Peter Thomas Bauer, Baron Bauer (6 November 1915, Budapest - 2 May 2002, London) was a developmental economist. Bauer is best remembered for his opposition to the widely-held notion that the most effective manner to help developing countries advance is through state-controlled foreign aid.
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Bauer was born as Péter Tamás Bauer in Budapest, Austria-Hungary in 1915. He studied Law in Budapest before embarking for England in 1934 to study Economics at Gonville and Caius College, Cambridge, from which he graduated in 1937. After a brief period in the private sector working for Guthrie & Co., a London-based merchant house that conducted business in the Far East, Bauer spent most of his long career at the London School of Economics. Bauer started teaching there in 1960 and retired in 1983 as Emeritus Professor of Economics. In 1983, with the support of his friend and admirer Prime Minister Margaret Thatcher, he was made a life peer as Baron Bauer of Market Ward in the City of Cambridge. Lord Bauer was also a fellow of the British Academy and a member of the Mont Pelerin Society, which was founded by his friend Friedrich Hayek.
In 1978, Bauer received an Honorary Doctoral Degree at Universidad Francisco Marroquin for his contribution to economy.
He died in London, England on 2 May 2002.
Nearly all of Bauer's greatest contributions concerned development economics, international development and foreign aid. Bauer sought to convince other development experts that central planning, foreign aid, price controls, and protectionism perpetuate poverty rather than eliminate it, and that the growth of government intervention politicizes economic life and reduces individual freedom.
Bauer revolutionised thinking about the determinants of economic advance. For example, the World Bank, in its 1997 World Development Report, reflected the point of view Bauer had been advocating for years, stating that the notion that "good advisers and technical experts would formulate good policies, which good governments would then implement for the good of society" was outdated:
"the institutional assumptions implicit in this world view were, as we all realize today, too simplistic... . Governments embarked on fanciful schemes. Private investors, lacking confidence in public policies or in the steadfastness of leaders, held back. Powerful rulers acted arbitrarily. Corruption became endemic. Development faltered, and poverty endured."
For Bauer, the essence of development was the expansion of individual choices, and the role of the state to protect life, liberty and property so that individuals can pursue their own goals and desires. Limited government, not central planning, was his mantra.
Bauer placed himself firmly in the tradition of the great libertarians. In his many articles and books, including Dissent on Development, Bauer overturned many of the commonly held beliefs of development economics. He refuted the idea that poverty is self-perpetuating and showed that central planning and large-scale public investment are not preconditions for growth.
He criticized the idea that the disadvantaged could not and would not save for the future, or that they had no motivation to improve their condition. He opposed "compulsory saving," which he preferred to call "special taxation," and, like modern supply-side economists, stressed the detrimental effects of high taxes on economic activity. Bauer also saw that government-directed investment funded by "special taxation" would increase "inequality in the distribution of power."
Bauer's experiences in Malaya (now West Malaysia) in the late 1940s and in West Africa influenced his views on the importance of individual effort by small landowners and traders in moving from subsistence to a higher standard of living. Bauer was perhaps the first economist to recognize the importance of the informal sector and advocated the "dynamic gains" from international trade -- that is, the net gains that result from exposure to new ideas, new methods of production, new products, and new people. He demonstrated that trade barriers, and restrictive immigration and population policies deprive countries of those gains.
For Bauer, government-to-government aid was neither necessary nor sufficient for development, and may actually hinder it. The danger of aid, according to Bauer, is that it increases the power of government, leads to corruption, misallocates resources, and erodes civil society.
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