters like Rosenstein-Rodan and the MIT India Group have the ear of Pitambar Pant at the Indian planning Commission, then everybody knows that the outcome will be shitty. For the poor, budgets matter, plans don't. The Second Five Year plan quickly ran out of money. Nehru had been foolish to use the Planning Commission to marginalize the Finance Ministry, thus getting rid of Mathai, who understood econ, and bringing in Mahalanobis who didn't understand shit.  

Thus came Paul Rosenstein-Rodan's celebrated prescription for a coordinated plan of investments by the government

coz the Governments of very poor countries have hard currency to burn- right?  

- a "balanced growth" scenario - and with it, of course, the intellectual rationale for planning in the development literature. Curiously, Albert Hirschman's 1958 critique of the Rosenstein-Rodan approach, in The Strategy of Economic Development, shared the same diagnosis of the basic developmental problem.

Babies are very underdeveloped because the Government is meanly refusing to transfer adulthood to them.  

It viewed the developmental task as one of creating the inducement to invest.

By letting smart peeps come and set up enterprises so as to get richer and richer? Fuck that! 

However, it fell into the anti-planning mode of thinking, suggesting that the necessary inducement to invest was created readily by cutting off imports and dangling the resulting assured markets before  domestic entrepreneurs.

That could work provided you don't have confiscatory taxation and 'licence permit' Raj. If you want the other kids to come to your birthday party, don't keep telling everybody about how the cake will be made entirely out of shit- as will all the party favours. 

I have called this, following the agricultural strategy ' of "slash and burn",

which works well enough. 

the import substitution development strategy of "slash and grow", though I fear the resulting growth is likely to be so inefficient that it may well turn eventually into a self-defeating strategy of "slash and stagnate".

Just say 'protection for infant industries means they will never grow up'. 

These theories of development were complemented soon by theories that focused, not on how to get investment going, which might be termed the Primitive Problem of Accumulation,

i.e. beating people and stealing any nice shiny things they might have 

but on the subsequent, separate but interlinked, problems of: how much to invest (the Optimal Savings Problem),

Nothing if the return is zero.  

where to invest (the Investment Allocation Problem), and what techniques to employ (the Choice of Techniques Problem).

Where the rate of return is highest. 

The main thrust in policymaking was provided, however, by

some mathematical hand-waving such that policymakers could pretend that civil servants  

certain simple growth models, among which the Harrod-Domar model takes the pride of place. The Harrod-Domar model is a simple construct: The growth rate is given simply by the ratio s/v

In a closed economy, during a Recession, Savings may rise for while GDP is stagnant or falls. In an open economy, growth could occur through foreign loans or investment.  More generally, the quality of entrepreneurship determines whether precautionary balances or retirement savings are directed into productive investment. Otherwise, people will hoard gold or other such unproductive assets. 

where s is the average saving ratio and v is the marginal capital-output ratio. From initial income Y0 , the savings are yielded by the saving ratios as s.Y0 ; when next turned into investment, these savings increase income by (s/v x Y0 ) since the capital-output ratio is v.

The Great Depression showed that Savings don't get automatically equated to Investment. Business Expectations matter. The War showed that 'forced savings' could be greatly increased so as to permit massive Investment in munitions and other weapons.  

With fixed saving and capital-output ratios, therefore, the economy is characterized by an exponential growth at rate s/v - much as if you were telling someone to take the first left, then the next right, and then to keep repeating that forever! The implications of this popular model were dramatic and reassuring.

There were no implications. Back in the Nineteenth Century, Governments had discovered that savings could be mobilized through Post Office savings, Consols, Cooperative Banking etc. But Savings weren't the problem for Developing Countries. The problem was the quality of Entrepreneurship and lack of Business Confidence.  

It suggested that the central developmental problem was simply to increase resources devoted to investment. Two policy implications immediately followed: one for domestic savings

if people save by buying gold, there is no investment 

and the other for foreign aid.

which comes with strings attached 

If governments were to achieve, say, 5 per cent growth rates, which were both respectable and could be flexible, and if the marginal capital-output ratio was 3:1 on the average, the net investment rate would have to be targeted at 15 per cent. Therefore, if an underdeveloped country was starting from low saving rates of 5-7 per cent, it would be in no position to achieve the target investment rates right away. First, therefore, a manageable policy target should be set for raising the domestic saving rate gradually by tax effort

Confiscating income. The problem is that people might avoid or evade taxes. One way to do this is by not working or setting up businesses. Consider what happens if the Government fixes the procurement price for a cash crop much lower than the world price so as to extract a surplus from the agricultural sector. Peasants have an incentive to switch to subsistence farming. The quality of the product declines. Agribusiness fails to develop. Meanwhile the Government can borrow a lot while commodity prices are high, but then the collapse and the country is caught in a debt trap. 

until, at the end of the specified period (say, three five-year plans), the country had reached a net saving rate of 15 per cent. The rate at which the domestic saving rate could be so raised would have to reflect the usual domestic political considerations that afflict finance ministers. Second, while the saving rate was being forced upwards towards the "selfsufficiency" target of 15 per cent, the gap between required domestic investment and possible domestic savings would be met by foreign aid.

It could be met by foreign loans or just trade credit if the rate of growth sufficiently exceeds the rate interest rate such that the debt burden falls. Aid is a red herring. Still, economists, at that time, could get paid a little money for pretending that Aid was magic rather than a piece of bureaucratic boondoggle. 

As the domestic saving ratio rose, however, over time, the need for foreign aid would diminish until it no longer existed when the target saving ratio of 15 per cent was achieved. This was then the essential, key policy-mix that underlay many development plans during the 1950s and 1960s. The formula seemed unquestionable.

Why question the program from which you make a bit of money?  

It also underlay Walt Rostow's famous 1960 work on The Stages of Economic Growth where, interestingly, the last stage (reached on raising the domestic saving rate to its self-sustaining target level) was the celebrated take-off.

Export led growth did lead to 'take-off'. But Japan had proved that long ago. 

The program or prognosis did not seem to admit the pessimistic possibility of an additional stage called crash-landing!

Countries could crash and burn without the assistance of foreign aid or development economists. Anybody can do stupid shit though, admittedly, having a PhD in Econ helps.  

Second, this sense of optimism about the possibility of accelerated development also stemmed from the prevalent notion that there were "hidden resources" waiting to be tapped in the developing countries.

i.e. some of the natives might be good at making money.  

Ragnar Nurkse, more than anyone else, discussed at length in his 1953 classic how workers could be taken from the countryside

as had happened in every industrialized country 

and put to work on investment projects;

just put them to work in coal mines or factories or whatever. That will create the demand for capital goods which may be imported.  

if their consumption was not eaten away by those left behind, and if agricultural output was sustained (as could be the case if there was surplus labor or "disguised unemployment"), then there was here a distinct possibility of "disguised investment" potential! I need hardly say how fetching were these notions of "disguised unemployment" and "disguised investment" potential.

It is true that people who are currently doing stupid shit could stop doing stupid shit and start being productive.  

And, in ways that I will not pursue here, they recurred in different forms and degrees in the independent writings of Paul Rosenstein-Rodan and W. Arthur Lewis, to cite only two major economists. In a very different sense, and from a unique Toynbeesque perspective (which he has come to reject later in favor of the thesis that alternative responses such as Exit, Voice and Loyalty can occur), Albert Hirschman also fuelled this optimism concerning hidden resources. The process of development was not constrained by resources.

It was constrained by peeps doing stupid shit for high minded reasons.  

As strains and stresses were generated in the economy, creative disequilibria would pose challenges and generate responses: latent entrepreneurship would emerge, technological breakthroughs would occur, and so on.

Unless there was a revolution or an invasion.  

Whereas Ragnar Nurkse and others saw their hidden resources as tappable via what can only imply a planning approach, Albert Hirschman's hidden resources would emerge into a view as an uncoordinated, "anti-planning" developmental process generated the necessary disequilibria.

Nations are cohesive. There's no reason the country can't make a plan which improves the coordination between the plans of individual entrepreneurs.  

In this sense, the Nurkse conception of hidden resources is closer to the optimism underlying the occasional Marxist notion that the Revolution would usher in the New Man who could be mobilized to perform other-directed, heroic tasks.

Total War had done that. Leninism was a Total Class War where the industrial proletariat needed to have a military industrial complex as good as that of the evil Capitalist countries.  

The optimism extended not just to growth but also to the critical question of its effects in ultimately ameliorating poverty.

Poverty gets ameliorated when poor people stop having babies like crazy. Raising the female participation rate is the key.  

Not everyone then discussed explicitly the link between growth and poverty. It is astonishing how many development economists during the 1950s, for instance, analyzed problems such as the choice of techniques

Bhagwati is taking a dig at Amartya Sen 

without explicitly bringing into view the possible effects on poverty or on income distribution. I am not surprised, therefore, that some of them have turned belatedly to questions of poverty with an air of discovery.

The Dobb-Sen thesis said the real wages of the proletariat should be frozen and thus the fruits of productivity gains should be confiscated by the Government which should then piss that money away on White Elephant projects.  

But it is no more than vulgar nonsense to allege, therefore, that growth was regarded universally as an end in itself and that poverty was not in the picture.

Bhagwati does mention one type of pessimism- viz. the notion that 'natives' might be lazy. They would only do enough work so as to have enough to eat. After that, they would gossip or play cards or have a siesta. Fortunately, even the laziest native likes radios and TVs and motorbikes and cars. It's worth working and saving up to get such things. 

The pessimism that vanished related to the notion that the underdeveloped areas were inhabited by a species that belonged doubtless to homo sapiens but which had no claim to the virtues with which the Economic Man was endowed. Thus, if price incentives were offered, farmers would not respond with more production; given higher wages, the natives supplied less labour, not more; customs and values prevailed over greed and prices. To many, it seemed that such behavior was "irrational", though sophisticated economists have always shied away from that epithet since behavior that reflects one's preferences is only irrationally described as such.

Were peasants capable of economic rationality? The answer was- some were. They should be allowed to grow richer and control more land thus first becoming 'kulaks' and then 'farmers' in the old English sense of renting land, borrowing working capital, hiring labourers and producing for the market. The farmer is already an entrepreneur. He will start diversifying his portfolio or ensuring his sons enter different trades, professions, or avenues of commerce. The peasant who is lazy or who relies on a traditional 'moral economy' first becomes an agricultural labourer before fleeing to the City where life is less hard or, at any rate, more entertaining. 

The important work of Theodore Schultz on Transforming Traditional Agriculture in 1964 was the tract that did most to change our traditional pessimism on this score and properly won him the 1979 Nobel Prize. After this work, the question was changed from "Would farmers respond to prices?" to "At what price would this set of farmers respond?".

The issue was not price. It was profit margin. If rents fell or inputs became cheaper, output would rise even if prices did not. Equally, high procurement prices might turn peasant proprietors into exploiters of landless labourers uninterested in raising productivity and unmindful of the ecological consequences of the farming techniques they used. They might band together and put political pressure on the Government to keep raising procurement prices while increasing the subsidy for inputs. They would demand soft loans which would be periodically written off. 

This reminds me that the Russians, when looking over a prospective son-in-law, used to ask not whether he drank but how he behaved when he was drunk!

Drinking, here, is being equated with wanting more money. What you do with extra money matters. If peasants are thrifty and eager to embrace technological innovation, then it is a good thing if they have more money. But, if they use their money to gain political influence and to corner more and more benefits for themselves, the State may go off a fiscal cliff. Also, there may be an ecological disaster.  

Bhagwati speaks of 'export pessimism' in the Fifties. This was justified because of the Cold War and the possibility that it would turn 'hot'.  Moreover, all countries needed 'balanced growth' in the sense that they need to raise general purpose productivity for as much of the population as possible. Not everybody can work in the export industry.

This "export-pessimism" is explicit in Ragnar Nurkse's 1953 work, as also in his 1959 Wicksell Lectures where he deduces from it his prescription that the underdeveloped countries must pursue balanced growth, reflecting the internal demand configuration.

Non-tradable services and infrastructure matter.  

It is explicit also in Raul Prebisch's writings which advocated import substitution in Latin America because he feared that the terms of trade were steadily worsening for primary exports.

Nothing wrong with Brazil or Argentina or Mexico pursuing the same 'Listian' policies previously used by the US and Germany.  The trick would be to protect without smothering. In particular, intra-industry trade is a driver for growth. 

It is implicit in the writings of both Paul Rosenstein-Rodan and Albert Hirschman because the inducement to invest is hardly likely to be a difficult problem if potential entrepreneurs face fixed world prices at which they can sell with assurance.

This was still open to doubt back then. Trump's protectionist instincts reflect the 'closed Keynesian Economy' mindset of the Wharton Class of 1968.  

In the end, therefore, development economists were optimistic about the possibility of development in the sense that rapid growth was possible

some countries faced an existential threat. Either they would grow rapidly or they would be invaded or suffer regime change in some other way. Many countries failed. Some succeeded.  

and would impact speedily on poverty, reflecting a naivete of sorts about the difficulties that such internal transformations could pose.

Nonsense! People have always understood that poor people having babies like crazy is what causes poverty. Telling the Pope to fuck off was part of the solution.  

Balancing and contrasting with this optimism was the pessimism regarding the external conditions within which the internal developmental process would have to work. 

The external conditions included the possibility of Nuclear Apocalypse. 

It must be said, not all economists were shit. There were a couple of Chinese American Professors at Cornell who helped Taiwan go for Export led growth. Irma Adelman advised the South Koreans to devalue and pursue a similar strategy. Malaysia's five year plans, it must be said, were perfectly sensible. The Japanese, of course, had MITI which did a great job targeting high growth sectors such that Japan could take the lead in value addition. Taiwan followed an OEM strategy though it too found one or two niche industries to specialize in.

AS IT HAPPENED, developments during the 1950s and 1960s turned out to show that the internal problems were more complex,

only if the ruling ideology was that poverty was caused by rich people sneaking into the hovels of the poor and stealing all their gold and diamonds.  

whereas the external pessimism had been unwarranted. That the few countries, especially the Far Eastern Four which did not share this pessimism and quickly turned to the export promotion (EP) strategy, profited immensely is now beyond doubt, except for those who would substitute preconceptions for empirical evidence or those who hold the EP strategy in contempt because they equate the pursuit of that strategy with reactionary regimes.

Did you know that exports are sold for money? Money is very evil. Guess who has a lot of money? Rich peeps. This proves they are demons.  

Both reasons for rejecting the EP strategy particularly afflict the extreme fringe of radical economists and their friends. Their refusal to face up to the evidence, produced now in-depth by many distinguished economists and research projects at the World Bank (Balassa), the Organisation for Economic Co-operation and Development (Little, Scitovsky and Scott), the National Bureau of Economic Research, New York (Bhagwati and Kruger), and the Kiel Institute of World Economics (Donges), is reminiscent of the continued faith in the immiserization of the proletariat that one can still encounter.

When working-class women preferred factory jobs to having babies like crazy, the growth of the proletariat was curtailed and hence a Malthusian disaster was averted. 

It also reminds me of a story told to me by an eminent American political scientist who had met a Ceylonese member of what is probably the last surviving organized Trotskyite party.

It is now in power.  

The Trotskyite claimed that the Americans were devious, to which my friend replied with humor: Yes, I know that, but why do you think so? Ah, the Trotskyite replied, have you not seen all these binoculars, cameras, and the splendid products of advanced engineering that come into Colombo? They all carry names such as Matsushita, Sanyo and Sony. But then, everyone knows that the Japanese cannot possibly make these things: they are good only at "one-dollar blouses". Evidently, the Americans are masquerading under Japanese names to get into Asian markets!

Worse yet, British Viceroy is pretending he is a darkie by the name of Indira Gandhi. As for Srimao Bandarnaike- that's Richard Nixon in a fright mask. 

Bhagwati's own credo is that of Sonya- the virtuous prostitute in Doestoevsky's 'Crime & Punishment'. Sadly, he was as ugly as fuck. Amartya Sen, by contrast, was as cute as a button and willing to put out to Rothschilds. However, it was Manmohan who was the true stud. 

 Should we impose a paternalistic solution so that the poor are seduced into better fulfilment of what we regard as their basic needs?

Get the young daughters of the poor into giant factory dormitories. That way they can't have babies like crazy. Poverty is a supply problem. Reduce the supply and the problem goes away. The polite way to say this is 'raise female participation rate'. Alternatively, you can say 'raise general purpose productivity'  such that the opportunity cost of having babies increases.  

Ulysses chaining himself as the sirens approach and sacrificing his future freedom to choose in the knowledge that otherwise he will choose to err is not quite the analogy we can employ here; for, in this instance, the chains are being imposed by someone else!

If the country is a democracy, then policy makers represent the desire of the voters to bind themselves to a particular course of action.  

The libertarians will see shades of 1984 in such paternalism, the thin end of the wedge, the road to serfdom. I do not. In fact, I see great virtue in paternalistic moves to induce, by supply and by taste-shifting policy measures, more nutrient food intake, greater use of clean water, among other things, by the poor. In thus compromising the important principle of freer choice, simply for the poor and not for others, evidently I adopt the moral-philosophical position that I do not care if the rich are malnourished from feeding on too many cakes but I do if the poor are malnourished from buying too little bread, when their incomes can buy them both proper nourishment if only they were to choose to do so.

Actually, we protect the rich from their proclivity to take cocaine.  

In this, I am in the ethical company of Sofya (Sonia) Marmeladova in Dostoevsky's Crime and Punishment who, in turning to prostitution to support her destitute mother, sacrifices virtue for a greater good.

No. Her step-mother emotionally blackmails her into going on the game. She should have told the cunt to go fuck herself. Send your kids to the orphanage and get a job as a street sweeper you old hag. As for me, I'm gonna join the Bolshoi and then contract a morganatic marriage to a Grand fucking Duke. 

Similarly, if you study International Trade, don't become sacrifice your virtue in order to pretend to help the poor. Make money for yourself and pay your taxes. That way everybody benefits.