Austin and the IEA

Cairncross (1993) cites the IEA volumes either edited by Austin or to which he contributed chapters in his bibliography of Austin’s writings as evidence of Austin’s lucid, carefully considered contributions to the problems of developing economies. A selection of the titles alone indicate the breadth of Austin’s interests and knowledge: The Economic Consequences of the Size of Nations (1960); ‘Foreign Trade in a Developing Economy’, a chapter by Austin in Kenneth Berrill (ed.), Economic Development with Special Reference to East Asia (1964); Problems in Economic Development (1965); The Economics of Education (edited with John Vaizey 1966); ‘The Desirable Level of Agriculture in Advanced Industrial Economies’, a chapter in Ugo Papi and Charles Nunn (eds), Economic Problems ofAgriculture in Industrial Societies (1969); Backward Areas in Advanced Countries (1969); Economic Growth in South Asia (edited with Michael Kidron 1970); The Economic Development of Bangladesh within a Socialist Framework (edited with Keith Griffin 1974); and Appropriate Technologies for Third World Development (1979).

His commentaries were always clearly expressed, he combined optimism tempered with caution, and he tried to delineate clearly the boundaries within which academic economists could speak with (relative) authority and outside of which they were trespassing without good reason. Thus, in the 1960 volume (which arose from a conference held in 1957—as with the effects of changes in the quantity of money, the publication of IEA volumes is subject to uncertain, long, and variable lags), he wrote that it was ‘not for us, as a group of academic economists, to reach political conclusions, and we made no attempt to do so’ (Austin Robinson 1960: xxi). The subject of this particular conference—the relation of size to economic prosperity—had, its editor wrote, received very little discussion in the 180 years since the publication of The Wealth of Nations. Typically, Austin started by getting definitions straight and asking why the concept of a nation was relevant for economic analysis. He found the answer in the discontinuities which the boundary of a nation provides—some natural, some institutional, for example, tariffs, limits on the movement of labour. In our day (Austin’s then), the nation had renewed itself because it had become the unit for government action and economic activity.

Austin pointed out that the definition of size differed according to the purpose in hand. At the conference, they examined the USA (a rich country) and Switzerland, Belgium, and Sweden (which were exceptions to the size rule). Austin noted that Switzerland achieved necessary economies of scale by relying on export markets, while Belgium achieved high living standards by concentrating on the unfashionable factors of industrial efficiency and hard work (both dear to Austin’s heart). He pointed out that with few exceptions technical economies are exhausted by firms of quite moderate size. He also formed the impression that most of the major industrial economies of scale could be achieved by a relatively high-income-per-capita country with a population of 50 million. Foreign trade could provide an escape (from size) but a precarious one and the economic arguments for further integration of nations, so as to create wider markets, were not overwhelmingly conclusive—the political arguments were, of course, another matter. Size was obviously useful for defence but not exclusively for anything else.

Austins chapter on foreign trade in developing countries in Berrill’s 1964 IEA volume started with a list of intellectual debts: Ragnar Nurkse, Harry Johnson, Berrill himself, David Bensusan-Butt, Hla Myint, and Phyllis Deane. He first identified two impacts of international trade on the development process. The first was positive: by adding specialisation and accumulation in those activities in which productivity is highest, the process of development may be accelerated. The second, which was negative, arose because often the propensity to import runs ahead of the power to export, so imposing constraints associated with threatening balance of payments difficulties. If higher rates of interest are used, for example, to protect foreign exchange reserves, they may lead to an uneasy equilibrium characterised by underloading of the economy and a slow rate of development. Though the ratio of exports to imports reflects in the very long term the size of country concentration and range of endowments, the exports to income ratio is the ultimate constraint, a point which Austin illustrates by reference to the historical experience of the UK and Japan. A typical Austin emphasis is that the better use of resources may often have been more important than a slightly higher rate of accumulation.

He lists five channels of causation whereby a rise in the exports to income ratio may contribute to the acceleration of growth: by a transfer of resources from low to high productivity areas; by ridding any industry of dependence solely on home markets (but if this is achieved by foreigners’ investing and producing, the benefits to the home country may be minimal); by the spread of higher industrial efficiency first introduced through international trade; by what we now call the demonstration effect, knowledge of new products, or products not previously known in the country leading to increased desires to produce them and for increased incomes to purchase them. The most important aspect for Austin though is that a high level of trade and possible imports provides a means of escape from both major and minor errors of planning and production. He illustrated these principles by looking at the experiences of India and Pakistan. An important emphasis that emerged was that he was sceptical of the potential of price changes, for example, devaluations, as opposed to the power of income and quantity changes.

In his opening address to the Second World IEA Congress in Vienna in September 1962, the subject of which was the problems of economic development, Austin said that the topic was chosen deliberately, adding: ‘Just as in the 1930s almost all schools of economists were concerned with problems of economic fluctuations.. .today [they were] mostly concerned with attempting to understand the causes of economic growth’ (Austin Robinson 1965: xv). Austin expressed the wish that these developments would help to eliminate poverty which does so much damage to human happiness and that they would help to close rather than to widen the gap between the poor and the rich nations. He referred to the profound difficulties associated with defining and measuring the stock of capital goods in a world of continually changing prices and technologies, adding that even more insoluble problems arise when we try to define and measure stocks of scientific and engineering knowledge or of freedom of opportunity—all variables which complement one another in the development process.

He criticised Walt Rostow’s (then) attempts to generalise historical experiences of rapid growth in more advanced economies and to apply this directly in policies for ‘backward countries’. For Austin (as for Marshall), change is continuous, not abrupt, that is to say, in general there is no ‘take-off’. Nevertheless, to increase the speed of development attention must be paid as much to creating the right institutions and economic framework as to potential supplies of capital. Especially vital is education to allow developing countries to absorb knowledge and skills. Reflecting the influence of Keynes and his followers, Austin referred to the need to understand the causes of fluctuations in the prices of primary products and to devise schemes to reduce them. Austin returned to the role of foreign trade in development, to export-led growth and balance of payments constraints. He stressed the need to model interrelationships between countries, taking explicit note of the sizes of price and especially of income elasticities of exports and imports. Austin urged that, in order for small emerging countries to escape from the penalties of smallness, markets be opened to both their traditional and newly emerging exports, even manufactures—still a tract for our times.

The quantity and quality of the population of nations were always foremost concerns of Austin’s. He gave explicit voice to it in the volume on The Economics of Education (1966) which he edited with John Vaizey, a pioneer of the subject in the UK. In the introduction, Austin itemised the conceptual difficulties and the deficiencies of the available statistics. He was also careful to show that education was gravely misconceived if viewed solely (or even at all) as a consumption good. In these days of consumer sovereignty in all things, it is refreshing to be reminded that investment and production are vital aspects of economic and social life as well, and that while a balance must be struck, neglect of any is detrimental to human welfare. Austin has wise things to say about taking into account the future effects on activity of the stocks of educated persons as well as analysing the current flows, and that in our statistics, we neglect the collection of data on the educational attainments of immigrants and emigrants at our peril.

In 1969, Austin edited a volume on backward areas in advanced countries. All advanced countries have such areas; one reason why they persist is because individual entrepreneurs cannot be expected to take into account all the factors which from a national point of view are relevant for the location of industries. Austin was (and remained) an unrepentant interventionist. He argued that with the possible exception of the USA, people were not indifferent to where they live or have lived. It followed that the principles of international trade rather than the analysis of a single country were appropriate for considering backward areas and what may be done about them.

Appropriate Technologies for Third World Development (1979) was a topic especially suited to Austin’s humanitarianism and ‘nuts and bolts’ philosophy. All his working life, he emphasised that development on the spot using already established communities was most to be preferred. Promoting the appropriate technologies for such a process had been hampered by artificially cheap capital facilities, tax holidays, and similar measures. He also stressed that there are appropriate products as well as methods of production, very much a close- to-the-ground view which reflected his frustrated engineer side^[1]—as did his emphasis on the crucial role which the ability to provide adequate maintenance of machines plays in the process of development.

Other volumes which he edited relate to developing countries such as Sri Lanka and Bangladesh, on which we comment below. Austin also wrote many reports on development themes. Cairncross singled out for special praise a report for the United Nations Development Programme (UNDP) Robinson (1976), which Austin wrote in the mid-1970s at the request of I.G. Patel (who had been his pupil in the 1940s). Cairncross regards it as the single best and most impressive account of the principles of development to come from Austin’s pen. We discuss now its main features, drawing on Cairncross (1993: 150-152), features already present in embryo in his 1920s work in India and 1930s work in Africa.

His focus was on ‘the massive underemployment and unemployment in many developing countries’ (ibid.: 150). Austin asks why they are so persistent and he sets out six constraints on a policy of increasing demand to draw these workers into employment and allow incomes to rise.

The usually dominant constraint is the failure of domestic food production to match expanding incomes, so that import demand rises. Unless exports match this, expansion is constrained by balance of payment problems. Austin’s orders of magnitude for a typical developing country with population growth of 2.5% a year and a target growth rate of 7% a year are that the constraint will bite if agricultural output does not grow by 5% a year. Top priority must therefore be given to overcoming this constraint by creating the necessary agricultural surplus.

Austin also stressed that the ‘weakness in the exchange mechanism between town and country was sometimes the main constraint’ (ibid.: 151). Undernourished farm workers consumed the additional food so that the demands of the urban population, swollen by an inflow from rural area, went into imports; hence effective organising for buying, financing, transporting, and distributing the agricultural surplus was needed in the city. As befits an economist of the same university as Malthus, Austin also recognised the need to limit the import content of consumer goods, not least ‘luxury’ goods.

The fourth limitation was inadequate accumulation due to low saving rates, inefficient methods of finance, and also the high import content of investment.

The fifth and sixth constraints are associated with the limitations of skills available—administrative as well as productive, especially in industry where education systems may not be geared to produce them. Austin thought it may be necessary to create ‘“small-scale low-capital-intensive occupations” with “very large numbers of small craftsmen, traders, entrepreneurs starting successful small business”’ (ibid.) in order to bypass the problem.

Strangely, Austin does not mention cultural factors which could be an important part of the explanation of differences between countries, for example, acceptance of discipline in the industrial sector: strange, because, as we have seen, his letters from India and Africa are full of details on just these characteristics of the local populations.

Austin then discussed the dual economy aspect of development—the contrast between modern sectors and traditional sectors, and the choice this raises of whether to go for rapid development through faster growth and lower capital inputs per jobs, or a gradual transition and the consequent need to ‘revitalise and reinvigorate the traditional economy’ (ibid.: 152). He had advocated the latter advance in the 1930s.

Finally, he recognised fully the problems associated with rapid population growth which in some cases meant absorbing ‘as much as three quarters of all national investment.. .in merely standing still’ (ibid.).

We may illustrate Austin’s approach, in particular, his well-developed sense of relevant orders of magnitude in the simple macro-development models which he carried in his head, by briefly examining the arguments of his Kingsley Martin Memorial Lecture, ‘The Economic Development of Malthusia’ (Austin Robinson 1974), which was given in Cambridge on 6 March 1974. He used Bangladesh as his example. He started by stating the question which was asked ‘[o]ne hundred and 75 years ago [by] a shy young Fellow of Jesus’ (Austin Robinson 1974: 521). The question is ‘whether economic development was possible, or whether it would be frustrated by the growth of population’ (ibid.). To say that ‘Malthus has been discredited by subsequent history’ is, said Austin, ‘a very dangerous half truth’ (ibid.), for while the advanced countries have broken through the Malthusian barrier into cumulative growth, the rest of the world has not; it ‘continues to live under conditions of near stagnation, little above the subsistence level, in very much the conditions that Malthus envisaged’ (ibid.).

Austin worked out two scenarios for the next 20 years in Bangladesh according to whether it continued with Malthusian-type birth and death rates, or with European types through which it (Europe) had broken out of the Malthusian trap. He relates these statistical exercises to the actual plans then being proposed in Bangladesh. His sense of the interrelationships of the broad aspects of the economy is beautifully done. He shows that in the most favourable scenario, a considerable proportion of the problems of unemployment, underemployment, and poverty would be overcome by the end of the period, while with the other scenario, Malthus’s worst fears would have been realised and an opportunity available then (1974) would have been lost forever. In 1996, Austin’s ‘waking hopes’ (ibid.: 532) were nearer to being achieved than his worst fears realised (see, for example, Reddaway 1996).

The distinguished development economist John Toye (personal communication) writes that:

Austin was very influential in the early days of the UN.his criticisms led to a restructuring of the UN Department for Economic Affairs and the redesign of the UN’s World Economic Report. [He was also] the driving force behind the setting up of the Overseas Development Institute in London. His purpose was to raise public and political interest in development issues. He served on its Council [for] over thirty years...and [his] peremptory guidance...was invaluable in keeping it on the straight and narrow.

• [1] Christ’s had been ‘unsympathetic to (Austin’s) view that he should use a classical scholarship to be taughtthe more professional aspects of designing aeroplanes’ (Austin Robinson 1992: 204).