Two Development Economists — No Conclusions

The poor remain in poverty not because they want to, but because of the many barriers deliberately built around them by those who benefit from their poverty

— Mohammad Yunus, founder of Grameen Bank


Last month I read two development econ books which appeared to be radically at odds with each other, representing a colorful and much-publicized conflict amidst what is generally presumed to be a fairly drab sub-field of study. The books were “The End of Poverty” by Jeff Sachs (2005) vs. “The White Man’s Burden” by Bill Easterly (2006). One makes the case for ramping up foreign aid, the other is adamantly opposed. (These authors’ ongoing feud was made public when Easterly delivered a scathing review of Sachs’ book for The Washington Post, to which Sachs has responded at least once.) But should we internalize one author’s points and discard the other’s? Or is there something to be learned from reading both books in tandem?

Well. Sachs, he of the Earth Institute at Columbia University, weaves the interesting story of his own involvement in the field, mostly helping middle-income post-communist countries get into the groove of market capitalism and economic orthodoxy. Sachs claims that the way to end poverty is to strategically deploy foreign aid by investing in basic infrastructure (like water, sewage, roads) low cost public health initiatives (like malaria nets, preventive medicine) technology for boosting agricultural output, education (the so-called improvement of human capital) and so forth. Sach’s goal is to help extremely poor folks — about one sixth of humanity — break free from the “poverty trap” comprised of “disease, physical isolation, climate stress, environmental degradation, and…extreme poverty itself. Even though life-saving solutions exist to increase their chances for survival…these families and their governments simply lack the financial means to make these crucial investments.”

Easterly, a professor at NYU, wants to debunk wishful thinking about aid by pointing out how the gross failures of the current system actually fit into a long history. Western aid agencies, rather than being part of the solution, have been a big source of the problem: they’re usually politically motivated, unaccountable to the people whom they are supposed to serve, they often funnel money to brutal and corrupt regimes throughout the Third World, and they possess a kind of evangelical certainty and utopian idealism that smacks of old school colonialism. Easterly claims that the “poverty trap” is an invented notion to drum up support for the aid industry. For Easterly, instead of writing out a big plan for strategic investment via IMF/World Bank et al., what we should be doing is looking for piecemeal solutions to local problems…or acting to encourage local entrepreneurs who would do so in our stead.

On the one hand, I agree with Easterly: I’m swayed by the notion that aid bureaucracy is harmful and dysfunctional largely because it’s common knowledge that Western aid propped up evil dictators in Haiti, the DRC, Zimbabwe, etc. Also, generally in big organizations it is considered advantageous to spend what’s in the budget, and quickly, if you expect to see more next year. Paul Collier (economist #3) puts it succinctly: “people get promoted by [within aid agencies] by disbursing money, not by withholding it.” Plus, the historical context of the emergence of the World Bank after World War II suggests that said agencies are in fact instruments of imperialism and Cold War political posturing on the part of the US.

(Historical Interlude! Anthropologist Arturo Escobar does a good job of describing the context for the “development of development” at the end of World War II: “The end of the war…confronted the advanced countries, particularly the united Sates, with the need to find overseas investment opportunities and, at the same time, markets for their goods, a reflection of the fact that the productive capacity of US industry had nearly doubled during the war period. Economic development, trade liberalization under the aegis of the nascent giant corporations, and the establishment of multi-lateral financial institutions (such as the World Bank and International Monetary Fund, founded in 1944) were to be the main instruments to satisfy these requirements and advance the new strategy.”)

On the other hand, I agree with Sachs: it’s absurd to claim that “poverty traps” do not exist. The poorest sub-Sarahan countries, for example, are landlocked, riven with ethnic conflict, hit by drought and subsequent famine…and for people who live in this situation there is no way to simply apply gumption or entrepreneurial spirit to lift a country out. When there is a total lack of basic goods and capital in an area, then there is no way out of poverty without some kind of outside assistance. Meanwhile, the folks who can escape from such grim situations obviously will; hence massive migration to urban slums — a problem which will only escalate as climate change worsens.

I also see some points where the authors themselves agree: both writers criticize previous efforts at eradicating poverty, which they see as having failed largely because they were one sided, relying upon one-size-fits-all formulas for economic growth, blind to regional particularities of culture, geography, and history. Both writers also criticize the way that Western aid agencies tend to focus on hot topics — the AIDS epidemic, for example — while avoiding the more severe if less sexy ones, like diarrhea, malaria, basic sanitation, etc. And of course both agree that *something* needs to be done to help the billion + people at the very bottom of the ladder, not just for obvious moral reasons and both (being economists) see “development” as the ultimate goal.

To boil it all down, both authors argue that top-down strategies by aid agencies and their political benefactors have been ineffective because they are too simplistic and out of tune with the complexities on the ground. Sachs seeks to remedy this by raising awareness (e.g. having Bono pen the forward to his book) and proposing a vast, very complex strategy that he hopes will cover all bases. Easterly, on the other hand, hopes for reform that will enact incentives for aid agencies to succeed or fail according to their effectiveness, thus using “market magic” to generate better outcomes.

Fascinating points made by all, but I must admit I remain skeptical of both. Here’s why: neither one of them really looks at the mechanics of power in this situation. Easterly comes closer to the mark with his Chomsky-esque revisionist treatment of foreign aid as a tool for US global governance. But while both authors are critical of current patterns of aid disbursal, neither looks at the way that this system became institutionalized as part in parcel with the global growth of capitalism and the *idea* of development. What I mean is: both authors seek to tweak the current model of development by getting rid of some of the inefficiencies produced by the top-down hierarchical element of it, but they miss the point that hierarchy is wired deep into the world system. Power thrives on powerlessness, something which economists tend to leave out of their calculations.

OK I hope you enjoyed this book review, I am off to make chicken pot pie(s)! yay!


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6 Responses to “Two Development Economists — No Conclusions”

  1. William Bruntrager Says:

    I don’t understand your last paragraph (before the one about pot pie). Can you elaborate, or propose an alternative model?

    What does this line mean?

    Power thrives on powerlessness, something which economists tend to leave out of their calculations.

  2. tripinchina Says:

    Rationalizing aid disbursal in a utilitarian way (Sachs) or critically reforming dysfunctional aid agencies themselves (Easterly) are both good goals, but I claim that they are very difficult to achieve within the current world system. I take a “story of stuff” or “hub and spokes” kind of view point — the idea that there is a limited amount of potential wealth out there and capitalist actors in the rich countries (“the hub”) us power to get it. (For this to happen, the right conditions need to be in place including, for example, governments friendly to US-based corporate interests and vast pools of underemployed labor — the powerless.)

    “Power” in the way I’m using it here is not limited to state-sponsored violence/the threat of violence — As Foucault pointed out, power operates in multi-dimensional ways. So in the field of international development, we can see power lurking behind “structural adjustment” loans with their free-market-ideology subclauses, or the use of aid to enforce US foreign policy, or the privileging of one set of beliefs (say, about private property) over another.

    Incidentally, lots of anthropologists have written about how “development” didn’t really exist as an idea until after World War II when, due to circumstances I described above, it became a suitable technique of power. Colonialism had gone out of style, after all, so they had to replace it with something. Then development was promoted as a new way of conceptualizing the world — it was professionalized as folks went and got their PhDs in public policy or econ focusing on and spreading this new dominant model.

    So while I enjoyed their books, I’m criticizing both Sachs and Easterly because they cry out for change but still operate *within* that model. Much like I hoped for better fiscal policy in DC, Sachs and Easterly want more efficient aid policy, but they still see development as this wonderful universal good AND hence they don’t dissect where the idea comes from or who really benefits from the current state of affairs.

    Of course I don’t really have an “alternative model” fleshed out, so there you go!

  3. William Bruntrager Says:

    Look, I can’t come up with a diplomatic way to say this, so I think I just have to reveal my true, arrogant self (cf. my post on Planet Money).

    Sometimes conclusions follow from your assumptions that aren’t immediately obvious. If you know that the shortest distance between two points is a straight line, you implicitly know that (3, 4, 8) could not possibly describe the lengths of three sides of a triangle.

    I think you’re at a point where you know enough economics to understand that “The Story of Stuff” is a bunch of God-damned nonsense, but you haven’t yet fully accepted that fact.

    The “model” that economics uses is one in which people have limited resources at their disposal and want to deploy these resources in their best uses to satisfy their wants. “Development” just means doing a better job of satisfying those wants with the same resources. I know you think that this view is fatally flawed because it ignores the costs to the environment and the sustainability of the biomass of the earth, but, well, you’re wrong.

    As Mark put it, “There are systems for a reason in this world. Economic stability, growth, interest rates[?]. It’s not all a big conspiracy to put you in little boxes. It’s only the miracle of consumer capitalism that means you’re not lying in your own shit, dying at 43 with rotten teeth.”

    Yes, my myopia is consistent with your story that economists have a hard time seeing beyond their model and the false-consciousness that it engenders, but it’s also consistent with my story that your story is a bunch of God-damned nonsense.

  4. William Bruntrager Says:

    Tyler Cowen:Various polemic phrases are used throughout his post, including “makes no sense” and “nuts.” When you read language like that, it often indicates the writer has not worked hard enough to imagine a sensible version of the idea he is criticizing.

    The resolution that I break more often than any other is the one where I vow to stop calling things nonsense when I just mean they are really, really, really wrong. If you tell me the sky is green, that’s not nonsense, it’s just wrong.

    Similarly, if you tell me that the ideas of economics don’t pertain to any fundamental truth about the way the world is, but rather are one possible way of looking at the world, pursued and propagated by rich and powerful actors for their own benefit, then that’s not nonsense, but it’s very wrong. Economics is about trade-offs, and those don’t go away, no matter who is in charge of decision-making.

    There are ideas floating around about how we have this huge glut of stuff that we need to sell, so we have to go to other countries and colonize them so that they will buy our stuff so that we can make more. In a different incarnation, you’ll hear that without Christmas, the economy would collapse because people wouldn’t buy enough stuff. Well, those are variations on a really stupid and wrong premise, namely that consumption is not “the purpose and sole end of all production.” Adam Smith wrote the opposite, and he was right.

    The economy looks like a system in the same way that an anthill looks like a system. But it isn’t. It’s individuals, making decisions for themselves. Development means those individuals have more of what they want, and that’s not a construct, it’s a fact about the world. That’s why Rwandans are trying to get the hell out of Rwanda, and nobody from the US is trying to do the reverse.

  5. tripinchina Says:

    I’m claiming that “development” isn’t just about “people getting more of what they want” but that it’s also a value laden word. Keeping in mind the biological connotations of the word, you can see that it’s meant to convey a natural progression whereby one country unleashes its eocnomic potential to catch up with another. The “development” ideal displays the rudiments of Modernist propaganda: the rationality of inevitable progress.

    It is of course true that Rawandans want to come to America. Perhaps we should think about the historical circumstances that led them to want to abandon their homeland. Maybe it had something to do with self-assured rich white people and their high minded ideas?

    I could continue with an impassioned response about Marx, the global division of labor, transnational corporations, etc…but really I’m less interested in yelling at you and more interested in boiling down our ongoing disagreement to its component parts, since I’m pretty sure you’ll never convince me and I’ll never convince you. (It is difficult to convince others that they are stupid, after all.)

    Here’s a start:

    1) The nature of decision making

    You say people are self-interested, rational actors where “rational” is defined as acting according to one’s own preferences. I agree with this notion — with the caveat that it’s important to look at the way that preferences are formed. What institutional, cultural, familial, societal, and psychological factors play into the forming of preferences? I say individual preferences and decisions are often path dependent, existing in relation to already existing socially enforced structures of knowledge that we are exposed to via religion, media, education, etc. To use the much-hashed-over example of smoking, we can observe that the film and ad industries have sucessfully created a link between smoking and “coolness”, individuality, masculinity etc. in people’s minds. Preferences can be and are molded by power.

    2) free trade

    You say that in conditions of perfect competition trade will lead to better outcomes all around as it allows for traders to maximize the satisfaction of their preferences. This is the credo of economics. I don’t buy it because said conditions have never and never will exist. Also (like other credos) it is easily twisted to suit political ends.

    3) the consequences of capitalism

    You say that economic growth bolstered essentially by individuals making trades will lead to better outcomes (more happiness) in the grand scheme of things. I say that the ecosystem is an important consideration in this calculus i.e. economic growth won’t make us happier in the long run since it undermines the foundations of our ecosystem.

    Anyway, yeah, I think it would be fun and informative to continue with this.

    Also, re: your quote from Mark, BBC recently greenlit a new season of Peep Show! It would be the 7th season, even though apparently the 6th season hasn’t even aired yet.

  6. William Bruntrager Says:

    1.) Fair enough, but when you start talking about altering preferences I worry about Brave New World-style dystopias. I don’t watch Star Trek, as you know, but I don’t think you correct a violation of the prime directive by violating the prime directive.

    They started airing the 6th season of Peep Show. I’ve seen the first two episodes. The second one is funnier than the first.

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