Many of the underdeveloped countries will promote the growth of their economies in one way or the other, no matter whether they receive substantial outside aid in the process or not. The character of that development, however, is likely to be strongly influenced by the types of and amounts of aid available. The outcome is much more likely to be favorable, from the standpoint of the objectives for successful development set up previously, if there is substantial international aid than if there is not.
By substantial aid I mean not only large amounts of technical assistance but also of capital. Initially, the capacity of an underdeveloped country to use capital productively may be surprisingly small, limited by lack of organization, trained personnel and other social obstacles. At this stage technical assistance is the main need from outside, with comparatively small amounts of capital, much of which may have to be in the form of grants for non-self-liquidating projects, in education, health, access to roads in rural areas, and the like, if, at this stage, substantial capital is available from outside to supplement what can be formed internally (and to simulate internal capital formation, for it does that too) the rate of economic growth can be consistently increased, and the strains and frustrations and political risks of the development are likely to be considerably less.
It is possible for underdeveloped economies to modernize themselves with very little capital from outside. Japan imports of capital were small though some of it came at crucial times. The contribution of foreign direct investments to the advancement of technical know-how also was greater than would be indicated merely by the size of the investment. The Soviet Union industrialized its economy with practically no aid from foreign investment capital except for the foreign owned installations confiscated after the revolution, though it imported machinery in the early days on short term or immediate term credits and hired services of foreign experts. Both Japan and Russia achieved their development in an authoritarian political and social framework. The outcome in both cases from standpoint of the peace in the world and democratic ideals, was highly unfavorable.
In the absence of outside aid, the only way to accumulate capital, is to increase production without taking much of the benefit in more consumption or even while pushing consumption standards down. Where the people are already near the subsistence level this may mean extreme hardship. Somehow the people must be motivated to change their accustomed ways quickly, to work hard and to forgo present consumption so that capital investment can be made. ? How does the availability of substantial capital help?