The Politics of Economic Stagnation; D. Osterfeld

686 capitalist nations of the west. Ac cording to this view the LDCs are poor because the capitalist nations are wealthy. As President Julius Nyerere of Tanzania put it: In a so-called free-market economy economic power depends on wealth. The wealthy can determine what will be produced because they have the power to invest. They can determine the price lev els of the goods produced in their own countries and elsewhere because they have the power to buy, or withhold sale. The poor buy or sell at whatever price suits the wealthy.1 In brief, the market process, ac cording to this view, works to the detriment of the poor. Thus, despite having achieved political indepenTHE POLITICS OF ECONOMIC STAGNATION 687 dence from the west, the "economic power" of these economically ad vanced capitalist countries still en ables them to dominate, to "exploit," the LDCs. Colonialism may be gone, but it has been replaced by "neoco lonialism. "

The policy implications of this "neocolonial" argument are pro found. Since the wealth of the capi talist nations is the cause of the con tinuing poverty of the LDCs, justice dictates that the inequality between the developed and less-developed countries be reduced if not elimi nated. As President Nyerere stated: I am saying that it is not right that the vast majority of the world's people should be forced into the position of beggars, without dignity .... (W)hen I am rich be cause you are poor, and when I am poor because you are rich, the transfer of wealth from the rich to the poor is a mat ter of right; it is not an appropriate mat ter for charity .... If the rich nations go on getting richer at the expense of the poor, the poor of the world must demand a change, in the same way as the prole tariate in the rich countries demanded change in the past. 2 This demand has been articulated in a series of measures, commonly referred to as the New International Economic Order, advanced by the LDCs, which now constitute a ma jority in the United Nations, and passed in that body in the mid-1970s.

These measures include the follow ing:3 (1) The transfer to the LDCs, with no strings attached, of the financial assets of the developed or capitalist countries equal to seven percent of the latter's GNP; (2) The transfer to the LDCs of a larger share of the technology and productive facilities of the developed countries; (3) The indirect but no less real trans fer of wealth to the LDCs in the form of the cancellation of their economic debts to the developed countries; and (4) The "permanent sovereignty of ev ery State over its natural resources and all economic activities." This includes such things as "the right to nationaliza tion," to impose tariffs, etc. The implementation of this pro gram would be nothing short of the creation of an international welfare state which would have serious ramifications for the traditional in ternational order. But before we can assess the impact of the NIEO we first need to examine the validity of the "neocolonial" position on which it is based.

The "Neocolonial" Charge Examined Simply put, the "neocolonial the sis," that the LDCs are poor because they have been exploited by the cap italist nations of the west, cannot withstand scrutiny. There are a host ofcountries-Singapore , Hong Kong, Taiwan, Brazil and the like-which have advanced so rapidly over the past decade or so that they have been dubbed the "newly industrial izing countries." Singapore's growth 688 THE FREEMAN November rate between 1960 and 1976 aver aged 7.5 percent, Hong Kong's 6.5 percent, Taiwan's 6.3 percent and Brazil's 6.5 percent, all of which were higher than those of such developed nations as the U.S. with 2.3 percent or Britain with 2.2 percent. 4 The very existence of the newly indus trializing countries explodes the idea of "capitalist imperialism." For if the capitalist countries actually ex ploited the third world those LDCs with the closest ties with the west should be the poorest. Conversely, those with the fewest contacts should be the most prosperous. But without exception those countries which are the most market oriented and have the most numerous ties with the west are the most prosperous while the poorest of the LDCs are those like Nepal, Mali and Afghanistan which have the fewest contacts. 5 Thus, not only does the thesis fail to account for the empirical evidence, it is the exact reverse of the evidence!

The Liberal International Order Although the "neocolonial thesis," which was used to justify the pas sage of the NIEO in the United Na tions is unfounded, the NIEO has nevertheless come to pass. What must be considered, therefore, is what would be the probable impact of its implementation. Since the NIEO constitutes severe restrictions on the existing order its impact can best be assessed by first examining this order. Although there are im portant and growing exceptions, the existing international order may be termed a liberal or capitalist order, i.e., one based on the classical lib eral ideals of respect for private property and its corollaries, freedom of trade and migration. Since, in an international order based purely on classical liberal principles, private property would be respected and there would be nei ther tariff nor migration barriers, national boundaries would be de void of economic significance. In such a world capitalists, anxious to max imize profits, would increase their investment in those areas where the cost of factors-raw materials and labor-were cheap relative to those areas where they were expensive.

Conversely, workers anxious to maximize their earnings would mi grate from those areas where wages were low to those where they were higher. This is precisely what served to transform the western world in the nineteenth century. Since Great Britain began to save and invest sooner than other nations it had a higher standard of living than all other European countries. But,· as Ludwig von Mises points out, "something happened which caused the headstart of Great Britain to disappear." That something was the internationalization of capital, which Mises terms "the greatest event in 1981 THE POLITICS OF ECONOMIC STAGNATION 689 the history of the nineteenth cen tury." In 1817, he continues, The great British economist Ricardo still took it for granted that ... capitalists would not try to invest abroad. But a few decades later, capital investment abroad began to play a most important role in world affairs ..... Foreign investment meant that British capitalists invested British capital in other parts of the world.

They first invested in those European countries which, from the point of view of Great Britain, were short of capital and backward in their development. It is a well-known fact that the railroads of most European countries ... were built with the aid of British capital. The gas companies in all the cities of Europe were also British .... In the same way British capital developed the railroads and many branches ofindustry in the United States.6 The GreatMigrationof Capitaland Labor Occurring at the same time was the "great migration" of individuals from Europe, which was relatively overpopulated and in which wages were therefore low, to the U.S., which was underpopulated and, accord ingly, wage rates were higher. This dual process of capital and labor mi gration would continue until equi librium were reached, Le., the mar ginal utilities of both capital and labor were equalized. This is essen tially what occurred in the western world, although to the extent that there were tariff and migration bar riers complete equalization was prevented. And, other things being equal, this is also what would occur throughout the world.

But other things are not equal. Compared to the west, wage rates in the LDCs are quite low while inter est rates are notoriously high. This means that there is a "surplus" of labor and a "shortage" of capital and one would expect capitalists to ex ploit this opportunity for profit by investing in the LDCs. One would also expect this process to continue until wage rates in the LDCs equalled those in the developed countries for the same type and quality of work. In the process, as capital became less scarce interest rates, and thus returns to capital, would decline to the point at which they equalled those in the west. But this has occurred only to a limited extent. The bulk of western foreign investment has gone to other west ern nations, and even that from non western countries, such as the Arab nations of the mid-east, has been in vested largely in the already capital intensive nations of the west. Why?

(a) Lifestyle. It is sometimes for gotten that the developed countries were not always developed. Until only recently all peoples of all na tions were "undeveloped." It was only in the eighteenth century, in what is now termed the Industrial Revo lution, and only in a particular part of the world, in what is now desig690 THE FREEMAN November nated as the "west," that the stan dard of living began to rise above the subsistence level. What made possible the dramatic transforma tion of one small section of the world while conditions in the rest of the world remained practically un changed was, of course, the fact that by the mid-eighteenth century capi tal had been accumulated in Eu rope-or more accurately in Eng land-in amounts sufficient to spawn the economic "takeoff." An important question is, why was capital accumulated in Europe but not elsewhere? Several scholars have noted the existence of two funda mentally distinct lifestyles. The one has been variously dubbed a tradi tional or country lifestyle; the other a modern or urban lifestyle. In the former the family is the unit of pro duction, the bulk of production is for immediate consumption, specializa tion and the division of labor are practically nonexistent, and inno vation is eschewed, while the latter is characterized by an inquisitive, innovative turn of mind and a fairly close correlation between individual effort and reward. The factory is the unit of production, functions are specialized, relations are individu alized and impersonal and the bulk of production is for sale on the mar ket.

Historically, the relationship be tween economic progress and urban ization has been a close one. "It is well known," says Bert Hoselitz, "that beginning with the early elev enth century western Europe under went a process of economic develop ment which was accompanied by the growth of towns and urban institu tions." He attributes to these cities, a predominant economic function. They were places in which new forms of eco nomic activity and new types of eco nomic organization were evolved. They were places not merely in which new commodities were traded and whence new markets and sources of supply were ex plored and conquered but in which ap peared the first signs of new class rela tions based on alterations in the division oflabor. 7 In brief, industrialization and eco nomic development require not sim ply hard work, which is certainly part of the traditional or country lifestyle, but also frugality, effi ciency and risk taking and, related to these, the incentive for saving and investment. Since these are characteristics of the urban life style, economic development re quired the transition from a tradi tional or country environment to a modern or city one.

Today the western world may be seen as the "city" and the third world the "country." This is not to suggest· that the west is entirely "urban ized." The U.S. remains one of the world's chief producers of agricul tural products. Yet what is most sig1981 THE POLITICS OF ECONOMIC STAGNATION 691 nificant about this is the degree to which in the west even those in the country have adopted the lifestyle of the city. In America farming is a highly specialized occupation, and the farmer is, in fact, an entrepre neur: he generally consumes little of what he produces and since his pro duction is for the market he must anticipate consumer demand. He must therefore decide not only what and how much to plant but when, where and how much to sell. Thus even in the developed nations the so-called country conducts itself ac cording to the spirit of the city. In the west even farming is a business. But an entirely different spirit pervades most of the third world: the spirit of the country. It is not just that the agricultural sector is large. What is significant is the prevalence of subsistence farming.

Farming is not a business, it is an existence. Since the production unit is the single family, farms or plots are small. This precludes specializa tion and the division of labor. The emphasis on familial duties greatly inhibits individual mobility, and reverence for one's ancestors or for the ancient order, which is usually a component of the country, discour ages innovations. Finally, the ab sence of the "cash nexus," of produc tion for sale on the market, is incompatible with the development of the spirit of enterprise and entre preneurial acumen. An IncompatibleLifestyle One cannot say that such a life style is wrong; but it can be said that it is incompatible with eco nomic development. An assembly line, to take a simple example, re quires the coordinated activity of numerous individuals. It cannot function when individuals, unaccus tomed to "punching a time clock," cannot be depended upon to arrive at work on time. The successful functioning of an industrial econ omy requires discipline. One may reject such a lifestyle for one of, say, religious contemplation or greater leisure. But those who adopt such a lifestyle have no right to complain because their economic position stagnates while that of others, who subject themselves to the rigors of the marketplace, advances. It is this antagonism between the prevailing lifesty Ie of the LDCs and the suc cessful conduct of economic activity that in large part explains the fail ure of western capitalists to invest in the third world.

However, to refer to the third world as the "country" does not imply the complete absence of urban centers. They do exist and this is fortunate. For it is through such centers that contacts with the west are made. And these contacts spawned LDC development. Writes Peter Bauer: Over the last hundred years or so, con tact with the west has transformed large 692 THE FREEMAN November parts of the third world for the better. For instance, in the 1890s Malaya was a sparsely populated area of hamlets and fishing villages. By the 1930s it had be come a country with populous cities, thriving commerce, and an excellent sys tem of roads, thanks primarily to the rubber industry brought there and de veloped by the British. Again, before the 1890s there was no cocoa production in what is now Ghana and Nigeria, no ex ports of peanuts or cotton, and relatively small exports of palm oil and palm ker nels. These are by now staples of world commerce all produced by Africans, but originally made possible by European activities.... Western activities ... have thus led to major improvements in the material conditions of life in many parts of the third world. This is not to suggest that there has been significant material progress everywhere in the third world.

Over large areas there have been few contacts with the west. And even where such contacts have been established, per sonal, social, and political determinants of economic performance have often proved unfavorable to material advance. But wherever local conditions permitted, contacts with the west most often re sulted in the elimination of the worst ep idemic and endemic diseases, the miti gation or disappearance of famines and a general improvement in the material standard of living for all.8 In short, the prevailing values throughout much of the third world discourage foreign investment. But values can change, as the existence of the NICs dramatically illustrate. It is through contacts with the west that most of the LDCs have been ex posed to values compatible with de velopment. But the degree to which these values are embraced depends on them. (b) Government Intervention. Another reason for the dearth of for eign investment can be summarized under the heading of government intervention. While this is hardly unique to the third world, the gov ernments of the LDCs are, as a rule, more active in the economy than are those in the developed countries. Li censing restrictions are common, as are tariffs, high taxes and state-sup ported monopolies. Even the forcible resettlement of entire peoples is not unknown, as the transfer of urban dwellers to the country in Kampu chea and Tanzania's resettlement of rural people into "cooperative vil lages" attests. But what is of con cern here are those policies which reduce the inflow of foreign capital.

Two such policies, minimum wages and nationalizations, will be dis cussed. MinimumWage Laws Aggravatethe Problem It has become fairly common for the governments in the LDCs to adopt minimum wage laws in order to raise wages. But wages are low because the bulk of the workforce is unskilled and/or unaccustomed to the discipline of the industrial sector, 1981 THE POLITICS OF ECONOMIC STAGNATION 693 and such laws do not change that condition. By preventing workers from offering a "compensating dif ference" for these drawbacks, mini mum wages reduce the attractive ness of investing in the LDCs, thereby restricting the inflow of cap ital and increasing unemployment. In the long run such policies prevent workers from acquiring those skills which would increase their produc tivity, thus making investment more attractive. Hence, they retard eco nomic development. It should not be forgotten that low labor costs, which moralists often condemn as "exploi tation," has been a major factor in the rapid development ofHong Kong, Malaysia and other NICs and, sub sequently, their higher living stan dards.

More serious, however, is the na tionalization of foreign-owned en terprises. The reluctance of western capitalists to invest in the third world has been observed by many and some have even charged that the west is deliberately boycotting the third world. The reason for this reluc tance is not hard to find. Investment always entails risk. But in the third world this is often aggravated by the uncertainty of the economic envi ronment. If the investment fails, the speculator loses all or part of his in vestment. But if it succeeds he is usually subject not only to high taxes but the ever-present possibility of nationalization. The Mexican expropriation of foreign-owned oil hold ings in 1938 was neither the first nor the most extensive nationaliza tion. But it does exemplify the atti tude of many LDCs. In response to the American demand for "prompt, adequate and effective compensa tion," the Mexican government stated: There is in international law no rule uni versally accepted in theory nor carried out in practice which makes obligatory the payment of immediate compensation nor even ofdeferred compensation for ex propriations of a general and impersonal character. 9 Although American holdings were valued at $200 million they eventu ally received slightly less than $25 million.

Other nationalizations include Russia (where all foreign-owned in dustrial property was confiscated af ter the revolution in 1917), Iran, Guatemala, Bolivia, Argentina, Cuba, Peru and Chile.10 Such na tionalizations have cost western capitalists billions of dollars. While the result is windfall gains for the nationalizing country, in the long run it slows development by making access to capital more difficult. The LDCs often complain of high inter est rates. What they apparently fail to realize is that their interest rates are high because of a shortage of capital which, in turn, is in large part a result of their policy of na tionalization.

694 THE FREEMAN November To summarize, while there is a tendency for both wage rates and re turns to capital to equalize through out the world, this has been offset in the third world by such factors as the prevailing lifestyle and exten sive government intervention. A Note on Mercantilism Since the role of government has just been discussed, some mention should be made of mercantilism. Too often being pro-free enterprise is confused with being pro-business. But the two are not identical. Being pro-business usually means advo cating policies such as tariffs and li censing restrictions designed to in sure profits by insulating businesses from competition. But being pro-free enterprise means ·opposing institu tional restraints on competition. Thus, as Friedman has noted, "Tar iffs are anti-free enterprise, yet pro business."!! The pro-business system, or mercantilism, is a profit sys tem; the pro-free enterprise system, or capitalism, is a profit and loss system. The distinction is funda mental. When individuals are free to go elsewhere, a business can avoid losses only by providing what con sumers desire to buy. But when businesses are freed from the threat of competition, this incentive for service is absent. When the possibil ity of loss is present, profits are earned by serving others; when they are not, profits can be earned at the expense of others.

There are no doubt examples of multinational corporations seeking, and receiving, special privileges from foreign governments. The role of ITT in Chile in the 1970s is one example; that of United Fruit in Guatemala in the 1950s is another. But since poverty is greatest in those LDCs with the fewest western contacts, such cases do not explain the plight of the third world. Nor is it neces sary for one who is pro-free enter prise to defend such· mercantilist practices. The Wealth of Nations, Adam Smith's great treatise on free enterprise, was written, after all, precisely to rebut the mercantilist practices of his day. The NIEO Evaluated We are now ready to assess the impact of the NIEO. The measures in the NIEO can be categorized as follows: (a) the· transfer of wealth, (b) nationalizations, and (c) the im position of tariffs. Each will be dis cussed in turn. (a) The Transfer of Wealth. It is dubious that the transfer of wealth can improve the position ofthe LDCs.

In fact, it is likely to make them even worse off. Such aid, as is for eign aid now, would no doubt be ad ministered by and through govern ment. This would promote even greater government control over the economic life of the nation. Apart from the serious restrictions on in1981 THE POLITICS OF ECONOMIC STAGNATION 695 dividual freedom that are likely to occur, such a policy would have sev eral other ramifications. Private investors, risking their own capital, must serve consumers. But a government, especially one receiving aid, is relieved from this economic constraint. This permits public officials to substitute their own individual priorities for those of the marketplace, thereby allowing them to pursue policies that are eco nomically unsound. These include everything from imposing restric tions on the economic activities of productive but unpopular minorities to lining the pockets of themselves and their friends. It also permits of ficials to divert resources from the satisfaction of consumer demand to use in such capital intensive proj ects as the construction of steel mills or hydro-electric dams even when either there is no demand for their products or they can be bought much cheaper elsewhere. Although such projects are undertaken in the name of industrialization, they do not con tribute to economic growth but are a wasteful drain of the resources of the country. "The availability of re sources at little or no cost to the country in question inevitably stim ulates monument-building," Fried man notes. "Thus ... foreign aid grants ... lead to a notable increase in the amount of capital devoted to economically wasteful projects."l2 In addition, wealth transfers have other drawbacks. It is a mistake to regard such aid as a net addition to the capital stock of a country. The expansion ofgovernment control over the economy reduces "the pressure on the government to maintain an environment favorable to private enterprise." Since this discourages private investment, domestic and foreign, the result could well be a net reduction in the amount of capi tal available. 13 Finally, it should be noted that by increasing dependency on govern ment, the politicization of economic life created by wealth transfers works to retard the acquisition of those at titudes-thrift, industry, self-reli ance-which are necessary for de velopment. None of the western capitalist countries required trans fers of wealth for their development and, for the reasons given above, the transfers proposed by the NIEO would probably harm rather than benefit the LDCs. As Bauer has written: If all conditions for development other than capital are present, capital will soon be generated locally or will be available . . . from abroad. . . . If, however, the conditions for development are not present, then aid ... will be necessarily unproductive and therefore ineffective.

Thus, if the mainsprings of development are present, material progress will occur even without foreign aid. If they are ab sent, it will not occur even withaid. 14 (b) Nationalization. This issue 696 THE FREEMAN November can be dealt with quickly. We have seen that past nationalizations have retarded development. There is no reason to suppose that their effect in the future will be different simply because they have been termed an "inalienable right" by the NIEO. (c) Tariffs. The one final issue raised by the NIEO is that of tariffs. The major LDC argument for tariffs is that they would stimulate devel opment by encouraging industrial ization. While tariffs may stimulate in dustrialization, industrialization should not be confused with devel opment. Industrialization is usually correlated with development be cause on the free market new tech nologies are utilized only when they reduce costs by increasing output per unit of input. But such is not the case with tariffs. Manufactured goods that were previously imported be cause their total cost of production, including transportation, was below that incurred by domestic producers now become, with the tariff, more expensive. The result is the substi tution of local for foreign produc tion.

However, as Harry Johnson points out, "the use of protection to pro mote substitution of local for foreign production does nothing to reduce the comparative disadvantage of lo cal as contrasted with foreign entre preneurship."l5 For example, since it is often the case, especially in the LDCs, that the domestic market for a particular good is too small to per mit exploitation of economies of scale and specialization, the costs of pro duction are inordinately high. Thus, although tariffs may artificially stimulate industrialization, this can hardly be viewed as economic ad vancement. In fact, what has oc curred was the shifting of resources from more to less productive uses with the result that everyone except perhaps the domestic producers of the good, is less well off. The Free MarketServes to OvercomePoverty A common criticism of capitalism is that the businessman is con cerned solely with profit. He does not care whether the goods he produces are useful. Nor is he con cerned with the well-being of his workers. Production, runs the popu lar argument, should be for use, not just for profit, and everyone should be guaranteed a living wage. Thus, Indian President Indira Gandhi has recently called for a "new approach to foreign investment" in which in place of the quest for profit, invest ment would be undertaken on the basis of "service to community." This view, which permeates much of the literature on the LDCs, fails to dis tinguish between intention and con sequence.

It may be true that a businessman 1981 THE POLITICS OF ECONOMIC STAGNATION 697 Governmentin Business IT IS NOT the business of governments to go into business, and when they do, they do not do it well. Their proneness to display, and their compara tive indifference to costs, markets, or innovation, lead them to dissipate the energies of their peoples in spectacular and comparatively unproduc tive ventures. Many economically fastidious governments, for ideological or political reasons, mind the business of their citizens to a degree that cuts down energy in both national and international circuits. The efforts of "welfare" governments, in particular, to protect certain interestsand discourageothers,often work againstthe prosperityof both their own and other nations. HAROLD FLEMING, States, Contracts and Progress cares only about his profit; that he is unconcerned about the use to which his product is put or about the well-being and happiness of the workers he employs. But it does not follow from this that the goods he produces are not useful, or that his workers are underpaid or unhappy.

On the contrary. Since people only buy what they intend to use, the dis tinction between production for profit and for use is fallacious. In fact, it is the genius of the mar ket process that, Prime Minister Gandhi notwithstanding, profit and "service to community" are corre lated: the more efficiently one produces the goods others desire, the more profit one will earn. And since what an entrepreneur can bid for factors-land, labor and capitalis limited by his expected yield from the sale of his product, those who are able to produce the most intensely .desired goods at the chea pest price receive the highest return on the sale of their goods. They are therefore able to' make the highest bids for the resources they need. Conversely, those who either produce goods that are not highly demanded or who produce intensely demanded goods but at higher costs than their competitors earn smaller returns or even suffer losses and cannot there fore bid as much for factors. In this way factors are channeled from the production of goods which are less intensely demanded by consumers to the production of goods which are more intensely demanded. Thus, while the intention of the capitalist is to make profit, the consequences of his actions are the most efficient production of those goods most in tensely demanded.

Since the free market works to al locate all factors of production to 698 THE FREEMAN their most value-productive point, any restriction on this process can only reduce the value of what is produced, thereby hurting the great bulk of participants. Wealth trans fers, nationalizations and tariffs are clearly just such restrictions. Thus, far from promoting development, the NIEO is likely to perpetuate the stagnation of the LDCs, or even worsen their plight. The twentieth century has wit nessed the continual encroachment on the liberal international order. If spokesmen for the LDCs seriously desire to overcome their poverty, they should not propose further restric tions; they should advocate the re peal of existing ones. ® -FOOTNOTESlIn :Po T. Bauer and B. S. Yamey,''Against the New Economic Order," Commentary (April, 1977), p. 27. 2Ibid. Also see Kwame Nkrumah, NeoColo nialism: The Last Stage of Imperialism (New York: International Pub., 1965).

3The text of the NIEO declaration, adopted May 1, 1974, can be found in Louis Henkin, et al, International Law (St. Paul: West Pub., 1980), pp. 695-99. Also see William Cline (ed.), Policy Alternatives for a New International Economic Order (New York: Praeger, 1979), and Deekpak Lal, "Behind the North-South Confrontation," and Richard Steade, "Multinational Corpora tions and the Changing World Economic Or der," both in World Politics, 80181, ed. Chau T. Phan (Guilford, Conn.: Dushkin Pub., 1980), pp. 147-49 and 118-23 respectively. 4Geoffrey Godsell, "Tomorrow's Big Powers: 'Confucian Work Ethic' Thrusts Small Nations Into Big League," World Politics,80181, ed. Chau T. Phan (Guilford, Conn.: Dushkin Pub., 1980), p. 16l. 5See, for example, :P. T. Bauer, ''Western Guilt and Third World Poverty," Commentary (Janu ary, 1976), pp. 31-38. For an in-depth and dev astating criticism of the neocolonial thesis see Peter Bauer, Dissent on Development (Cam bridge: Harvard University Press, 1972). Also of interest are Gottfried Haberler, "Terms of Trade and Economic Development," Economics of Trade and Development, ed. James Theberge (New York: Wiley, 1968), pp. 328-29; and John Kimball, "The Trade Debate: Patterns of U.S.

Trade," World Politics, 80181, ed. Chau T. Phan (Guilford, Conn.: Dushkin Pub., 1980), 104-13. 6Ludwig von Mises, Economic Policy (South Bend, Ind.: Regnery, 1979), 78-80. 7Bert Hoselitz, "The Role of Cities in the Eco nomic Growth of Underdeveloped Countries," Chicago Essays in Economic Development, ed. David Wall (Chicago: University of Chicago Press, 1972), pp. 61-67. 8Bauer, " Western Guilt," pp.32-33. 9In Harold Fleming, States, Contracts and Progress (New York: Oceana, 1960), p.60. lOIbid., pp. 9-17; and John Spanier, Games Nations Play (New York: Holt, Rinehart and Winston, 1981), pp. 416-17. llMilton Friedman, "Regulatory Schizophre nia," Newsweek (June 29,1981), p.65. 12Milton Friedman, "Foreign Economic Aid: Means and Objectives," Yale Review (June, 1958), pp. 205-06. Also see Fleming, pp. 78 79; and P. T. Bauer and B. S. Yamey, "East West/North-South: Peace and Prosperity?,"

Commentary (September, 1980), p. 61. 13Friedman, "Foreign Economic Aid," p. 207. 14Bauer,Dissent, pp. 97-98. 15Harry Johnson, "Tariffs and Economic De velopment: Some Theoretical Issues," Econom ics of Trade and Development, ed. James The berge (New York: Wiley, 1968), pp. 371-75. For an excellent and readable presentation of the law of comparative advantage see Stephen J. Rosen and Walter Jones, The Logic ofIntern a tional Relations (Cambridge: Winthrop, 1980), pp. 344-47. For a more technical presentation see Roy Harrod, International Economics (Chi cago: University of Chicago Press, 1958).