Journal Issue
Finance & Development, June 1978

Book notices

International Monetary Fund. External Relations Dept.
Published Date:
June 1978
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International Labour Office, Geneva, Switzerland, 1977, v + 113 pp., Sw F 15.

This little booklet contains contributions by D.P. Ghai, A.R. Khan, E.L.H. Lee, and T. Alfthan. This work has grown out of the World Employment Conference, 1976, which proclaimed as a fundamental principle that “strategies and national development plans should include explicitly as a priority objective the promotion of employment and the satisfaction of the basic needs of each country’s population.”

Chapter 1, by Ghai, surveys five major statements advocating a basic needs strategy. Chapter 2, by Ghai and Alfthan, maps out the main outlines of conceptual and empirical work required to make the strategy operational. Chapter 3, by Lee, discusses some normative and philosophical issues. Chapter 4, by Khan, develops a general method for identifying and quantifying basic needs targets and applies it to Bangladesh. Chapter 5, also by Khan, shows that a basic needs plan will have to take into account the close relationship between basic needs targets, the structure of production, and the distribution of income.

The volume serves as an excellent introduction to concepts, assessment methods, values, and measures of basic needs. For setting out the method of quantifying basic needs targets, measuring deficiencies, and indicating ways to meet them, Khan’s essay is a minor classic and can serve as a model. It combines rigor and common sense. It contains the ingenious device of defining a “core” of basic needs and proceeds to show how resource requirements, in both the private and public sectors, can be estimated.

In a thoughtful and stimulating essay Ghai distills the essence of basic needs from five key documents, to which thinkers from the Third World have substantially contributed. (This is noteworthy in view of the skepticism and even hostility that some Third World negotiators have recently shown to the concept.) He singles out the following features: meeting the basic needs of the poor should become the core of development planning and policy; the core needs are food, education, health, housing, and sanitation; basic needs embrace nonmaterial needs like human rights, freedom, political participation, and self-reliance; basic needs are not static but grow with the growth of the economy and rising aspirations; there are many roads to meeting basic needs, and diverse processes and institutions must be forged in accordance with diverse cultural traditions; structural transformation, including redistribution of assets and income, is essential; and, finally, distribution of power is central to implementing basic needs strategies.

A serious limitation of an otherwise excellent booklet is the lack of awareness of previous work in this field. The important researches of Booth and Rowntree into poverty in London and York at the beginning of the century are highly relevant. Seebohm Rowntree distinguished between primary and secondary poverty. Primary poverty was insufficient real income to buy the minimum needs basket. But much more prevalent than primary poverty he found secondary poverty, when people had more than adequate income but for a variety of reasons did not spend it on satisfying their minimum physiological needs.

There is no mention either of the important work of Abraham Maslow on the hierarchy of needs. After the physiological needs, Maslow found that the need for safety is basic. Historically, the achievement of civic order was a precondition of urban settlements. The implications for police, prisons, and armies might have been followed through.

The discussion of participation bypasses two sets of important issues. One is the precise type of decision that must be taken at different levels—family, local, district, and central—in order to get an effective delivery system of public services, including availability and proper maintenance. It is all very well to say that health workers should be chosen from among the members of the village and that they, rather than some distrusted bureaucrat, must work in their village. But only a central institution can train them adequately in the skills they require. The second question is what forms the participation should take in a democracy. The fascist corporate state claimed that it drew on the participation of workers, employers, and farmers. But this form of participation bypasses democratic representative institutions.

Lee raises the interesting question of the relationship between basic rights and basic needs, in Chapter 3. Maslow had the following to say on this: “It is legitimate and fruitful to regard instinctoid basic needs and the metaneeds as rights as well as needs. This follows immediately upon granting that human beings have a right to be human in the sense that cats have a right to be cats. In order to be fully human, these need and metaneed gratifications are necessary, and may therefore be considered to be natural rights” (Motivation and Personality, second edition, p. xiii). This is not a very fortunate way of making the point. If being human is a fact, the question of rights does not arise. If, on the other hand, unlike cats, to be human is to aspire to an ideal (it makes sense to say, “Be a man!” while it does not make sense to say, “Be a cat!”), the provision of the conditions for fulfilling this aspiration may be regarded as a right. Ghai, unlike Lee, believes that basic needs “are not confined to only material needs but embrace other dimensions such as fundamental human rights…” (p. 14).

Narrowly interpreted, material needs can be met in ways which conflict with rights, as when a society is organized as a prison or a zoo. And rights may conflict with needs, as when freedom of expression and free elections prevent a radical land reform or tax reform or any other redistribution to the poor. In a democracy in which each votes according to his self-interest, and there are no alliances between subgroups of rich and poor, the poor will never have enough votes to get redistribution to them enacted. As Nozick has shown, the top 49 per cent can always persuade by adequate compensation the middle swinging vote of 2 per cent not to join the bottom 49 per cent so that redistribution toward the middle, but not toward the poor, is the result. Experience from democratic countries confirms the a priori reasoning.

There is also an ambiguity between interpreting basic needs as “material preconditions” and “fundamental human requirements for fulfillment.” “I give you the toast of the Royal Economic Society, of economics and economists, who are the trustees not of civilisation but of the possibility of civilisation,” So toasted Keynes the Society at the dinner of 1945. Substitute basic needs for civilization, and we must ask: Can or should the state actually satisfy basic needs or should it provide only for the possibility of their satisfaction? This question is, of course, closely related to the previous one about needs and rights, for some forms of satisfaction are possible only at the expense of rights, and some rights are inconsistent with actual need fulfillment.

It is such reflections that are stimulated by the book which, however, moves gracefully from philosophical reflections to calculations of the amount of cloth required for Bangladesh women to meet minimum standards of decency.

Paul Streeten

Lawrence B. Krause and Walter S. Salant (editors)

Worldwide Inflation—Theory and Experience

The Brookings Institution. Washington, DC, U.S.A., 1977, xi + 686 pp., $9.95 (paperback), $19.95 (hardback).

This book is based on a conference of international experts that was held in November 1974, organized by the Brookings Institution. It is the first volume of a series by Brookings on worldwide inflation and includes the 13 papers that were prepared for the conference, along with comments on the papers and summaries of the conference discussion.

“Worldwide inflation” is not an obviously meaningful phenomenon, unless it can be assumed that exchange rates are fixed for the period under examination; without fixed rates, it is difficult to define the term statistically and conceptually. The editors of this book decided to develop the notion of worldwide inflation on the basis of the experience of the early 1970s. They noted that the most striking characteristic of the upsurge of inflation in 1972-74 was its virulence as inflation rates reached double digits in an increasing number of countries. They found that inflation struck all countries simultaneously, and that this was reason enough to describe the inflation as worldwide, to try to find a common source for it, and to pay increased attention to the process by which it spread among countries.

It is worth noting that the papers were written and the conference was held in the period in which rates of inflation were at their highest postwar levels. In the fall of 1974, the 12-month increase of consumer prices in the industrial world ranged from a low of 7 per cent in the Federal Republic of Germany to a high of around 25 per cent in Italy and Japan. Although inflation continues to be a problem in most industrial countries, its pace is now significantly less. Recent data show that the 12-month increase of consumer prices in industrial countries ranged from 1 per cent in Switzerland to 15 per cent in Italy. It should also be borne in mind that at the time of the conference generalized floating of exchange rates among industrial countries had been in effect for only a little more than 18 months, and most of the papers seem to assume that fixed exchange rates would prevail.

The book (and conference) devotes its first part, containing four papers, to theories of inflation; the second part discusses the recent experiences of eight countries with inflation; and the concluding section focuses on future research.

In the section on theories of inflation, Alexander K. Swoboda presents the monetary approach to worldwide inflation; William H. Branson develops a “Keynesian” approach to worldwide inflation; and Walter S. Salant discusses the international transmission of inflation. This set of theoretical papers also includes one by Odd Aukrust on the theory of inflation in small, open, economies. As one of the participants in the conference suggested, the Swoboda and Branson papers should probably be viewed as complementary rather than competitive. Salant’s paper is a masterful survey of propositions regarding the international transmission of inflationary pressures. Aukrust’s paper is instructive in its examination of the interconnections between the foreign and domestic sectors of the economies of small, open, countries and underscores their limited ability to have a national price policy if a fixed exchange rate is maintained. All of these papers provide valuable insights into the possible mechanisms of how inflation is transmitted from one country to another. Taken together, they bring out the complexity of the issues in this area.

However, I found the theoretical papers disappointing in two major respects. First, the papers generally pay too little attention to situations in which exchange rates are flexible or variable, which reduces their relevance today. Second, they do not furnish much assistance for the empirical investigation of global inflation.

The eight papers on the experiences of individual countries with inflation deal with the United States (by Harold T. Shapiro), Japan (Ryutaro Komiya and Yoshio Suzuki), Australia (John D. Pitch-ford), Brazil (Antonio C. Lemgruber), the United Kingdom (Wynne Godley), Sweden (Lars Calmfors), France (Pascal Salin and Georges Lane), and the Federal Republic of Germany (Gerhard Fels). These country studies provide numerous helpful perspectives on the inflationary process. Their most serious limitation, however, is that the studies were not formulated in ways that would have facilitated the analysis of the origins of inflationary pressures. The lack of a common framework for the investigations, too, leads one to wonder how the country studies relate to the question of worldwide inflation. The general impression one is left with is that most of the countries under review created their own inflation problems, although the widespread acceleration of inflation between 1972 and 1974 was attributed in part to external influences. Of course, if the evidence of worldwide inflation rests primarily on developments in 1972-74, then it can hardly be regarded as a general and pervasive phenomenon.

The main presentation on future research is a paper by Salant that sketches a supranational approach to the analysis of world inflation. In effect, this paper brings out the problems inherent in the way this book has taken to identify and analyze worldwide inflation—which is to view such inflation as the consequence of developments in individual countries, supplemented by an examination of various mechanisms that might explain the transmission of inflationary forces among countries. Moreover, the framework Salant attempts to develop is basically oriented to a world of fixed exchange rates, and he acknowledges that fluctuating rates raise a fundamental problem about the concept of world inflation itself. In an appendix, Salant examined the statistical problem posed by fluctuating exchange rates, but the conceptual problem was not resolved.

To sum up, this volume provides a rich variety of ideas on domestic and international inflationary processes, but one is left with doubts as to the nature, and perhaps even the existence, of worldwide inflation.

Sterie T. Beza

Poverty and Landlessness in Rural Asia

International Labour Office, Geneva, Switzerland, 1977, xi + 288 pp., $13.95 (paperback).

This is the first major research study to be published under the rural component of the World Employment Program of the International Labour Office. It is an important study which should be useful for policymakers and academics alike. It traces and explains trends in rural poverty between 1969 and 1975 in seven major Asian countries based on ten empirical case studies. The main focus is on Bangladesh, India, Indonesia, Malaysia, Pakistan, the Philippines, and Sri Lanka. There is also a chapter on the experience of the People’s Republic of China, but very little analysis is made of the findings.

In view of the spate of recent literature dealing with this part of the world, a relevant question is: What does this study tell us that we do not already know? Of course, studies of this nature will continue to be important. After all, these countries (excluding the People’s Republic of China) account for roughly 70 per cent of the rural population of the nonsocialist developing world and, more important, the majority seem unable to break out of the vicious cycle of poverty. The major contribution of this study is to confirm what has been suspected for a long time—that the process of growth has been associated with inequality of domestic income distribution; this raises further questions about the “trickle-down” hypothesis on the effects of economic growth.

Though the countries all vary in certain details, their common experience has been one of increased income inequality, and of a skewed land distribution which has resulted in chronic malnutrition and similar economic ills facing the lowest economic groups. The study finds that in all the countries except the Republic of China there has been a worsening in overall income distribution and a relative decline in the real incomes of the rural poor. Both the proportion of the population below the poverty line and the real income of the lowest decile have been declining. In the majority of cases, and especially in Bangladesh, this decline in the real incomes of the rural poor took place even during periods of rapid agricultural growth.

Perhaps the most important finding is that Asian poverty is not due to a world food shortage or to the failure of food production to keep up with expanding population growth. The results show that the increase in poverty has been associated “not with a fall, but with a rise in cereal production per head, the main component of the diet of the poor…” (p. 19). The implication for development policy is clear. “The problem of world hunger cannot be solved merely by attempting to increase production. The solution requires better distribution and more productive employment both to increase incentives to expand output and create effective demand for greater food output” (p-17).

None of the case studies found that unemployment was a prominent cause of poverty. “Most of the poor are not unemployed and many of the unemployed are not poor.” The rationale of the authors is that unemployment is mainly an urban, middle class phenomenon; the majority of the poor cannot afford to be unemployed since they must obtain a source of livelihood, even at low wages. While it is true that unemployment is closely correlated with factors such as education, sex, and age, a large portion of the labor force lacks a reliable source of income adequate to meet basic needs. The real tragedy of those without jobs is the poverty into which they slip, and which they share with all those with very low incomes. Although the ultimate objective of policy is not just to provide more jobs, the problem is to provide socially productive work which yields enough income for a reasonable standard of living. If the authors had examined the relationship between unemployment and income creation more closely, they might have reached somewhat different conclusions.

However, the authors would probably not consider such an approach useful for at least two reasons. First, there is more and more evidence that real wages, and sometimes nominal wages in rural areas, are highly flexible downward, which goes against Arthur Lewis’ hitherto commonly accepted hypothesis that they are institutionally fixed. Second, wage differentials cannot provide the necessary incentives for the poor to improve their economic and social well-being: “If the overall structure is rigid, rewards will be dissociated from effort and ability, and consequently wage inequality will perform no useful economic function whatever” (p. 27). One possible interpretation of this approach is that the eradication of poverty and its attendant ills cannot be achieved by marginal income changes benefiting the poor but rather by the massive redistribution of income and assets, and other structural and institutional adjustments.

Therefore, one can only agree with the authors’ contention that the problem of poverty should be looked at within the context of an examination of those dynamic forces which accentuate and perpetuate low living standards. In this regard, the book contains an authoritative discussion of three such forces: private investment, the process of technical innovation, and demographic changes. However, except for the recommendation of asset (land) distribution, the book does not follow through by examining a package of technical policy changes which are necessary and which are indeed obvious from the detailed statistical analysis. This is not to detract from the book’s usefulness or importance. In future work of this nature, attention should be focused on examining the feasibility of alternative strategies of development, for example, by comparing and contrasting the two Chinese experiences. The book provides adequate ammunition for such investigations.

Wilfred David

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