Trade, Aid and Development

Opening this collection of essays honouring Hans Linnemann with a characterisation of both the person and his work is not only a privilege, but a challenge as well. One needs to reflect on his long and distinguished career in terms of his scientific contributions, but fails to do justice to him when these are not cast in a much wider framework, one that tries to give insight into his motivations both as a person and as a scientist: those are intimately related and account for his ability to inspire others around him. My challenge is to try and speak on behalf of the wide circle of others — friends, students and colleagues — whom he inspired in the course of his career as a scientist. Characterising Hans Linnemann is far from easy as he is first of all a peacemaker and moderator who likes to keep a low profile for himself. The task is not eased by his abhorrence of public praise: I have to choose my words carefully.

I am honoured to speak on the occasion celebrating the contributions of our esteemed colleague, Professor Hans Linnemann. Although I had come to know of him earlier through his writings, if memory serves, I met him for the first time at the International Institute for Systems Analysis at Laxenberg in Austria where both of us were involved in their Food and Agriculture Project. Since then we have interacted on several occasions, including meetings of the Scientific Advisory Board of SOW. He was a discusser of a paper of mine at one conference. I continue to cherish the memory of not only the valuable comments he offered on the paper but also the polite and professional manner in which he delivered them.

One way to think of economic growth is to view it as an autonomous process, which in spite of some shocks, proceeds at a pace which is pretty much determined by the time preferences of the individuals and their attitude towards risk. The engine of growth is the change in technology and this is determined by the amount of resources that are allocated to activities which change the technology, referred to as human capital (cf. Lucas, 1988). This view of the process yields a consistent paradigm of sustainable growth where there is no need to rely on exogenous technical change. This theory is instructive but in its present form it is insufficient to confront the data and explain crosscountry and within-country differences in the growth rates. Empirical analysis, therefore, has to search for a broader specification.

Throughout his life Hans Linnemann has been concerned with equality and wealth in this world. Rather than travelling with his emergency kit to the poorest and most deprived, Hans took refuge in science, hoping to succeed where direct approaches often fail. But science is not straightforward. As Popper, Kuhn, Lakatos and others teach, science takes many paths — paradigms — that sometimes meet dead ends and sometimes join, having travelled apart for long. One such paradigm is the analysis of gravity, cherished by Hans for its simplicity and its readiness for empirical applications. Although applied already by Carey (1858) the theory can be said to have its roots in the Social Physics School of Zipf (1946), who launched the idea of approaching economic problems with existing models in physics. One of those models was Newton’s theory of gravity, in its simplest form given by expressing the idea that the gravitational force F with which two bodies attract each other is directly proportional to their masses and inversely proportional to the square of their distance apart. The parameter γ is considered to be constant, viz. 6.67.10⁻¹¹ N(m/kg), whatever the setting of the theory and therefore known as the constant of gravity.

Of the many different topics on which Hans Linnemann has worked, one is clearly very dear to his heart: the topic of trade relations of developing countries. This was the central topic of his thesis, the book which established his name and which even after a quarter of a century continues to inspire theoretical and empirical work. He has returned to the question again and again, most recently in a book on South-South trade and in the public lecture he delivered on the occasion of his retirement.¹

One of the main features of today’s world economy is its ever-increasing level of integration. In this essay we discuss two aspects of this integration and their mutual relationships. First, international economic interdependence increases, characterised over the years by a growth of the volume of world trade outstripping the growth of world production, increasing foreign investments and a highly integrated international capital market. Secondly and relatedly, environmental problems are also becoming more international.

I met Hans Linnemann in September 1975 at the Global Modelling conference at the International Institute for Applied Systems Analysis (IIASA), where he and his team presented MOIRA. I remember being very impressed by the theoretical rigour of that model and also being uneasy with the one-commodity — consumable protein — description of the agriculture sector. Little did I know that I was to spend the following ten years building a more elaborate global model in the spirit of MOIRA and addressing issues of deep concern to Hans Linnemann: hunger and poverty. This article is, therefore, both an acknowledgement of my debt to him and an offering to his scholarship and concern.

In the well-known publication ‘World Product and Income’, Kravis, Heston and Summers (1982) showed figures for the real incomes per capita for various groups of countries (p. 343); since that time they have updated and extended these estimates. The most recent ones are presented in UNDP’s Human Development Report 1992 (pp. 178 and 197). The relevant figures for this essay are repeated in Table 8.1, together with some figures derived from them.

Throughout his academic career Hans Linnemann has expressed one basic concern: what are the prospects for the poor in the developing world, how can developed countries help to improve these and how to convince the people in the developed world that in spite of all difficulties and doubts, they should keep on giving assistance and step up their efforts?

Understandably, the World Bank maintains that its structural adjustment programmes (SAPs) have been ‘successful’. These claims are made sometimes more stridently, sometimes more cautiously and with qualifications. But what does ‘successful’ mean? How do you establish it and measure it? It is to this problem that this paper is devoted.

To the extent that structural adjustment consists of more than macro-economic stabilisation, it must logically involve an increase in productive investment in the traded sector so that exports, national income and eventually employment can recover. However, in the view of both the World Bank and its critics (see e.g. World Bank, 1990; Mosley, Harrigan and Toye, 1991), despite a decade or more of strenuous attempts at adjustment, the record of private investment recovery has been poor. In the words of a recent survey of private investment behaviour in developing countries:

in many countries, macroeconomic adjustment has not improved the response of private investment. Even when substantial progress has been made in correcting imbalances and restoring profitability — often through drastic cuts in real wages — the effect on private investment has been week and slow to appear. Many of these issues are difficult to explain in the context of conventional investment theories (Serven and Solimano, 1992a, p. 96).

After the decade of the 1980s, during which people and their societies were asked to adjust themselves to the so-called exogenous facts of economic life, the 1990s start with an emphasis on human development; development for, of and by people. People first, indeed. That means: a first priority for poverty reduction, heading towards poverty eradication. Complete eradication may be a dream, but anyway, poverty is on the agenda again, not only on the agenda of the UN and the UNDP, but also on the agenda of the World Bank and the IMF; not only on the agenda of Ministers of Development or Welfare, but also of Ministers of Finance and Trade; not only of the North but also of the South, witness the excellent analysis in the Report of the South Commission. So, this is a good beginning of a new decade.

My contribution to Hans Linnemann’s Festschrift has the intention of unfolding some of Parmar’s ideas on development. This paper deals with the following questions: what is the intellectual inheritance of this Indian economist and how did he influence the thinking of a group of Western economists, including Hans Linnemann, who felt a strong commitment to the ecumenical movement? Samuel Parmar has written many articles which have been published in a great variety of journals and collections of articles.¹

Knowledge is essential for development, in any society. In modern societies scientific knowledge and science-related knowledge have vital functions. These sorts of knowledge are the business of universities. Universities have access to the international body of learning. They make learning available in their own environment and transmit it to new generations. As far as possible universities will add to the existing knowledge by their research.