the prospect of institutional stagnation

Paul Romer explains the historical process of economic development as a product of technological discoveries — how to make more with less — and, in turn, argues that technological innovation depends on sets of rules and institutions that provide incentives to innovate. The rules and customs that govern a society are therefore crucial to the question of development. As Romer notes, China had all the component technological pieces a thousand years ago to grow beyond its European rivals, but the elites turned inward, and the innovations whithered away rather than fomenting further innovation and growth.

Filed under: General Welfare

odds and ends for development assistance

In what will be my final post (for more, see: the failure of supply-side (aid) economics, no wal-marts in malawi, the great quality of life convergence) based on selections from Charles Kenny’s draft of “The Success of Development,”  below are some of my favorite nuggets and takeaways from his work:

Sachs‘ Millennium Project produced a report Investing in Development, based on such ideas. New York University Economist Bill Easterly was outraged on reading Sachs‘ report and demanded that we―discard the Planners‘ patronizing confidence that the Planners know how to solve other peoples‘ problems better than the people themselves do. He contrasted the planning approach to that of a ‘searcher‘ who ―admits he doesn‘t know the answers in advance… believes that poverty is a complicated tangle of political, social, historical, institutional, and technological factors and ―only hopes to find answers to individual problems by trial and error experimentation.
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If rich countries increased the size of their labor forces by only three percent through reduced restrictions on migrant labor, Lant Pritchett estimates that this would add $300 billion to the welfare of citizens of poor countries –roughly four times the magnitude of foreign aid flows.

Filed under: Economic Policy, General Welfare, World, book bytes

the invisible hand: a caricature of a myth

It’s difficult to pin the myth of the invisible hand on the left or right, both sides have perpetuated the false idea that Adam Smith believed that an invisible hand guided each person’s self-interest to the betterment of society as a whole everywhere and always. This brutal caricature of Smith’s work reveals itself often in cutesy commentary by economists/pundits on the left who point out that Adam Smith and his mysterious hand theory was obviously wrong given some recent occurrence, or dolt pundits on the right supporting their opposition of all regulation. ever. for anything. ever. The invisible hand myth is not only unbelievably vexing to anyone who is familiar with Smith’s work and tremendous legacy, but also retards any meaningful dialogue on difficult economic policy/regulation issues.

Filed under: Economic Policy

the failure of supply-side (aid) economics

I am currently re-reading Bill Easterly’s classic “The Elusive Quest for Growth,” and his chapter on the failure of education aid to generate increases in income or GDP hit home as I prepared this post.  Easterly interpreted the failure of education aid as demonstration that supply-side aid doesn’t work when consumers don’t see the payoff.  In “The Success of Development” draft, Charles Kenny finds that many attempts at providing health technologies, for example, largely fail because the demand for the products simply isn’t there:

Filed under: General Welfare, World, book bytes

no wal-marts in malawi

In a previous post on Charles Kenny’s book draft, “The Success of Development,” I highlighted the immense quality-of-life gains enjoyed in the past century.  Inventions, such as the polio vaccine and the green revolution, have made it much cheaper to provide quality of life, allowing societies who’ve seen no wage gains in 50 years to live longer, healthier, better educated lives.  The other side of the coin, however, income growth, depends not on inventions but on ‘sticky technologies.’ Kenny makes the argument that national policy, be it collectivist or capitalist, is fairly lousy predictor of income growth, and joins Douglas North in pointing to institutional development – be it a legal system or factory management system – as determinative of economic growth. Also, notice the insight of Paul Romer, recently in the news for revealing his plan to create Hong Kong-like exchange zones  across the world. A future post will highlight Kenny’s recommendations for effectively catalyzing income and quality-of-life improvement:

Filed under: Economic Policy, General Welfare, World

the great quality of life convergence

Development economists spend a lot of time talking about the stagnation in GDP of the bottom billion (cough, cough, Msr. Collier). I never thought much of it until I read the working draft of Charles Kenny’s book “The Success of Development,” which provides mountains of evidence that despite the income stagnation, the quality of life (by virtually every measure) has improved greatly over the past 50, 100 years for the world’s poorest people. In fact, while there’s been a divergence in income, there’s been a convergence in quality of life, and “the forces driving convergence in quality of life appear to be broadly independent of income.”

Furthermore, “far more than income, quality of life appears to follow a pattern of exogenous growth,” relying on global technological progress rather than national policy or institutions. There are tons of great factoids that make Kenny’s larger point, but below I’ve selected some clippings that I believe do a good job capturing the success of development (in a later post I’ll pull what Kenny thinks could be done better/how to continue this success):

Filed under: Economic Policy, General Welfare, book bytes

freedom and the state

In The Power of Freedom: Uniting Human Rights and Development, Jean-Pierre Chauffour is very critical of state-centric human rights and development policies, but he also explains his vision for the state in expanding freedom:

Since Adam Smith (1776), it is  common to consider the core functions of the state as being to protect  individuals against violence, theft, and fraud, and providing a limited   set of goods and services that markets may find it difficult to  provide for a variety of reasons. In particular, the state should  establish the legal system and institutions to provide for the enforcement   of contracts, the mutually agreeable settlement of disputes,  and the guarantee of and respect for the rule of law. Except in  cases where freedom of exchange is exceedingly costly or practically  impossible, such as in the situation of monopoly or similar market  imperfections or in the presence of externalities, the state should give way to the market to determine, arbitrate, and enforce the rules  of the game.
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Filed under: General Welfare, book bytes

a freedom framework for development

After explaining why he prefers negative to positive liberty, and defining “freedom,” Jean-Pierre Chauffour shares his conceptual framework for advancing human rights and development through the promotion of freedom:

If one agrees  with the idea that human nature is such as to allow most people,  regardless of capabilities and circumstances, to organize and promote   their lives, act creatively and productively, and advance themselves   through ingenuity and entrepreneurial savvy, one can then  draw important lessons in the field of political economy to understanding   and remedying poverty (Machan 2006a). Development  policies that promote and secure the (negative) individual right  to liberty and freedom would then provide the most appropriate  environment to unleash the potential of each human being to be  master of his or her own life and destiny.

Filed under: General Welfare, Philosophy, book bytes

is the smoker free?

In The Power of Freedom: Uniting Human Rights and Development, Jean-Pierre Chauffour deftly explores the meaning of “freedom,” weighing competing viewpoints and explaining his chosen interpretation:

At what point does one become ultimately  responsible for a choice, taking into account all endogenous and  exogenous factors influencing the decision? Are the poor and the  unemployed free? Is the smoker free? What about the prostitute  or the member of a sect? Or individuals suffering from dementia,  schizophrenia, or clinical depression? While it is true that free will  can simply be defined as the ability to do, or not do, something,  freedom of will is supposedly subject to various determinants,  including environmental, social, physical, psychological, biological,  and theological.” Philosophers have debated this question for over  two millennia, and just about every major thinker has had something  to say about it.

Filed under: Philosophy

Negative rights, positive oughts

Jean-Pierre Chauffour’s The Power of Freedom: Uniting Human Rights and Development is a Bill Easterly favorite that both critiques the current human rights and economic development frameworks currently used by the international community and explains how they can be brought together into a singular, coherent vision. There’s a lot to talk about, but I’ll start with some excerpts on negative vs. positive rights. This is a lively topic (recently, Easterly and Amnesty International traded arguments on whether poverty is a rights violation, with Will Wilkinson, among others, chiming in as well).

Filed under: General Welfare, Philosophy