Prescription for the Poor

THE ECONOMICS OF POVERTY by Thomas Balogh. 381 pages. Macmillan. $7.95.

"England's most controversial economist," as the dust jacket correctly bills Thomas Balogh, believes that the world is a ticking time bomb. Rich nations are getting richer while poor nations are getting poorer--and unless the trend is radically reversed, warns the author, all the colored races will embrace Chinese-style totalitarianism. His thesis is well-worn and his stark pessimism is questionable, but the problem of widening inequalities is all too real and urgent.

Balogh's book does not make comfortable reading--his style is both windy and wooden, his ideas are immoderate. Yet it is an important book because Balogh, 61, is no Peiping Tom but one of the non-Communist world's top doctors to underdeveloped lands. He is, or has been, a consultant to India, Ghana, Algeria and half a dozen other governments and U.N. agencies. Moreover, he is a Cabinet adviser to his longtime friend and neighbor, Harold Wilson. He has engineered many of the tough tax programs and convoluted controls in Britain--where Budapest-born Balogh is widely known as "Pest."

Power to the State. The book, a compendium of secret memos to Premiers and public articles by Balogh over the past dozen years, hammers at one main point: underdeveloped countries must rapidly industrialize by "conscious planning and state intervention." Balogh frowns on most private foreign investment and advises underdeveloped countries against all "unnecessary investments," such as money spent for the production of more than one basic kind of auto. Though he is a Fabian Socialist, he urges the underdeveloped to be tough with their labor: discourage trade unions and minimum wage laws, he suggests, because they increase production costs and promote the rise of a small privileged class of skilled workers.

To persuade people to consume less and produce more, writes Balogh, governments must put stern controls on output, imports, wages, prices and the human psyche. If capitalist-style advertising campaigns cannot induce people to accept austerity and sacrifice, then governments may well be advised to try the compulsion of Marx and Mao.

Enlarge the Farms. Poor countries go wrong, Balogh argues, by trying to equalize incomes and alleviate immediate needs instead of investing for the future and raising production. He favors land reform, but notes that the time-honored method of cutting up large estates only cuts output. Rather than wasting time trying to increase the productivity of illiterate peasant farmers, the state in the short run should concentrate on inducing large, rich farmers to adopt modern methods.

For the longer term, Balogh believes that many underdeveloped nations are so backward and Balkanized that their best hope lies in banding into regional common markets, such as the Latin American Free Trade Association conceived by his ally, Argentina's Raul Prebisch. Richer nations should not only greatly increase their foreign aid, but also channel it through an international organization and budget it on a long-term basis. To accomplish this, the world needs a major reform of its monetary system so that generous nations--notably the U.S.--would not be penalized by balance-of-payments deficits as a result of foreign aid.

Success Overlooked. Balogh's ideas are an. odd mixture of common sense and doctrinaire Pestering. He believes that capitalism is "on the defensive" and distrusts the "North Atlantic Protestant atmosphere" that favors private initiative. "Only totalitarianism and Communist compulsion," he says, "have succeeded in lifting poverty-stricken countries onto the road of progressive improvement." Balogh's tune has hardly changed a note since the early postwar era, when he proclaimed confidently that only the long continuance of direct economic controls could restore Europe's prosperity.

No one denies that today's underdeveloped nations will have to use considerable planning and controls if they hope to make progress, but Balogh's case is too extreme, too rigid. Harold Wilson's friend seems to overlook the resounding success of Western Europe's market economies. He also ignores the fact that the Communist world, prodded by such economists as Russia's Evsei Liberman and Czechoslovakia's Ota Sik, is rapidly loosening state controls and adopting Western methods of enterprise. Above all, he fails to mention the recent advances of free enterprise from Chile to Malaysia to Greece.

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