R e p o r t N o0. T.A. 4

This report is not to be published nor may itbe quoted as representing the Bank's views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

SUMMARY OF

THE MAJOR FINDINGS AND RECOMMENDATIONS OF

TWELVE SURVEY MISSIONS OF

THE INTERNATIONAL BANK

March 1957

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PREFATORY NOTE

Up to the beginning of 1955, twelve generaleconomic survey missions had been organized by theBank and had submitted their reports. The coun-tries surveyed were Colombia, Guatemala, Nicaragua,Cuba, Mexico, Ceylon, Turkey, Iraq, Nigeria,Jamaica, British Guiana and Surinam.

It was felt that these countries are suffi-ciently typical of smaller underdeveloped countries,i.e., of countries with a population of less than50 million, to warrant the expectation that thefindings and recommendations of the missions have asignificance for economic development which extendsbeyond the problems of the individual countries sur-veyed.

This paper is a summary of these findings andrecommendations based on a study by ProfessorKyriakos Varvaressos and Miiss Rena Zafiriou of thepublished reports of the twelve missions.

PART I

MAJOR FINDINGS OF SURVEY MISSIONS

Low Level of Incomes

Per capita incomes in the countries surveyed ranged from about $55per annum in Nigeria to around $200 in Mexico and Colombia (Cuba, withits more valuable resources and more specialized economy belongs to ahigher income group), and compare with a range of $600 to $1,500 en-joyed by economically advanced countries. Per capita incomes of thisorder were typical of the levels prevailing in underdeveloped countries.

Unequal Income Distribution

Extreme income inequality was found by six of the twelve missionsto be a factor in the economic backwardness of the countries surveyed(the other missions made no reference to income distribution). Thesituation in Colombia, where 2.6 per cent of income recipients com-manded about 30 per cent of total income, was typical of the degree ofincome inequality prevailing in these countries.

The missions have tended to attribute this situation to inflationand have also argued that,while greater equality was desirable, theonly real solution to the problem of poverty lay in higher productivity.Thus, they felt that income redistribution as a means of raising liv-ing standards had been exaggerated.

There is also the question whether, given an unequal income struc-ture, increases in output will tend to go to those few who alreadycommand a substantial share of the total product. In both Colombia andMexico this is what the missions found to have happened.

Rapid Growth of Population

While death rates had declined in most of the countries surveyed,birth rates had been maintained at their traditional high levels. Theresult had been a rate of population growth of the order of 2 to 3 percent per annum. Most missions viewed the prospect of rapid increasesin population with equanimity, assuming either that birth rates wouldeventually decline or that rises in per capita consumption no greaterthan 1 per cent per annum, which the high rates of population growthmade inevitable, represented a satisfactory improvement in livingstandards. The only mission which took a serious view of populationtrends was the Ceylon mission which made an earnest plea for familyplanning along Indian lines.

Low Living Standards

The combination of low output per head, unequal income distribution,high birth rates and rapid growth of population was found to result in

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very low living standards for the mass of the population in the countriessurveyed. These low standards were reflected in poor diets, lack ofsanitation facilities, and inadequate housing facilities, which combinedto produce a high incidence of debilitating diseases. They were alsoreflected in high illiteracy rates (ranging from 90 per cent in Iraq andNigeria to 17 per cent in British Guiana) which, among other things, im-peded the emergence in these countries of a skilled labor force.

Predominance and Low Productivity of Agriculture

In practically all of the countries surveyed agriculture consti-tutes the most important segment of their economies in the double sensethat it supports the great majority of the population and provides thebulk of exports and hence of foreign exchange resources.

The fact that national income estimates ascribe a smaller signifi-cance to agriculture is attributed by the missions to the lower produc-tivity attained in the agricultural sector.

Wlhile export agriculture accounts for a substantial part of totalagricultural production in these countries and was found in most cases toprovide satisfactory yields, the great bulk of the rural population isengaged in the raising of domestically consumed crops and the largestproportion of the area under cultivation is devoted to such crops. Allthe missions have stressed the low productivity obtaining in this sectorof agriculture and have argued that it is largely responsible for thepoverty and backwardness prevailing in these regions. The missions haveattributed this low productivity to the following facts:

(a) Ignorance of the farmers and failure to appreciate the impor-tance of good farming practices.

(b) Use of poor seed.

(c) Lack of proper tools and implements resulting in inadequatepreparation of the soil.

(d) Lack of proper fertilization of the soil.

(e) Plant diseases and pests.

(f) Soil erosion, especially where hilly land is used for theplanting of annual crops (Colombia, Guatemala, Jamaica, etc.).

(g) Poor drainage and inefficient use of water. This was found tobe the major cause of low yields in Iraq and was also a seriousproblem in Colombia, British Guiana and Surinam.

(h) Inadequate storage facilities, resulting in heavy losses ofcrops, and insufficient processing facilities, which meant low

extraction and poor quality of products.

(i) Inefficient use of land, especially where the practice is to de-vote good arable land to grazing and hillside land to soil-eroding crops (Colombia, Guatemala, Jamaica).

(j) Inequitable and uneconomic systems of land tenure.

The missions were agreed that the system of large estates farmedby tenants and hired labor which was found to predominate inmost of the countries surveyed made for inefficient use of theland and at the same time resulted in too large a share of thecrop being taken away from the cultivators.

(k) Excessive parcelization of the land, due mostly to rural over-population, which causes a severe exploitation of the soil andinefficient operation of the farms.

(1) Inadequate credit facilities preventing producers from applyingbetter farming methods and subjecting them to the exploitationof money lenders. In several countries governments had estab-lished institutions to provide credit to farmers on reasonableterms, but the amounts made available were inadequate and theyhad been used mainly for short-term purposes. In addition, how-ever, to the insufficiency of funds, insufficiency of super-visory personnel was found by several missions to be anobstacle to the expansion of farm credit.

Productivity in livestock farming was found to be even lower than inthe growing of crops due to the following additional factors making forpoor performance:

(a) Inefficient use of pastures and inadequate feeding of livestock.

(b) Poor breeding and reliance on dual-purpose cattle.

(c) Losses due to diseases and pests.

(d) Lack of transportation.

(e) Price policies discouraging livestock production.

Inadequate Exploitation of Other Natural Resources

Fisheries

This important source of food was found to be seriously neglected inmost of the countries surveyed. Per capita consumption of fish was lessthan one pound per annum in Guatemala, Nicaragua and Turkey, two poundsper annum in Colombia, and four pounds per annum in Mexico, etc., compared

with eleven pounds in the United States and sixty pounds in Japan. TheCeylon mission described fishing in the island as a primitive industry ob-taining only a limited catch, but the fact that domestic productioncorresponded to over ten pounds per head per year suggests that the indus-try was more important than indicated by the mission. The Colombiamission estimated that with proper equipment the catch would have beeneight or ten times greater than it was. Other missions have emphasizedlack of experience and organization and lack of transportation as main fac-tors in the low output.

Forestry

In seven of the countries surveyed forest resources were large (somemissions have described them as tremendous (Colombia), unlimited(Guatemala), rich (Mexico), etc.) but inadequately exploited. In all coun-tries deforestation had caused serious deterioration of the soil. Theonly country which followed a policy of careful exploitation of its forestresources was Ceylon, but these resources were limited and were unable tomeet even local needs.

Minerals

Several countries possessed large mineral resources such as petroleum,copper, tin, bauxite and gold, which had been developed mostly by foreigncapital, but the prevailing unfavorable attitude towards foreign invest-ment had often led to the passing of legislation excluding foreign capitalfrom the exploitation of mineral resources which had resulted in slow pro-gress in this field. (A notable exception was Iraq, which at the time ofthe mission's visit had signed an agreement with the three internationaloil companies operating in the country promising to lead to a large expan-sion of oil production.)

Limited Development of Industry

While industrial production had increased greatly since the war (inmany cases it was twice as high as before the war) and while there hadbeen a great emphasis on industrialization in most of the countries sur-veyed, the economic structure of these countries had remained virtuallyunchanged and per capita production of industrial goods was still only afraction of the levels prevailing in the economically advanced countries.The data contained in the surveys suggest that the contribution of indus-try accounted for probably less than 10 per cent of the national income inthe industrially less advanced underdeveloped countries and for about15 per cent of the national income in the more advanced countries (Mexico,Colombia), while in the industrial countries of the West manufacturing ac-counts for at least 30 per cent of the national income. On a per capitabasis the value added by manufacturing ranged between $10 and $40 perannum in the countries surveyed as compared with $550 in the United States,$300 in the United Kingdom, and probably $200 or more in the other Westernindustrial countries and in the British Dominions.

These statistical measurements indicate that industrial developmenthad not been as impressive as indicated by the increases in productionwhich had taken place since the war. Direct observations made by themissions confirmed this impression. The missions found that, with somenotable exceptions, the industries surveyed were inefficient, high-costindustries producing goods of inferior quality.

This lack of success could not be attributed to lack of interest inindustrialization. As already stated, in most of these countries, as inmost underdeveloped countries, industrialization was held to be synony-mous with higher living standards and greater self-sufficiency, it hadbecome the primary objective of economic policy and had led to the adop-tion of a wide array of measures, ranging from tariff protection togovernment financing or even government operation of industries.

Virtually all of the industries established in the countries sur-veyed are protected by tariffs as well as by the operation of exchangecontrols and import restrictions. Most of the surveys, however, makeonly passing reference to tariffs and other protective devices and nosurvey has attempted to give a comprehensive account of the degree ofprotection enjoyed by local industries. Nor do the surveys establishany criteria for determining whether the protection granted to a givenindustry is justified or excessive.

Tax exemptions and subsidies have also been used, but their effecton industrial development appears to have been limited. The establish-ment in several of the countries surveyed of government institutions forthe financing of industrial ventures had been more successful in promot-ing development. On the other hand, the establishment of industries bythe government itself had not achieved satisfactory results.

The missions have attributed to the following factors the ratherdisappointing results obtained to date in the industrial field:

(a) Inadequacy and high cost of power and transportation.

(b) High cost of raw materials.

(c) Low productivity of labor, attributed in turn to poor health,lack of education and training, and unfavorable climatic con-ditions.

(d) Poor management and high price-low volume psychology.

(e) Lack of interest in industrial investment due to more profit-able opportunities in other fields and to preference forinvestment in land. This, rather than lack of capital, wasfound by most missions to be the cause of industrial backward-ness.

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(f) Social legislation unfavorable to industrial development. Re-sistance to mechanization. In their effort to improve the lotof industrial labor some countries (Cuba, Mexico, Colombia,Guatemala) had enacted legislation whose net effect had beento make industrial investment unattractive to local and for-eign capitalists. The Cuban mission describes such policiesas the major cause of Cuba's failure to advance in the indus-trial field. In general, however, the fact that labor diffi-culties have discouraged industrial growth in some countriesdoes not necessarily mean that the absence of such difficul-ties would have been sufficient to induce investment inindustrial ventures. In other countries (Ceylon, Turkey,Iraq, Nicaragua) labor demands had been modest but industrialdevelopment had been even slower than in the first group.

(g) The smalLness of the domestic market, which limits the scopefor specialization and division of labor, hence the adoptionof modern industrial techniques. The smallness of the marketis attributed to the low purchasing power of the mass of thepopulation, but also to high profit margins,and was describedby practically all missions as the major factor impeding in-dustrial development.

The Inadequacy and High Cost of Power

Installed generating capacity at the time of the missions' visitsranged between 20 and 50 watts per head of the population, as comparedwith 500 watts in the United States and over 300 watts in most other ad-vanced countries. At that level it was wholly insufficient not only inrelation to development plans, but also in relation to current demand,with the result that serious power shortages existed practically every-where.

Low degrees of utilization and generation in private plants charac-terized the power situation in several of the countries surveyed, makingfor high costs. Other factors in high costs were old equipment, highpower losses, poor manage:ment, low density of population, etc. Comparedto costs, rates in several cases were found to be too low to allow powersystems to meet their current expenses and finance needed expansion.

While in seven of the twelve countries surveyed private ownership(usually foreign) predominated, the trend in all countries was unmistak-ably towards government ownership and larger systems. The missions,however, were critical of most government-operated systems, pointing topoor administrative practices and inefficiency.

The shortage and high cost of power in the countries surveyed can-not be attributed to lack of power resources. Most countries had eithera large hydroelectric potential (Colombia, Mexico, Nicaragua, Guatemala)or ample coal or oil (Mexico$ Turkey, Iraq). Nor can the low level of

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power output be attributed to lack of effort. Capacity had doubled ortrebled in the last 15 years in most of the countries surveyed. The two

main causes of power inadequacy were, first, the recent start in theeffort to expand power facilities and, second, the high cost and techni-cal complexity of modern power development, especially hydroelectricdevelopment. Thus, as in the case of industry, it might be said thatlack of adequate power results from the limited development of thesecountries as well as saying that lack of adequate power is one of themajor causes of limited economic development.

The Inadequacy and High Cost of Transportation

The conditions of transportation were found by the majority of mis-

sions to be the single most important obstacle to economic development.In Cuba, Ceylon and Iraq transport systems were found adequate, while inNigeria and Jamaica they were found adequate for present needs but in-efficiently operated.

Railroads

In most countries railroads suffered from the serious physical de-terioration and financial stringency which have characterized postwarrail transportation in many parts of the world, due mainly to failure to

renew and improve the railroads during the depression and the war and toincreasing road and air competition. Additional factors operating inthe countries surveyed were political administration (Colombia,Nicaragua), low labor productivity, rates which3 although high, did notcover costs, etc. The type of ownership does not appear to have been a

factor in the deterioration: both private and government lines werefound to be in bad shape physically and financially. On the other hand,the only two systems which impressed the missions favorably, those of

Iraq and Turkey, were state owned and operated.

HighwaYs

In contrast to the railroads which had been neglected, the buildingof highwa;ys was being pushoed- rigorously in most of the countries sur-veyed. (Irn Mexico the highway mileage increased nearly four-fold in 13years.)

While the highways constructed in the last 10 to 20 years have beena development of major importance, and while the increase in road traf-fic has often been "dramatic", the present network is still wholly in-adequate to meet existing needs and road transportation remains slow andexcessively costly.

The high cost of road transportation is attributed by the missionsto the poor condition and lack of maintenance of highways, high cost ofvehicles, irmiproper use of vehicles, high capital charges, etc. Operat-ing expenses were, for instance, estimated to be considerably more thanthree times as high in Colombia as in the United States.

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The missions were also critical of the poor construction of many ofthese roads, of the excessive influence of political considerations inthe building of highways and of the practice of starting a great numberof projects simultaneously and failing to complete them in time.

Inland W4aterways and Seaports

The main problems found in these sectors were poor organization andlow labor efficiency rather than inadequate capacity.

Air Transport

The large postwar expansion of civil aviation was filling an urgenttransportation need and was doing so with a considerable degree ofefficiency and a good safety record. This expansion, however, had beenbased on the acquisition of United States war surplus equipment at halfthe original cost. The replacement of this equipment, which was becom-ing over-age and obsolete, presented a serious problem. Another problemwas the inadequacy of airfields.

Monetary and Financial Conditions Unfavorable to Economic Progress

The missions repeatedly stressed the point that an unstable curren-cy and weak finances discourage productive investment and hence are anobstacle to sound economic growth. The experience of several of thecountries surveyed, and especially Colombia, Mexico and Turkey, demon-strates this. However, the fact that in other countries such as Cuba,Iraq and the dependent territories, where monetary and financial manage-ment had been along orthodox lines, economic progress had been no moremarked than in the countries with weak currencies, suggests that the re-lationship between financial stability and economic development may bemore complex than is commonly assumed. The experience of these countriesseems to indicate that sound money may be a necessary, but not a suffic-ient, condition for economic growth.

In both groups of countries gross private savings tended to be ofthe order of 10 to 12 per cent of the national product. 1/ Similarly,in both groups of countries the favorite types of investment were invest-ments in land, buildings, inventories and foreign assets, i.e., invest-ments which did little to increase productive capacity.

Six of the twelve missions found that public revenues were too lowto ensure economic progress (they ranged from 7 per cent of the nationalproduct in Nigeria to 17 per cent in Turkey), while the other missionsfelt, for a variety of reasons, that development needs could be met

1/ This was true of the more developed countries. Rates of savingswere much lower in Guatemala, Turkey (6.6 per cent), Nigeria (3 per cent),etc.

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without an increase in the government ts share of the national product (inCuba the main problem was more responsible spending rather than moremoney, in Iraq there were ample oil revenues, etc.).

Other defects of the fiscal picture described by the missions werethe unproductive use of public money, the excessive reliance on indirecttaxation, widespread tax evasion, rigid budgetary practices (especiallythe earmarking of revenues for specific purposes), lack of adequate con-trol of spending, etc.

Non-inflationary borrowing by the government is another legitimatemethod of financing the creation of public productive facilities, but inmost of the countries surveyed there was no willingness on the part ofthe public to invest its savings in government bonds.

The Excessive Dependence on Foreign Trade

Foreign trade accounted for 10 to 20 per cent of the national incomein most of the countries surveyed. (It represented 30 to 40 per cent ofthe national income in Cuba, Ceylon, British Guiana and Surinam.)

In view of the small size of these countries this degree of depend-ence on foreign trade may not be excessive. What is important is thedependence on a small number of commodities produced mainly, if not ex-clusively, for sale abroad (coffee in Colombia and Guatemala, sugar inCuba and British Guiana, tea, rubber, coconuts in Ceylon, etc.), adependence which can subject the economies of these countries to seriousdisruption whenever there is a slackening in foreign demand for the in-dividual commodities they export.

The catastrophic decline in exports during the 1930's was found bythe missions to be still remembered and to have deeply affected thesecountriest approach to economic problems. In the postwar period thesituation has been reversed, with export production becoming the mostprofitable sector in the economies of the countries surveyed and thesource of large foreign exchange earnings. (The combined exports ofthese countries doubled since 1938 in terms of the goods they buy.) Itmight be suggested that it was the prosperity of the export sector ratherthan the amount of investment carried out in this period that made pos-sible the rise in incomes which has taken place in these countries sincethe war, a fact which is overlooked in the investment-output ratioapproach.

But even in this period of high demand for primary products therehave been times of slack buying and there have been individual commodi-ties which, for special reasons, have not shared in the general boom.Thus, even under the most favor4ble conditions possible the economies ofcountries dependent on a small number of commodities for the bulk oftheir foreign exchange earnings can be subjected to serious disruption.

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The Inadequacy of the Public Administration

The missions have pointed out that one of the conditions of economicdevelopment is the existence of a responsible and capable public admini-stration that will supplement the activities of individuals seeking to im-prove their lot. In several of the countries surveyed the missions foundthat this condition had not been realized and that, moreover, there waslittle understanding of the connection between the quality of the publicadministration and the pace of economic progress.

The missions: findings on the subject may be summed up under threeheadings:

(a) Public administration was on the whole inefficient, due mainlyto absence of a career civil service and to the influence ofpolitics, to insufficient remuneration of government employees,excessive centralization and insufficient delegation ofauthority and insufficient coordination of policies betweengovernment agencies.

(b) Failure to perform adequately functions which are clearly govern-mental responsibilities. These include agricultural researchand extension education, land-use surveys, soil conservation, in-dustrial research, statistical and economic information, publicutility regulation, etc.

(c) Government intervention in matters which were not the responsi-bility of government and especially direct action in the indus-trial field, controls over prices, etc.

The inadequacy of public administration was also found by the mis-sions to be a serious obstacle to the effective utilization of foreigntechnical assistance, which is essential to the speeding up of economic

progress.

One of the most encouraging findings of the missions is that the in-adequacy of public administration, whi'.e real, was not the iinvariablerule. Even in the countries with the w-eakest governmental struictuwe, afew public agencies were found to be perfor-ming their duties with comne-tence and devotionc A common characteristic of these agarcies appeared tobe that they were of relatively recent origin, which seems to indicatethat the need for efficiency is beginning to be recognized.

The problems of public administration in the dependent territoriesdiffered from thc-e of independent countrie3 to which the above statamentsapply. The admin.istration of these terri-ori.es was found by the imis;sionsto be generally efficient. The principal pr^oblem of public administrationfound there was that of maintaining efficiency while acu-inistrative func-tions are being transferred increasingly to local hands; the scarcity oftrained administrators, for ins-tance, presented a problem in all of theseareas.

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Attitudes and Social Patterns Unfavorable to Economic Progress

Several missions felt that, in addition to the preceding concretefactors impeding economic progress, there are certain intangibles relat-ing to attitudes, social patterns and traditions which have been equallyimportant in preventing these countries from developing the economic be-havior characteristic of advanced Western countries.

Lack of confidence, feelings of insecurity, resistance to change,antiquated legal and political systems, religious influences, have beenidentified by the missions as some of the conditions which account forthe slow fulfilment of these countries' aspirations for material improve-ment.

Most missions took the view that there were many ways in which theseconditions could be modified. The Colombia mission, on the other hand,felt that little of practical value could be done about attitudes withinthe relatively short period with which the surveys were concerned, hencethat a discussion on attitudes had no place in such surveys. It wouldseem, however, that whether attitudes and social patterns can be modi-fied in the short run or not (and few of the reforms recommended by themissions could be effective in the short run) something is likely to begained by making the governments and peoples of the countries concernedrealize the connection between these factors and the slowness of the de-velopment process.

Factors Favorable to Development

Most missions were impressed by the economic potential of the coun-tries surveyed and felt that it entitled their populations to muchhigher living standards. Several missions speak of "rich natural re-sources," "ample, unused human and material resources," "almost unlimi-ted land for development," etc.

The missions were also favorably impressed by the rapid economicgrowth achieved in the last decade in countries like Mexico, Colombia,Nigeria, Jamaica, etc. (increases of 3 to 4.5 per cent per annum in percapita income), although they were less impressed by the significanee andquality of that growth.

Finally, several missions were favorably impressed by the individualqualities of the people in the countries surveyed and felt that thestrong desire for economic and social improvement which they found inthese countries would prove a decisive factor in the development of theireconomies.

Conclusion

The major conclusion that emerges from an analysis of the missions'findings is that development in the sense of attainment of living

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standards far above what the underdeveloped countries have known up tillnow is a complex and slow process. It might be said that everything inthese countries tends to stand in the way of improving everything else.Poor health and education affect productivity but low productivity meansinsufficient resources for the improvement of health and education. Thelow productivity in agriculture restricts the growth of industry, butthe small domestic market prevents the adoption of modern industrialtechniques and hence the sale of industrial products at reasonableprices, wlhich in turn further restricts the purchasing power of thefarmers, i.e., of the mass of the population. The high cost of powerand transportation impedes economic progress but limited economic devel-opment inevitably makes for high costs in power and transportation andso on. It follows that an essential condition for economic developmentis to break the vicious circle of poverty, ignorance, ill-health and lowproductivity, for once the break is made the process can become self-generating. Thus, the missions' findings lead directly to the conceptof balanced development which is a major feature of their recommenda-tions.

PART II

MAJOR RECOMDNDATIONS OF SURVEY MISSIONS

The Objectives of Development

While the missions are in generail agreement on the nature of theproblems facing the countries surveyed, they differ considerably withregard to the objectives and targets which they consider attainable inthese countries.

Six missions have expressed the development needs and possibilitiesof the countries surveyed in terms of five-year programs, two in termsof six-year programs, three in terms of ten-year programs or policies andone, the Cuba missinn, has deemed that there cannot be any "programming"of development as far as Cuba was concerned since the development prob-lem in Cuba was not a problem of adequate investment but a long-term pro-cese requiring primarily a change of attitude.

The investment programs recommended by the missions other than theColombia mission refer to investment in the public sector alone, not be-cause public investment was held to be more important or more desirablethan private investment, but because private investment must, by defi-

nition, be left to the decisions of individuals. The program of theColombia mission, on the other hand, both for the public and privatesectors, is more a projection of past rates of investment than a programof specified investnent expenditures.

The Direction of Development;the Concept of Balanced Development

Conscious of the interrelationship of phenomena in economic growTththe missions have paid particular attention to the need for integratedprograms in which progress in each of the several fields of action willbalance and support the rest. They felt that one of the reasons for thelack of success with which development efforts have met so far was thatthese efforts were piecemeal and sporadic and as such were apt to makelittle impression on the general picture.

The adoption of a balanced development program does not mean placingthe same emphasis on each sector of the economy; it means that within thelimits set by existing conditions, each sectcr should be developedaccording to its importance in the economy and to the contribution whichit can make to the raising of living standards. Judged by this criterion,the development of agriculture was found by all missions to be the firstpriority in the development needs of these countries. Similarly, wvhilenot denying the desirability of industrialization, all missions are agreedthat agricultural development is a prerequisite, not an alternative toindustrial development. Moreover, the limited domestic market, due to thelow purchasing power of agricultural producers, i.e., of the majority ofthe population, means that industrial development must be gradual, starting

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from small inaustries ana relatively simple operations which involveprimarily the processing of local materials, and gaining momentum as thedomestic market expands and industrial skills and experience are acquiredby management and labor.

In Colombia and Mexico, where industry had advanced beyond the stageof simple processing, the problem was vwhether the time was ripe for thedevelopment of heavy industries. Both missions felt that the smallnessof the domestic market made the creation of such industries premature.

The views of the missions on other priorities in development differ,reflecting in part differences in conditions in the countries surveyedand in part differences of judgment concerning the relative importance ofthe various sectors. Some missions have emphasized health (Colombia),others training (Turkey, Nigeria, Jamaica), others transportation (Mexico,Nicaragaa, Guatemala), while a few missions (Ceylon, Iraq) took no posi-tion on the relative importance of sectors other than agriculture andindustry.

It should be kept in mind that this assessment of the relative im-portance of the various sectors is not necessarily reflected in the allo-cation of investment expenditures among sectors recommended by themissions. This is so because the most valuable projects are often alsothe least expensive. This is particularly true of training and research,which require relatively modest sums, but were in many fields consideredby the missions to be the key to any substantial further progress.

Agricultural Development

All missions are agreed that agricultural development in the coun-tries surveyed depends primarily on the adoption by farmers of thosemodern practices and techniques whiclh account for the high productivityof agriculture in the economically advanced countries. The missionsfound that in most of the countries surveyed the emphasis was on costlyschemes of irrigation and reclamation and on colonization of new areas,while insufficient attention was being paid to the more obvious and lesscostly course of raising productivity on the good land already available.

The missions emphasize that the shift from backward to progressiveagriculture is a formidable undertaking which requires not only a willing-ness on the part of the farmers to adopt new methods and techniques, butalso a great organizational effort on the part of the governments. Theyfeel, hovever, that this is a fundamental task which cannot be by-passedif agricultural development is to make a significant contribution to theraising of living standards.

The three main conditions for increased agricultural productivitywere found by the missions to be:

(a) Greatly stepped-up local research.

(b) Greatly expanded extension services for passing on to thefarmers the best available technical information and encourag-ing them to use it. The major requirements for the expansionof such services were found to be the training of qualifiedagriculturists, their adequate remuneration and the employmentof foreign personnel.

(c) Better credit facilities for the farmers to enable them tofinance the improvements in production techniques required forhigher productivity. In view of the unwillingness or inabilityof private institutions to extend such credit facilities, aproper system of government-financed farm credit was found byall missions to be a basic necessity for agricultural develop-ment. The missions, however, differ on the extent to which theythink such aid can be efficiently utilized by the farmers, withsome missions calling for greatly expanded facilities and othermissions considering that the shortage of the trained personnel,needed for painstaking supervision and technical advice on thelocal level, precluded any substantial increase in such facili-ties in the near future.

The principal improvements which a program of agricultural research,education and financial assistance to farmers should seek to introduce arestated by the missions to be as follows:

(a) Better farming methods (improved seeds, crop rotation, rowplanting, etc.).

(b) Better farm equipment (including, where economically profitable,greater use of machinery).

(c) Greater use of fertilizer (the types and quantities to be de-termined through local research).

(d) Soil conservation (especially reforestation, the abandonmentof cultivation on steep slopes, etc.).

(e) More effective action against insects and pests.

(f) Improved storage and marketing facilities (especially the needfor local storage and more efficient operation of existingwarehouses).

(g) Improved feeding of livestock through more rational exploitationof pastureland, supplemental feeding with grains and proteins.

(h) Better control of livestock diseases.

(i) Improvement in livestock breeds by means of selection to bebased on domestic breeds (except for dairy cows) and abandon-ment of dual-purpose cattle. (The Ceylon mission is the only

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mission that declared itself in favor of dual-purposeanimals.)

(j) Higher prices for livestock products vwhere prices were con-trolled at levels which discouraged livestock production.

In addition, some missions urged the adoption of measures thatwould ensure a more efficient use of available land. Such measures in-clude taxation that would penalize poor use of good land (Colombia mis-sion), acquisition of land by the government, some measure of directcompulsion (Jamaica mission), etc.

The preceding recommendations are recommendations for more scien-tific and more intensive farning. As already stated, the missions feltthat it was primarily through such means that a productive and progres-sive agriculture could gradually be developed in the countries surveyed.They were much less enthusiastic about the various schemes of land im-provement and the colonization of new areas on which these countriesseemed to have pinned their hopes for a great agricultural expansion,although in some cases such schemes were found to be essential to thedevelopment of agriculture.

As far as irrigation schemes are concerned, the general view ofthe missions seems to be that large projects are a last resort to beused only when it is really necessary, that they do not always pay,that they require years of study and preparation and that they cannotyield their full benefit until production techniques are modernized.In accordance with this view the missions, other than the Iraq mission,have recommended against most of the irrigation projects contemplatedby the governments and have included only small-scale irrigation pro-jects in their programs. The Iraq mission, on the other hand, hasdoubled the expenditures on irrigation planned by the government andhas emphasized large irrigation and flood control schemes, whose costis estimated by the mission at $150 million in five years, or $30 mil-lion per year (compared with only $6.5 million per year recommended bythe Ceylon mission).

In making recommendations for such costly and complex projects ina country whose administrative and technical resources were considerablysmaller than those of Ceylon, the Iraq mission vwas probably influencedby the fact that Iraq had large funds available for development. And in-versely, the advice to Ceylon to postpone the execution of large projectsmay have been influenced not only by technical considerations, but alsoby the fact that the development funds available to Ceylon were limited.

The missions as a whole were similarly cautious with regard to re-clamation and colonization. However, the British Guiana and Surinam mis-sions included in their programs various schemes of land improvementplanned in the territories which accounted for 50 to 60 per cent of ex-penditures for agricultural development recommended by the missions.

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The public investment programs for agriculture recommended by themissions reflect the different emphasis placed on the execution of proj-ects by the various missions: the programs stressing research andeducation show annual per capita expenditures ($0.4 Nigeria, $0.5 Guatem-ala, $2.00 Ceylon, etc.) which are only a fraction of those included in

programs embodying large schemes ($7.00 Iraq, $17.5 Surinam, $5.6British Guiana).

Only two missions, the Colombia and Jamaica missions, have estimatedthe total increase in production that could be expected to result fromthe adoption of their recommendations (22 per cent in volume and 29 percent in value in seven years for Colombia and 44 per cent in volume in 10

years for Jamaica).

Most missions, however, have discussed the prospect for individualcommodities and indicated the means through which increases in these com-modities could be achieved. Some missions have given quantitative esti-

mates of increases, but most missions have discussed the possibilities of

expansion in general terms. Some missions were considerably more opti-mistic than others on existing prospects while two missions, the Cuba and

Ceylon missions, appear definitely pessimistic. The largest expected in-

creases were in rice and cotton for domestic consumption, to result main-

ly from an expansion in acreage and in irrigation. The next largest

increases are in livestock products, mainly through better feeding. The

missions were least specific in the case of subsistence crops, although

one of their major findings has been that the low productivity obtaining

in this sector of agriculture is a principal factor in the poverty andbackwardness of these regions. The missions were cautious in discussingnew products, their main recommendation in the case of such products be-

ing that tests and experiments be conducted to determine the existingpossibilities. Another feature of the missions, assessment of agricul-

tural prospects is that it implies the limited diversification of ex-

ports. The expected increases in export production were overwhelminglyin crops like coffee, which already accounts for the bulk of exports inthe countries concerned, with cocoa the only important new product sug-

gested to these countries.

Although several missions had described the land tenure systemsprevailing in the countries surveyed as a serious obstacle both toefficient farming and to the improvement of rural living standards, informulating their programs for agricultural development they have eithernot dealt with the land tenure problem or confined themselves to makinga few observations on the need for dealing with it.

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The Development of Other Natural Resources

Fisheries

All missions have stressed the importance of government-sponsoredsurveys of fish resources as well as the need for government-enforcedcontrols of fishing to prevent destructive exploitation and depletion.Some missions expressed the view that large increases in catch could beachieved through better equipment, provision of refrigeration facilitiesand the establishment of processing plants (Colombia mission), whileother missions found that what was needed was greater experience, betterorganization and greater private interest in fishing ventures (Cuba mis-sion). Some missions thought that there was scope for a substantialexport trade while other missions felt that any expansion of the fish-ing industry would have to be based on the local market.

Forestry

In essence the missions have recommended the substitution ofscientific forestry for the unrestricted and haphazard exploitation offorestry resources found in most of the countries surveyed. In allcases such a transformation was found to depend on the establishment orstrengthening of Forestry Services, staffed with adequate numbers oftrained personnel and on the willingness of governments to play a majorrole in forestry development. In fact this is probably the only occasionon which the missions declared themselves unreservedly in favor ofgovernment control (and even government ownership) and against unre-stricted private enterprise.

Given a rational exploitation of forest resources, the missions feltthat large increases in output were possible which in some cases wouldjustify the establishment of processing industries (paper and rayon pulpin Colombia, hardboard in Nicaragua, graded and seasoned lumber inBritish Guiana, etc.).

Mineral Resources

The missions have emphasized the limited knowledge which thesecountries had of their mineral potentialities and have urged the estab-lishment and strengthening of government departments responsible for thesurveying of mineral resources, the regulation of their exploitation andthe encouragement of exploration. In some cases mining legislation wasfound to be an obstacle to mineral development either because it was toorestrictive or because it was not sufficiently so.

The missions felt that it was in the interests of these countriesto continue relying on foreign capital for the development of theirmineral ̂ rn 41 * ,nA a4nnnnl1 n + . n + _ ; , ninternatand expe

- 19 -

foreign capital had become an established feature of national policy,the missions did not attempt to argue on the wisdom of the policy and,instead, recommended measures intended to raise the efficiency ofdomestic operations.

The missions have discussed various aspects of mineral productionin the countries surveyed, but no clear picture of the contribution whichthis sector can be expected to make to economic development emerges fromthe discussion.

Industrial Development

In no other sector of the economy is the missions, emphasis on train-ing, research and improved technology more marked than in the case of in-dustry. The missions view industrial development not as a matter offorcibly creating this or that industry, erecting this or that plant, butas an economic process in which business and investors, with a reasonabledegree of government assistance, become interested in meeting domesticneeds for manufactured articles, steadily acquire the necessary managerialand technical experience, train a skilled labor force, pay increasinglygood wages, gradually venture into more complex industrial fields and,while doing these things, contribute to the expansion of purchasing powerand hence to the growth of demand for industrial products. The missions'position is that, unless such a process is set up, industrial developmentwill lag, however many steel mills, paper mills, oil refineries areerected by governments.

We have seen in Part I that this process of growth had not gone veryfar in the countries surveyed, the principal impediments to the advancebeing lack of interest in industrial ventures on the part of investors,the shortage of managerial and technical skills and the smallness of thedomestic market.

The missions felt that the main objective of an industrial developmentprogram was to remove these impediments. Training of labor is the firstrequirement in such a program and is primarily a management responsibility,although it also requires an expansion of vocational education facilities.

The improvement in management is similarly not something that can bebrought about by governmental measures or by programs of expenditures.Larger domestic markets and the resulting greater competition, greater con-tact with industrially advanced countries, participation of foreign com-panies in domestic ventures, relaxation of restrictions on the employmentof foreigners are, however, some of the things that would help and they dodepend in part on governmental policies.

Some missions have stressed the importance of improving the prevail-ing strained labor-management relations and have recommended that deter-mined efforts be made by all concerned, including governments, which havetended in some instances to support unreasonable labor demands, to replace

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the existing antagonism with more constructive and more cooperativeattitudes.

Several missions have emphasized research as the key to the develop-ment of industrial techniques based on local materials and adjusted tolocal conditions, and three missions, the missions to Cuba, Ceylon andNigeria, have recommended the creation of institutes of applied research.

The missions agreed that the lack of interest in industrial ventureson the part of private capital made the development agencies establishedin marn underdeveloped countries a practical necessity and recommendedthat similar institutions be established in all the countries surveyed.Such governmental intervention, however, was justified only to the extentthat it encouraged private enterprise to enter the industrial field. Themissions were unanimous in condemning the setting up of wholly government-owned and operated industries and especially in condemning the disfavorwith which private enterprise was being viewed by governments in severalof the countries surveyed. At the sane time, they recognized that thetransfer of state enterprises to private ownership posed serious problemswhich needed careful study and preparation and have accordingly empha-sized reorganization aimed at greater efficiency rather than outright saleto private interests.

Some of the statements made by the missions seem to suggest that onlythose industries should be started that can from the outset compete suc-cessfully with imported goods, but it is unlikely that the statements wereintended to exclude protection altogether. Nor have the missions explicit-ly recommended a general lowering of tariffs.

In addition to making general recommendations on industrial develop-ment, the missions have considered at some length the possibilities forindividual industries and commodities. This discussion on individualproducts suggests the following important conclusions:

(a) In several instances capacity was adequate to meet the expectedgrowth in demand, reflecting the existence of excess capacitydue to the small absorptive capacity of domestic markets.

(b) Although the point is not explicitly stated, the missions appearto have envisaged an increase in the existing number of relative-ly small industries rather than any "'growth in depth" of theindustrial structure. For instance, some missions are most opti-mistic about such items as candy, soft drinks, starch and otherfood processing, i.e., about itens whose production cannot besaid to constitute a really significant industrial advance.

(c) The main considerations on which the missions have based theirrecommendations against industrial projects proposed in thecountries surveyed are: large capital requirements, smallnessof domestic market, and lack of local raw materials.

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(d) V,hile the missions have in principle recognized that availa-bility of local raw materials is not indispensable, in practicethey have been reluctant to recommend industries dependent onimported materials and have in fact taken the position that themain purpose of industry in these countries must be the process-ing of local materials. There are also repeated references inthe surveys to the "high cost" of imported materials and to thedesirability of developing "icheap"t domestic sources. The factthat several of the missions were dealing with the post-Koreanperiod of high prices and shortages may have been a factor inthis approach: thus, the Ceylon mission recommended againstthe development of a cotton textile industry based on importedcotton on the ground that such cotton was "expensive andscarce." Some of their recommendations might have been dif-ferent if they had detected the short-term character of theseconditions.

(e) Many of the industrial projects suggested by the missions weremade conditional on the results of experiments for which, how-ever, the prospects are stated by the missions themselves tobe far from good.

(f) While in several cases it is stated that the industries recom-mended would require no protection, it is not clear how much,if any, protection would be required in the industries aboutwhich no such statement is made.

(g) W7hile government operation of industry is considered generallyundesirable, the missions, as already stated, emphasize re-organization of government management rather than sale of theindustries. Similarly, in some instances even new governmentindustries are not rejected outright.

(h) There is a considerable divergence of views among missions onthe prospects for individual industries in the various coun-tries (mechanized shoe production is recommended for Guatemala,but rejected for Nicaragua, canning is recommended for Ceylonand Cuba, but rejected for Nicaragua, bottle-making is recom-mended for several countries, but rejected for Ceylon, a bagmill is rejected for Cuba, but recommended for Iraq, an auto-mobile tire industry is recommended for Ceylon and Iraq, butrejected for Guatemala and Nicaragua). It is difficult todetermine from the reports how much of this divergence is dueto differences in the approaches of the missions and how muchdepends on the differing conditions in the countries concerned.

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Power Development

The programs recommended by the missions appear calculated to main-tain recent rates of increase in powrer capacity rather than to bringabout a significant speed-up of power expansion. The rates of increaseimplied in the programs, as far as they can be ascertained, range fromonly 3 per cent per annum in the case of Iraq to 15 per cent per annumin the case of Colombia.2/ The Guatemala mission made two sets of recom-mendations on power which could not be reconciled, the one implying anaverage annual rise of less than 3 per cent and the other a rate of about17 per cent.

The fact that power requirements were on the whole determined withreference to past rates of expansion means that the largest increases incapacity were in most cases recommended for countries where substantialpower programs had alreacly been carried out, ,while some of the smallestincreases were recommended for countries vwhich had lagged in powerdevelopment.

The missions found in practically all countries a strong emphasison hydroelectric projects and a tendency to equate economic developmentwith hydroelectric development. The missions are virtually unanimous incriticizing this approach as unrealistic and in stressing the followingconsiderations:

(a) In some cases the economic significance of hydroelectric re-sources had been exaggerated (Ceylon, Nicaragua, Cuba). Somemissions are particularly skeptical of the value of multi-purpose projects which in many underdeveloped countries hadcome to be viewed as the very embodiment of economic develop-ment.

(b) The missions stress the heavy capital and distribution costsand the lack of flexibility of hydroelectric powrer compared withthermal pover.

(c) Even when conditions for hydroelectric development were foundto be favorable, the lack of technical data was expected to re-main a major obstacle to hydroelectric development during theperiod with which the missionsf programs were concerned. Aperiod of at least five years has been stated to be requiredfor the gathering of data on stream flow (which involvemeasurements of rainfall and runoff).

2/ In order to make figures comparable all programs were convertedto a Tive-year base and all rate increases to average annual increasesduring that period.

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(d) Another disadvantage of hydroelectric plants is the length oftime required for planning and construction (seven years onthe average compared with three to four years for thermalplants).

Another feature of the missions' recommendations is that they in-volve no significant change in the pattern of consumption found in thesecountries (high concentration in a few urban centers). This follows fromthe limited degree of over-all power development envisaged by the missions.For the same reason the missions felt that the establishment of inter-connected systems and national networks was premature.

Finally, the missions pointed out that power requirements could bemet not only through new construction but also through fuller and moreefficient utilization of available capacity (increases of 9 to 50 per centare implied in the missionst statements).

All missions have given special attention to the organizational andadministrative aspects of power development, recommending such reforms asthe establishment of autonomous public corporations to replace presentgovernment agencies operating government plants, better planning and co-ordination of water development policies, etc.

The missions took it for granted that rates in the countries surveyedwould be higher than in the advanced countries and emphasized the need foradequate revenues from power sales. Two missions, the Ceylon and Nigeriamissions, specifically recommended that rates be increased without, how-ever, indicating the extent of the increase. Higher rates are also impliedin the recommendations of the missions to Colombia, Guatemala and ilexico.The Nicaragaa mission is the only mission tvhich has called for lolwer rates(on the basis of improved efficiency due to the installation of new equip-ment). The other missions have made no recommendations on rates.

Development of Transportation

The missions have recognized the strategic importance of transport-ation in economic development and have recommended or approved expendi-tures accounting in most cases for one-third or more of total public in-vestment programs.

Due to lack of data in the surveys there is no way of deterniningwhether the projects envisaged by the missions represent a speeding-up oftransportation development or merely a continuation of past rates of pro-gress, but from a practical point of vievr there can be no doubt that inmost cases the missions have devoted as much to transportation as could bereasonably spared from other needs.

As in the other sectors, the missions have emphasized the need for ef-ficiency and have felt that much more could be accomplished with availablefunds if only decisions were based on objective and informed criteria, wereproperly coordinated and were carried out by competent personnel.

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Finally, the missions have stressed the importance of sound govern-ment regulation of the transportation industry, and two missions, theCuba and Guatemala missions, advised the establishment of PublicUtilities Commissions patterned after the Interstate Commerce Commissionof the United States.

The emphasis of the missions' programs is on rehabilitation of ex-isting railraod facilities and expansion of highwvays. It is noexaggeration to say that for many missions development of transportationmeans development of highvways.

Railroads

The question had been raised in many of the countries surveyedwhether, in vievw of the serious deterioration of the railroads, abandon-ment would not be more economical than rehabilitation. The missions areunanimous in stressing the essential character of the railroads and ex-pressing their confidence in the feasibility of rehabilitation. Theprincipal measures of rehabilitation recommended by the missions may beclassified under six headings:

(a) Improvement of management and administration, believed by manymissions to be a prerequisite for the success of all othermeasures of rehabilitation and calling for the establishmentof Public Railways Corporations free from political influencesin the case of government-owned railroads and for variousmeasures of reorganization and renegotiation of contracts inthe case of privately-owned railroads.

(b) Improvement in operating practices to increase operatingefficiency and reduce costs (night trains, mechanical loadingand unloading devices, etc.).

(c) M.1odernization of equipment and track, including improvement ofmaintenance. Although all missions have deplored the physicaldeterioration of the railroads, their recommendations on re-equipment and modernization differ considerably in scope. Fourmissions (Colombia, Nicaragua, Jamaica, Surinam) have envisagedonly a limited degree of modernization calling for the purchaseof a small number of diesel locomotives and limited additionsto the number of freight cars. One mission, the Guatemalamission, has assumed that the necessary improvements would becarried out by the private company operating the railroads.Five missions (Ceylon, Turkey, Iraq, Nigeria, British Guiana)have recommended fairly substantial expenditures for railroadimprovements, calling for renewals of track, conversion tostandard gauge, conversion to diesel traction, etc.

(d) Reduction in labor costs. The missions strongly urged thegovernments to abstain from supporting unreasonable labor demands.

(e) Improvement in railroad finances. 7Thile in the case of powerthe missions have recommended that rates be high enough notonly to cover operating expenses and overheads, but also tofinance the expansion of power systems, in the case of railroadsthe missions have been primarily concerned with the eliminationof operating deficits and the lowering of transportation costs.

Thus, in the case of railroads operating at a loss several missionstook the position that the improvements in administration, operatingpractices and equipment recommended by them would sufficiently reducecosts to wipe out the deficits and even allow a reduction in rates.(Higher rates were recommended only by the Ceylon and Jamaica missions.)In the case of the few railroads operating at a profit, one mission(Nicaragua) explicitly recommended a reduction in rates and another(Nigeria) indicated that such reduction might be advisable. Lower rateswere also held possible by the Guatemala mission.

Apart from the need to lower transportation costs, these recommend-ations on rates reflect the missions, view that wvhile the existing rail-road systems were essential to the economies of the countries concernedand should be placed in good operating condition, new transportationfacilities should be provided in the form of highways rather than of newrailroads. The missions have based this view on twvo considerations: (a)traffic demand was likely to be below the capacity of proposed new linesand (b) costs of construction would be higher than for roads and organiza-tional problems more difficult. In line with this thinking the missionshave advised against most of the railroad projects contemplated in thecountries surveyed. The only major project included in the programs ofthe twelve missions is the Magdalena River Railroad recommended by theColombia mission and intended to provide year-round transportation to theeastern part of the country by supplementing the facilities of the river(estimated cost $33 million).

The limited scope of the missions' railroad programs is shown by thefact that, although railroads require large capital outlays, the programscall for a combined investment of only 6150 raillion compared with totalexpenditures on transportation of about Ep800 million (excluding $200million on unspecified projects contained in the Colombia mission program).

Highways

The mlssions' recommendations on highway development call for fourtypes of action:

(a) Improvement in maintenance by means of larger appropriations,more efficient use of funds and greater mechanization.

(b) Improved planning and execution of highwvay programs. Elimi-nation of political influences and haphazard decisions was feltby several missions to be a major requirement for sound highwvaydevelopment.

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(c) Expansion of highway systems. While most missions are agreedthat the expansion of transportation facilities should beachieved mainly through the construction of highways, the pro-grams of highwjay development recommended by the missionsdiffer wridely in scope.

The Guatemala and Nicaragua missions have allocated 42 and 30per cent respectively of their total programs to highway build-ing. The missions to Turkey, Nigeria and British Guiana havedevoted 15 per cent of total funds to highways. The Iraq andSurinam missions have similarly recommended substantial roadbuilding programs even though, due to the size of over-alldevelopment expenditures planned for these countries, theshare of road construction appears small (6.5 and 9.4 per centrespectively). The Colombia, Ceylon and Jamaica missions, onthe other hand, have recommended relatively modest expendituresfor highways, reflecting a smaller emphasis by these missionson highw-ay development. on a per capita basis five-year ex-penditures range from °2 for Colombia to $17 for Nicaragua.

The programs differ not only in size but also in content andapproach. Some missions (Colombia, Cuba) have emphasized theselection and rapid execution of a few high priority projects,wuhile other missions (Guatemala) have recommended programs ex-tending over ten years and involving the construction of high-ways in sections or in partially completed form. Some missionshave emphasized main arteries, others farm-to-market roads.The missions to Nicaragua, Iraq and Turkey, where substantialhighway development was already under way, have merely estimatedthe expenditures required for these programs and, in the case ofTurkey, urged that the program be slowed down. The missions tothe four colonial dependencies found that the main requirementwas a qualitative improvement of the existing network ratherthan its expansion. The recommendations of the Ceylon missionare so loosely formulated that no clear picture of the natureof its program emerges from the various statements made.

Some missions have stressed length while others have put theemphasis on quality. Hovrever, the construction costs impliedin the programs do not always reflect this distinction. Forinstance, the Cuba mission, -Which has recommended the lowestspecifications, has assumed a higher cost per unit than theother missions, with the exception of the Jamaica mission. TheIraq mission has assumed a much laoer cost per kilometer forentirely nevw highvays bui't to good specifications than theNigeria mission, whose program consists primarily of upgradingexisting highways.

lFhile the total of some $350 million provided for highways inthe missions? programs represents a substantial investment, the

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information on how the sums were arrived at and on mileage isinsufficient to pennit assessment of the exact magnitude andsignificance of these programs and the degree of highwaydevelopment they imply.

(d) Improvement in road transportation. The missions point outthat better highway conditions and a more extensive networkwill make possible a substantial reduction in road transportcosts. (The Colombia mission stated that this could cuttruck operating costs at least in half.) Additional measuresrecommended by the missions include freer imports and lowertaxation of road vehicles and spare parts, government regulationof road transport to ensure greater safety and prevent thedeterioration of highways, effective (but not unrestricted) com-petition among transportation companies, etc.

The missionst programs include no public expenditures for roadvehicles since, in view of the profitability of road trans-portation, it has been assumed that the large expansion neededin the number and capacity of motor vehicles will be privatelyfinanced.

Port Facilities, Inland 1,7aterways and Ocean Shipping

The missions as a wihole have questioned the need for large invest-ments in these fields and have been particularly critical of proposalsfor the creation of new seaports. 71here, however, plans vwere under wayfor a considerable increase in port capacity (Ceylon, Turkey, Nigeria)the substantial sums needed to complete these plans were included in themissions' programs. A feature of the Guatemala mission's recommendationsis the absence of provision for additional port facilities in spite ofthe fact that the mission had described as "unhealthy" the existingsituation wvhereby the country's only pier vas under the complete controlof the United Fruit Company. The mission felt that the situation couldbe "mitigated" by allovwing the company to construct a second pier in thesame port in return for acceptance of control over its operations by aPublic Utilities Commission proposed by the mission.

In addition to better installations the missions found that severalof the countries surveyed needed better administration and operation ofport facilities and recommended a number of changes calculated to ensuregreater efficiency.

Air Transport

The missions as a whole have emphasized the need to improve runwaysand navigational aids in existing facilities rather than the constructionof new airfields. The actual programs recommended vary considerably inscope, ranging from the construction of a few grass strips (Nicaragua) tothe completion of an ambitious airport construction program at a totalcost of $20 million (Turkey).

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Most missions have made no recommendations on numbers and types ofneeded aircraft and most of the investment programs drawn up by themmake no provision for modernization and expansion of airfleets.

Improvements in Social VWelfare, Health,Housing, Education, Social Security

The surveys differ considerably in their appraisal of the role whichsocial welfare should play in a development program and in the emphasiswhich they place on the various aspects of social welfare. Recommendedcapital expenditures in this field ranged between 8 and over 20 per centof total investment expenditures and between $4 and $20 per head on afive-year basis. Some missions have almost completely ignored education(Guatemala), others health (Cuba), others housing (Nicaragua, Turkey,Guatemala), and most missions have ignored social security. Some missionshave emphasized the need for much larger annual expenditures on socialwelfare while other missions have described what was being spent as ade-quate and still others have ignored altogether the issue.

The majority of missions, however, agree that the two most urgentrequirements in the field of social welfare are disease prevention andtraining of personnel.

Expenditures on improvement of sanitation (water supply systems,sewerage, garbage disposal, etc.), which was found to be the main factorin disease prevention, account in many cases for more than half of totalexpenditures on social welfare recommended by the missions and in severalcases are as high as or higher than expenditures on power development.Training of personnel, which involves relatively small expenditures, isemphasized by most missions as the key to improved social welfare services.

Medical Services

While emphasizing disease prevention the missions did not ignore theneeds for more adequate medical facilities. The recommendations of themissions stress, in order of importance, administrative reforms, trainingof'personnel, creation of health centers to the extent permitted by theavailability of trained personnel, and expansion in hospital facilities.The latter, however, was found by all missions to be the least urgent re-quirement and was kept to a minimum in the missions' programs. Thereasons for this are stated by the missions to be as follows: (a) Newbuildings were useless without the trained personnel needed to operatethem, which was not available. (b) New hospitals would require largeadditional sums to be maintained which these countries could not afford.(c) The large funds required for hospital construction would yield im-measurably greater returns if spent on disease prevention and control andon training of personnel.

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Housing

Seven of the twelve missions have made recommendations on housingand most of these are agreed that the need for government action arisesfrom the fact that low-cost housing had not been found profitable byprivate enterprise. (The Colombia mission expected that a large low-cost housing program could be financed by means of government-guaranteedlong-term borrowving from the public at five per cent.) The Jamaicamission, which describes its recommendations as "rather modest" has de-voted a larger percentage of its development program to public housingthan ary other mission (eleven per cent of the total).

All missions stress the importance of lowering construction costsby using more local materials and improving their quality, by increasingthe efficiency of labor and by building simpler and more economicaldwellings.

The differences in the importance attached to housing by the various

missions reflect in part the different degrees of acuteness in housingconditions, but are probably mainly due to a different estimate of howTthe available funds could be most profitably spent.

Education

All missions are agreed that from a qualitative point of view themajor requirements for an improvement of educational standards are:practical instruction in shcools, better training of teachers and betteradministration of education. Several missions have also stressed thecontribution which a well-organized program of adult education (costingvery little money) can make to economic development where illiteracyrates are as high as those prevailing in manjy of the countries surveyed.

From a quantitative point of viewv the two major requirements werefound by the missions to be, in order of importance: (a) a much greatersupply of trained and well-paid teachers which also means greatly ex-panded teacher training facilities and (b) more school buildings and moreschool equipment.

The emphasis of the missions, programs is on primary education andvocational training. Only two missions, the Ceylon and Turkey missions,have stressed middle and higher education.

In spite of the importance attached by the missions to the improve-ment of educational standards, the sums included in the recommended in-vestment programs are modest (1.3 per cent of the total for Surinam, 3per cent for Colombia, 5 per cent for Nicaragua, 9 per cent for Ceylon),reflecting the following features of the missionst recommendations:

(a) The emphasis on teacher training, which is not costly.

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(b) The missions' view that the shortage of trained teachers

precludes any rapid expansion in educational facilities inthe near future.

(c) The missions' conviction that school construction costs could

be sharply reduced.

(d) The missions' conviction that qualitative improvements, whichrequire no expenditures, are just as important as the expan-sion in facilities.

Most missions have ignored the problem of the higher recurring ex-penditures needed for education.

Social Security

In the advanced countries it is at present taken for granted thatthe working class is entitled to financial protection against illness,disability, old age and unemployment and comprehensive systems of socialsecurity are in operation to provide this protection.

In most of the underdeveloped countries social security systems areeither in an embryonic stage or are mismanaged and afford little realprotection to the working population.

Only a few of the surveys contain references to this problem andthe tendency is to consider the attempts to introduce or expand socialsecurity measures as premature. The only mission which has discussedthe issue at some length is the Colombia mission, and its conclusion isthat the country had already gone too far in that field.

Economic Policies for Development

The major recommendations of the missions in this field may be sum-

marized under the following headings:

(a) Maintenance of financial stability. The missions have stronglyrecommended that lending to the government and government enterprisesby the Central Bank be scrupulously avoided in the future and thatthe volume of commercial bank lending be kept within the financialresources made available to the banks by the community. The Colombiaand Turkey missions have proposed rationing of rediscounts and ad-justments in reserve requirements as the most effective instrumentsof credit control under the conditions prevailing in these countries.

(b) Increases in financia. resources available for development.The missions were aware that, unless new non-inflationary resourceswere made available to finance needed investments, the cessation ofCentral Bank borrowing by the governments and of continuous creditexpansion would in many cases result in a slowing down of investment

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and hence of economic development. Thus, the missions have givenserious consideration to ways of increasing non-inflationary meansof financing develnpment.

The first and most important source of additional funds is,of course, increased taxation. Six of the twelve missions haveproposed increases in the tax burden ranging from 33 per cent inthe case of Colombia to only 13 per cent in the case of Nigeria.While the missions have sought to place the emphasis on directtaxation, no drastic change in the structure of taxation is in-volved in their recommendations.

Reductions in current government expenditures were expected tomake only a limited contribution to the financing of public invest-ment. This is so because, while stressing the need for eliminatingwasteful or unnecessary expenditures, the missions expected thatthe funds thus released would be absorbed by urgent current require-ments which had been neglected up till then.

All missions have emphasized the importance for development of

a larger volume of voluntary savings channelled into sound projectsand have expressed confidence that the maintenance of monetarystability would result in both higher rates of savings and greaterinterest in long-term investment.

Several missions have recommended the sale by developmentagencies of government-guaranteed shares and bonds in the marketwhile some missions have stressed such technical steps as educationalcampaigns, creation of payroll savings crganizations, etc.

The fact that a substantial part of total investment will haveto be undertaken by governments means that sound financing of devel-opment requires a greater willingness on the part of the public toinvest in long-term government securities. Thus, several missionshave recommended that special attention be given to the establish-ment of an open market in public debt. However, the missions didnot expect any great increase in the sale of government bonds duringthe periods with which they were concerned.

The missions found that in several of the countries surveyedcompulsory debt-holding provisions had been resorted to as a meansof remedying the dearth of fands available for the financing ofpublic investment. The missions not only approved of these pro-visions, but actually felt that wider use should be made of suchmethods of finance. Similarly, several missions felt that the needfor financing development justified some deviation from the prin-ciple of bank liquidity and recommended the participation of com-mercial banks in sound developmental projects, both public and pri-vate.

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(c) Encouragement of private enterprise. In several of thecountries surveyed impatience with the slow pace of economic pro-gress had led governments to enter the fields of production anddistribution on a substantial scale. As pointed out in Part I,the missions were not impressed with the results of such inter-vention which, if anything, proved that government action in thesefields, however well intentioned, was no substitute for privateinitiative. Moreover, the missions pointed out, countries withlimited financial resources could not afford to commit public fundsto tasks which could be financed equally well by private capital.

The principal measures suggested by the missions for the en-couragement of private enterprise are as follows:

i. Definition by governments of their attitude towards pri-vate enterprise so as to dispel the fears and hesitationsholding back investors.

ii. Elimination of obstacles to initiative resulting fromeconomic activities and policies of the State.

iii. Sale, whenever feasible, of government enterprises.

iv. Cautious use of government controls over economic activity.

v. Recognition that profits much higher than in advanced coun-tries were necessary to stimulate private investment andattract foreign capital.

(d) Favorable treatment of foreign capital. Several missions havedeplored the unfriendly attitude towards foreign capital which theyfound in the countries surveyed and have urged a reconsideration ofthis attitude in the light of the true interest of the countriesthemselves. That their interest lies in encouraging a large inflowof foreign capital is not doubted by any of the missions.

The missions have suggested various ways in which countriescould seek to attract foreign capital, but the over-all impressionfrom their statements is that the success of this effort dependedless on any concrete measures they could recommend than on improve-ments in the general environment and conditions obtaining in thecountries surveyed, which was necessarily a slow process.

(e) Planning and coordination of development policies and developmentprograms. Improvement in budgetary practices. Practically allmissions voiced strong criticism over the manner in which publicdevelopment activities were being conducted in the countries surveyedand especially over the lack of planning and coordination. The prin-ciples underlying the missions' recommendations on this subject maybe summarized as follows:

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i. Investment decisions should be made on the basis of anobjective long-term view of the best interests of thecountry as a whole, free from the influence of currentpolitical pressures.

ii. The limited funds and skills available make it impera-tive that duplication of effort be avoided, that eachpart of the development program be related to the needsof the economy as a whole and that priorities beassigned among public investment projects.

iii. W7hile the ultimate decision on these matters is aresponsibility of government that cannot be delegated,government action should be based on staff work of thehighest quality.

To implement these principles, four missions (Guatemala,Ceylon, Nigeria, British Guiana) have recommended the establish-ment of Economic Committees or Economic Councils composed mainlyof Economic Ministers, the Colombia mission has recommended theestablishment of a Resources Planning Agency to advise thePresident of the Republic, the Turkey mission has recommended thecreation in the Cabinet of the position of Deputy Prime IMinisterfor Economic Coordination, and the Surinam mission suggested theestablishment of a Development Board to administer the proposedten-year program. In Nicaragua, Iraq and Cuba similar instru-ments for planning and coordination had already been set up, butthe missions were not impressed by their effectiveness and recom-mended various improvements.

All missions have stressed the importance of strong secre-tariats, composed of a small number of highly qualified and wvellremunerated persons, including at first some foreign experts, andhave emphasized the importance of good statistics, accurate dataand scientific surveys.

Several missions have felt that sound budgeting was as im-portant to development as planning of investment expenditures, andhave recommended a number of improvements in the budgetary practicesfollowed in the countries surveyed. These recommendations, however,are too detailed to be included in a brief summary.

Improvement of Public Administration

Most missions have felt that the subject was too vast and too com-plex to be covered comprehensively in their reports and have recommendedthat an exhaustive study be made by specially appointed commissions orother advisory groups. The missions themselves have in most cases merelyattempted to indicate some of the most pressing problems and suggest pos-sible lines of solution. These include:

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(a) Establishment of a professional civil service system orat least of the beginnings of such a system.

(b) Increases in salaries and other benefits (the extent of theincreases is not indicated nor the cost to the government).

(c) Training of government personnel.

(d) Decentralization of administration and greater delegationof authority.

(e) Reorganization of the Administration. (Several missionshave made detailed recommendations on the kind of shift or re-grouping that they considered desirable.)

As stated in Part I, the inadequacy of the public administrationwas found by the missions to be a serious obstacle to the effective

utilization of foreign technical assistance. The missions have sug-gested a centralization of effort, with one agency given the exclusiveresponsibility in this field and have made several other detailed sug-

gestions for increasing the effectiveness of foreign technical assistance.

The Development Programs Recommended by the Missionsand the Problem of Financing

The ten public investment programs recommended by the missions cor-respond to a combined total of some $620 million per annum and to anaverage per capita expenditure of $8 per annum. Four countries, Colombia,Iraq, Turkey and Nigeria, account for 80 per cent of the total recommend-ed investment, but only in the case of the first two countries do the

larger total expenditures represent larger per capita expenditures aswell ($15 and $19 respectively). In the case of Turkey per capita expendi-tures are equal to the average, while in the case of Nigeria per capita

expenditures are the lowest recommended by any mission ($3.1). TheBritish Guiana and Surinam programs, on the other hand, which account foronly 2 per cent of total investment, call for per capita expenditures ($16and $27.5 respectively) vwhich are among the highest recommended by themissions. The per capita expenditures recommended for the other countries

range from $7 per annum in the case of Ceylon to $11.5 per annum in thecase of Nicaragua. (The programs of the Guatemala and Jamaica missionsdo not include all public investment expenditures recommended for the

period of the programs while the programs of the Iraq and Nicaragua mis-sions include some recurrent government expenditures.)

Some of the programs refer to gross investment (Colombia, Turkey),

but most of the programs appear to be on a net basis.

In most of the programs agriculture and transportation are allottedthe bulk of the available funds: in four programs these two sectorsaccount for 65 to 75 per cent and in the other six for 45 to 58 per centof total expenditures.

Several of the programs recommended by the missions involve a con-siderable increase in public investment expenditures over prevailinglevels. The largest increases were recommended for countries likeNicaragua and Iraq where such expenditures had been negligible until re-cently, while for countries n-here public investment was already substan-tial the missions' recommendations involved no significant increase and,in the case of Turkey, they actually called for a reduction of such in-vestment.

The majority of m-ssions seem to feel that a rate of public invest-ment equal to some 5 per cent of the national product is substantialenough to ensure satisfactory economic progress and at the same time iswithin the ability of the countries to undertake without undue strain ontheir economies.

The conclusion that the missions3 recommendations represent a sub-stantial increase in public investment expenditures refers to the ex-penditures made in the recent past. In several of the countries sur-veyed development plans considerably more ambitious than the prograrsrecommended by the missions were being formulated by these governmentsat the time of the missions' visits. (The program of the Ceylon missionrepresented a 50 per cent reduction in government plans.)

A major problem in development is the financing of needed invest-ments. In the case of one of the countries surveyed, Iraq, the missionfelt that the financial resources that would be available vrould exceedthe country's capacity to utilize them effectively. '-Wh.le no such abun-dance of funds could be expected in the case of the other colntries,virtually all missions found that the programs they had recommended couldbe financed without undue difficulty.

Most missions have assumed that government revenues in excess of cur-rent expenditures would be the single most important source of funds forthe financing of the recommended programs. The contribution expected fromthis source is greatest in the case of missions which have recommendedconsiderable increases in revenues (85 per cent of total investment fin-anced from government revenues for Colombia, 69 per cent for C-uatemala,63 per cent for Nicaragua) and of countries which were already financingsubstantial development programs out of government revenues (.54 per centfor Ceylon, 45 per cent for Turkey).

Self-financing of government enterprises is important only in twoprograms (25 per cent for Turkey and 16 per cent for Nigeria), but no ex-planation is given on the nature of this resource and the manner in whichit was calculated.

Internal borrowing is important in the case of Ceylon (20 per centof total investment), Turkey (25 per cent), Jamaica (1'l to 23 per cent)and'British Guiana (19 per cent), but in the case of Turkey this sourceappeared far from assured.

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Use of foreign exchange reserves is important in the programs of

the Ceylon and Nigeria missions (26 and 29 per cent respectively), i.e.,

of countries which at the time of the missions' visits had large ster-

ling balances at their disposal.

The dependence on new foreign loans or grants for the financing of

the programs is greatest in the case of Surinam and Jamaica (56 and 58

to 64 per cent of the total respectively) and in the case of Guatemala(31 per cent of the total). For the other countries it ranges from

about 6 per cent (grants) in the case of Turkey to 15 per cent in the

case of Colombia and Guatemala.

The Degree of Development Implied in the M4issions' Recommendations

While the missions, programs refer to public investment, all missions

are agreed that what happens in the private sector will be the decisive

factor in economic development. In emphasizing, however, the importance

of private investment, the missions have been thinking in qualitativerather than quantitative terms. Judging from statements and estimates

made by several missions, it would appear that the missions did not ex-

pect their recommendations to result in any large quantitative increasein private capital formation during the period of their programs, whileseveral missions assumed that with the end of inflation, inventory accumu-lation and depletion of foreign exchange reserves, the rate of privatecapital formation would decline. (Private investment was expected to be

of the order of 4 to 6 per cent of the national product in Guatemala,Nicaragua, Ceylon, Turkey, Nigeria, 9 per cent in Surinam, 10 per cent in

Colombia and 15 per cent in British Guiana.)

An even more significant feature of the missions' programs is that

neither the economic and administrative reforms nor the qualitative im-provements in private investment and increases in public investment re-commended by the missions were expected to result in a growth of outputconsiderably greater than in the past. (Only the missions to Iraq,

Nicaragua and Jamaica assumed a more rapid growth than in the past. Inthe case of the first two missions, this optimism is explained by thevery low levels from which these countries were starting and by the sub-

stantial resources which they expected to devote to development. In thecase of Jamaica, however, the mission's optimism is less easy to under-

stand.)

The cautious view of prospects for economic growth taken by most

missions was based on the expectation that terms of trade could not con-tinue to improve and might even become less favorable, on the assumptionthat increases in output would no longer be brought about by inflationary

methods and hence would be smaller and on the realization that most of

the basic improvements recommended by the missions would take time to be

adopted and to show results.

The per capita increases in income expected by the missions range

from 0.5 per cent per annum in the case of Ceylon and 1 to 1.5 per cent

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per annum in the case of Turkey, Nigeria, British Guiana and Surinam, to3 per cent per annum in the case of Nicaragua and Colombia.

It is sometimes said that a rate of growth in per capita income of1 to 2 per cent per annum is what can be reasonably expected in the under-developed countries, that such a rate has seldom been exceeded in the pasteven in the highly developed countries of the WVest and that it would, overthe years, enable tne countries concerned to achieve a substantial im-provement in living standards.

This view may ignore the unexploited opportunities in the underdevel-oped countries as well as their economic aspirations and it is not sharedby the missions themselves. Several missions have explicitly stated thatthe period of their programs wvould principally be a period during wvhichthe foundations for subsequent, greatly accelerated growth would be laidrather than a period during which a satisfactory rate of progress wouldtake place.

The investment-output ratios implied in the missions' programs varywidely, ranging from as low as 2 to 1 in the case of Nicaragua and Jamaicato as high as 6 to 1 in the case of British Guiana, with the majority ofthe missions assuming rates of between 3 and 4 to 1.

Conclusion

The preceding analysis has shown that while the missions often differon specific issues and specific problems, they are in very substantialagreement on the nature of the development problems facing the countriessurveyed and on the type of action required to meet these problems.

The main principles underlying the missions' approach to developmentmay be summed up as follows:

(a) 'YThile the underdeveloped countries tend to view their problemas a problein of developing new resources, the missions felt that thefirst and most important task was to learn to use the available re-sources more efficiently.

(b) lWhile the emphasis in the underdeveloped countries is onmaterial resources, the missions felt that the most urgent task wasto develop human resources. Hence the emphasis on training.

(c) The interdependence of economic phenomena calls for balanced,parallel achievement in various sectors, with each improvementleading to others and the benefits becoming cumulative in theeconomny. A few monumental projects may satisfy national pride, butthey will not bring about true development.

(d) The needs of underdeveloped countries are, by definition,great, while the funds at their dispnsal are, also by definition,limited. Hence the need for wise decisions based on studies, sur-veys, experimentation.

(e) Due to the desire for rapid industrialization, the under-developed countries have failed to recognize the strategic positionof agriculture in development. In fact, agricultural developmentis a prerequisite for, not an alternative to industrialization.

(f) Development calls for a high degree of cooperation betweengovernment and the private sector of the economy and between manage-ment and labor within the private sector. Foreign capital can pro-vide many of the elements missing in the underdeveloped countries,and as such should be actively encouraged to enter these countriesand adequately rewarded for doing so.

(g) The maintenance of monetary stability is essential to develop-ment. Inflation defeats the purpose of development because itplaces a premium on unproductive investments and because it furtherimpoverishes the poor.

(h) In the last analysis development means accepting new ideas andnew ways of doing things and this is never easy, especially amongpeople steeped in tradition. This explains why development is slowin getting started but becomes highly dynamic once started. Inmany of the countries surveyed development in this sense had notyet started, and this is why several missions speak of the need ofbreaking the vicious circle of backwardness retarding progress andlack of sufficient progress keeping the countries backward.

The missions, analysis of the problem of development is in sharpcontrast to the view, which was widely held until recently, that lack ofadequate funds is the main obstacle to development. The missions havenot denied that large funds will be needed to equip these countries withthe facilities they need, but they have strongly felt that funds alonewill not bring about the far-reaching transformations which are essentialfor economic advancement.