Abstract
The purpose of this essay is, first, to suggest Ragnar Nurkse as a Law & Economics thinker, and second, yet more importantly, to demonstrate the possibility and desirability of a Law & Economics of Development along Nurksean lines. Ragnar Nurkse (1907–1959), whose 100th birthday is celebrated in 2007, is one of the founding fathers of classic development economics. Given the recent interest in the Law & Economics of development, showing how a classic figure in the field successfully used such an approach might be of considerable interest, especially as development economics is a very emotional field which may well profit from the ‘objectivizing’ function of Law & Economics. Nurkse’s economics-based realism, his focus on what effect a program really has, rather than what it is supposed to have, and on what a policy can steer or change and what not, based on a typically Stiglerian attention to aggregate welfare, seem especially productive. Finally, the essay suggests a set of Nurkse-based principles or theses for a Law & Economics of Development.
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Notes
This essay is based on a paper delivered at the 20th Consecutive Law & Economics Workshop in Erfurt on 5 April 2007; a substantially abridged and refoused version was presented at a conference in Tallinn on occasion of the 100th anniversary of Ragnar Nurkse on 31 August 2007. I would like to thank Jürgen G. Backhaus for this kind invitation to Erfurt; Rainer Kattel and Erik S. Reinert for their help and criticism; Ingbert Edenhofer for proofreading the essay; and the participants of the two workshops, especially Jan A. Kregel, for a lively and helpful discussion. Research for this essay has been funded by ETF grant no. 6703, on “Ragnar Nurkse and Development Policy,” 2006–2009.
The best biographical sketch currently available is Kukk (2004), much improved by the forthcoming Kukk (2009); followed by the preface by Haberler (1961), upon which three pieces this segment is based; Basu (1987) is weak in this respect. Nurkse’s papers are at Princeton and have been recently investigated by R. Kattel.
Nurkse’s first book on international capital movement (Nurkse 1935a), written when he was just 27, is already excellent; it is written in very good German, clear, precise, and not verbose or technical where unnecessary. As also later in his work, Nurkse uses concrete facts as examples to illustrate the point, rather than to discuss the concrete facts themselves (Nurkse 1935a, p. v). Also, as this is basically an Austrian book which Nurkse himself calls orthodox (Nurkse 1935a, p. vi), but open and never marred by ideology, and with remarks critical of all Austrian colleagues, it already shows his specific bent—the currency and monetary policy books and essays are of lesser concern in our context because they are very specific, and are therefore not discussed.
Nurkse was quite clear in stating that he was the one who applied Duesenberry—“as Duesenberry formulated and I applied it” (Nurkse 1958, p. 73).
By and large, the term ‘Governance’ has become a more or less neutral concept that focuses on steering mechanisms in a certain political unit, emphasizing the interaction of State (First), Business (Second), and Society (Third Sector) players. ‘Good Governance’, on the other hand, is not at all neutral; rather, it is a normative concept that embodies a strong value judgment in favor of the retrenchment of the State, which is supposed to yield to Business standards, principles, and—not least—interests. In that sense, ‘Good Governance’ privileges the Second over the First Sector, even in First Sector areas. The concept of ‘Good Governance’ arose in the 1980s in the International Finance Institutions (IFI’s) such as the World Bank, the IMF, UNDP, and OECD, as a positive extrapolation from the negative experiences that these organizations had had in the developing countries by observing that their financial aid seemed to have had no effects. From this, they deduced an absence of institutions, principles, and structures, the entirety of which was called ‘Governance’—and ‘Good Governance’ when they worked well. This means, however, that the “Good” in ‘Good Governance’ is not good in any general or generalizable sense, but as pertains to what most of the IFI’s in the 1980s thought was good—a perspective that these days is not shared by many experts anymore, including those within the IFI’s themselves. But while a unitary definition of the concept ‘Good Governance’ never existed, not even within the respective individual IFI’s, ‘good’ principles usually encompassed such concepts as transparency, efficiency, participation, responsibility, and market economy, state of law, democracy, and justice. Many of them are indubitably ‘good’ as such, but all of them—except the last one—are heavily context-dependent, dependent not only on definition and interpretation, but also on time and place. (This note after Drechsler 2004, pp. 388–389, with references). Nurkse’s focus on domestic capacity is the opposite of paternalism; in his hard-nosed economic approach, he takes the developing countries, including the least developed ones, seriously and at eye level.
The following segment is an only slightly revised version of Drechsler 2000a, pp. 237–238, as this covers precisely the same matter.
Another question is whether in Law & Economics analysis, one has to focus on neoclassical/mathematical economics. I would argue that the opposite is the case, because realism is systemic for Law & Economics, while neoclassical/mathematical economics is marked by a systemic lack thereof (see Drechsler 2000b), but in the Nurksean context, this is less important, as he is certainly no modeler or formalizer, but still generally acceptable in approach and execution to most mainstream economists as well, and frequently even called neo-classical (Ros 2005, p. 82, 88). His work on money and currency policy certainly is, and is also so displayed; he has, thus, a certain ‘neo-classical street credibility’. Basu claims that the “lack of formalization in Nurkse’s work led to much misunderstanding—handsomely contributed to by Nurkse himself—about the policy implications of the poverty-trap doctrine” (Basu 1987, p. 687). But the lack of formalization arises from Nurkse’s realism, and the policy implications are clear because of it.
But it does not even end here. In turn, such restrictions make domestic supply come under pressure to produce and thus lead to inflation (1953, pp. 112–113). Yet again, as inflation creates forced saving, that might—depending how far it goes—also be good for capital formation. Politically, it is a very dangerous road to take, however, for the well-known reasons (Nurkse 1953, p. 116).
Although Nurkse does not make this connection here, he would have certainly been supportive of it, for the same reason he was for tax on consumption, rather than earning (Nurkse 1953, pp. 146–148), which makes sense anyway from an aggregate perspective. Naturally, this would preclude social engineering to some extent, but never mind that: “Not a change in the interpersonal income distribution but an increase in the proportion of national income devoted to capital formation is the primary aim of public finance in the context of economic development” (Nurkse 1953, p. 147). If we want to develop, we must live with some people to be rich, and because these fortunes are gained via investment, these are after all the ‘good guys’ and not the inheritors. That entrepreneurs in the classical sense should actually be rewarded for the sake of all, is one of Schumpeter’s main lessons for social democracy and (in the American sense) liberal thought that Nurkse strongly agreed with.
Nurkse is no legal thinker at all; legal institutions do not seem to interest him. To call him a Law & Economics thinker, therefore, must refer to the wider concept of ‘law’ within this context.
This is the saying attributed to Campbell-Bannerman, as any quick Google search will tell, but his actual expression was, “Good government could never be a substitute for government by the people themselves.” (Speech at Stirling, 23 November 1905, in the Daily News, 24 November 1905, according to Oxford 1993, 3.13) This is quite a different phrase, but the more popular, abbreviated one serves our purpose better to focus on the economic prerogative in development economics.
Not necessarily, though; one can also easily envision an economics that is beneficial only to the ‘deserving’ countries or people (either a priori or because they are economically successful)—something that on a higher level could be called Nietzschean economics (but see Backhaus and Drechsler 2006).
For the context of the discourse of British colonialism, see Webster 2006. As quite frequently, some of Nurkse’s arguments that appear on first sight to be a bit ‘reactionary’ turn out, after careful investigation of discourse, arguments, and tropes, to be, if anything, rather ‘ahead’.
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Drechsler, W. Towards the Law & Economics of development: Ragnar Nurkse (1907–1959). Eur J Law Econ 28, 19–37 (2009). https://doi.org/10.1007/s10657-009-9097-7
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DOI: https://doi.org/10.1007/s10657-009-9097-7