Abstract
Lauchlin Currie (1902–1993) was a student of Allyn Young at Harvard. He was initially interested in monetary economics and the problems emanating from the Great Depression but later headed a World Bank Mission to Colombia in 1949 and became a development economist.
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Notes
- 1.
As a Presidential Adviser, and lease-lend administrator, Currie was involved in the US policy in China and, after the communist takeover there, was subjected to a witch hunt in the hysteria arising out of the McCarthy trials in the early 1950s. Currie was also suspected of having links with the two alleged Soviet espionage rings headed by Victor Perlo and Nathan Gregory Silvermaster, both economists who worked in the government during the war (Sandilands 1990, p. 145). No charges were however either framed or pressed. But further employment in the American government ceased to be a live option (Barber 1991, p. 110).
- 2.
Currie believed that the vicious circle of poverty could not be attacked on all fronts simultaneously as that would diffuse and dissipate effort. It was better to concentrate effort at the strategic points (Sandilands 1990, pp. 243–44).
- 3.
Currie thought that the main problem was not excessively large landholdings in Colombia but rather small holdings and primitive technology. Thus the future of Colombian agriculture lay with plots of sufficient size to make mechanization and soil conservation practices more economical. See Sandilands (1990, p. 189).
- 4.
As noted by Sandilands (1990, p. 224), Currie’s biographer, strategies of agricultural development aimed at building an agricultural surplus ahead of demand ignored the fact that agriculture was faced with low income and price elasticities of demand. Thus, increasing agricultural productivity may not translate into increased farm incomes. So farmers as a group would not like to increase agricultural surplus ahead of demand; even if they tried it with technical assistance, subsidized credit, land reforms, greater rural infrastructure, they would only increase dualism within the agriculture sector. Further: “The key to development was to create the conditions that would greatly expand the number of better paying nonagricultural jobs” (ibid., p. 225).
- 5.
These four strategies included construction-led growth, export-led growth, measures to raise agricultural productivity and the new housing-finance system. As Sandilands (1990, p. 246) notes, the third and fourth strategies follow naturally from the first two. Measures to boost agricultural productivity were expected to be stimulated by the rise in real incomes from urbanization and export programmes. Similarly the new housing-finance system had to be index-linked to be self-sustaining.
- 6.
The plan of four strategies faced major opposition from the Banco de la Republica (the central bank) and the monopolistic Central Mortgage Bank (BCH). The BCH, which enjoyed a monopoly in private housing finance, was itself largely owned the Banco de la Republica. It was, inter alia, argued that it would be wrong to divert savings from other parts of the capital market and that monetary correction would perpetuate inflation. Currie explained to the Colombian President that the system would stimulate saving and this would be counter-inflationary as it was excessive monetary expansion, not excessive saving, that caused inflation. To rally further opposition to the plan, Professor Gustav Ranis from Yale was invited to a conference for the specific purpose of blasting the plan. Ranis argued that the plan would be inflationary as his own model of development led him to believe that the main source of saving was agricultural surplus. Further, Ranis emphasized rural rather than urban housing as the latter would lead to migration to the cities with consequences in terms of increased unemployment and reduced agricultural surplus. This was the famous Harris-Todaro thesis fashionable with development theorists but at variance with the historical experience of every developed country. Currie, of course, was furious with Ranis for doubting the sincerity of his plan and his absurd logic that an increase in urban employment increased unemployment. See Sandilands (1990, pp. 247–49).
- 7.
Currie’s aim was to make urbanisation as the main motor of development (Sandilands 1990, p. 242). He did not like North American style urban sprawl based on private automobile. He favoured “cities within cities” design (first proposed in 1967 to the Mayor of Bogota) based not on a mono city centre, but on multi centres. These in turn are based on the idea of largely self-contained centres within the existing city boundaries to prevent further encroachments of valuable agricultural lands (ibid., p. 260). Wilfred Owen, who authored the well-known book The Accessible City, in his report to the World Bank in 1971, endorsed Currie’s misgivings on the existing pattern of urbanization based on rapid transit system. He advocated “a mixture residential and work places and associated community facilities” to reduce many transport trips. Further: “The existing pattern of development, based on outmoded zoning principles, separates housing in the suburbs from work places at the center, and misses the opportunities for providing good residential community development in the vicinity of industrial plants, and vice versa” (quoted in Sandialnds 1990, p. 261).
- 8.
When Alfonso Lopez won the presidential election in March 1974, the new regime was hostile to the scheme and launched a suit in the Council of the State against its constitutionality. This resulted in slackening off of savings growth, but to Currie’s delight too many vested interests had developed by then (as he had hoped and planned). The President and his team developed cold feet, and decided to continue with the scheme in a diluted form after introducing several measures benefitting the powerful lobby of rich borrowers. See Sandilands (1990, pp. 258–59).
- 9.
As Sandilands (1990, p. 256) observes: “Though the theory of leading sectors emphasized a demand constraint this certainly did not involve inadequate monetary demand. The chronic persistence of inflation testified to that. Rather, institutional constraints reduced factor mobility and so kept output and, hence, real demand low. Real demand was particularly repressed by these institutional obstacles in the fields of housing and exports.
- 10.
The exchange rate should be allowed to adjust to the inflation differential between the country in question and its major trading partners if exports are to remain competitive.
- 11.
Second stage import-substitution takes a country far from its comparative advantage, and requires high-level skills and technology beyond the competence of most developing countries. Thus, the second-stage import substitution has been described as “travelling up the staircase”, and can only be sustained in highly restrictive and protective frameworks involving quantitative restrictions and exchange controls.
- 12.
Inward orientation, on the other hand, favours home production and discriminates against exports.
- 13.
The dilemma is expressed thus: “Why invest more when consumption is being restrained?” (Sandilands 2000, p. 319).
- 14.
Thirlwall (2003) and Thirlwall and Sanna (1996) have highlighted the role of export growth in promoting overall growth. Faster export growth, in their opinion, releases the balance of payments constraint on other components of demand. On the supply side, a faster export growth enables a faster import growth, and thus improves productivity of domestic resources.
- 15.
See also Chandra (2020, Chapter 4).
- 16.
“Growth is due not to inputs of capital, labour, and technology, but rather to conditions that determine the extent to which existing and new knowledge is used” (Currie, 1997, p. 437). Considerable evidence exists to suggest that growth is not caused by inputs of labour or capital. Currie (1997) summarized this evidence for the US. In his study of the relationship between GDP and non-residential business investment, he found that GDP preceded non-residential business investment during 1960–1992 fairly consistently. He also presented supporting evidence from Montenegro (1989) who, employing Granger-causality, found that it was GDP which caused non-residential business investment in the US, and not the other way round. (For a similar evidence on panel date see Blomstrӧm et al. (1996); for India see Chandra and Sandilands (2003); and for the UK see Chandra and Sandilands, 2002). Currie also found negative correlation between per capita income growth and population growth for a sample of 100 countries. This accords well with studies by Mankiw et al. (1992) and Knight et al. (1993) which suggest that population growth has a negative and statistically significant impact on both the level as well the growth of per capita income.
- 17.
Rosenstein-Rodan (1955) viewed investment theory to be the weakest link of the liberal theory. Thus programming was required either directly through public investment or indirectly through commercial, monetary and fiscal policies and provision of information.
- 18.
See also Amartya Sen (1960) who in his Economic Journal review of the Strategy wrote about the undesirability of making a sharp distinction between balanced and unbalanced growth. Both strategies differ with respect to the degree of interdependence they assume.
- 19.
Therefore, in practical terms there may not be a big gap between Currie and Hirschman, as Currie’s criticisms implied.
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Chandra, R. (2022). Lauchlin Currie and the Leading-Sector Model of Growth. In: Endogenous Growth in Historical Perspective. Palgrave Studies in Economic History. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-83761-7_6
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