Four development paradigms in the abstract

Taken purely in the abstract, here are four leading international development positions, with respect to the question of what, if anything, is the most important factor leading to economic growth in the very poor world.

2. More money, more resources, or, Sachsism. This is roughly the Sachs position, at least as reflected in what it means once translated into UN policy. Sachs' book, The End of Poverty, contains much more nuance and many more qualifications and bows in the direction of other considerations beyond simply pouring in more money. But when it comes to what it means in UN policy, it reduces with astonishing speed to simply a "more money" proposal, a top down set of central planning, bureaucratized five year plans. I was much more impressed with Sachs when I read it in his book. Once I saw what it meant in practice - Sachs to Sachsism, so to speak - it just seemed like more of the same old demand for greater resouces, period. With hefty doses of European moral sanctimony at any questioning of the model, on the one hand, and rent-seeking by international agencies wanting to stick their faces in the trough, making sure they get their cut, on the other. I don't quite understand how Sachs, promoter of post-Soviet era Big Bang privatization, morphed into a Soviet-style central planner at the UN, but there it is.

3. Institutions and governance from the inside-out. Institutions and governance at the national and subnational level to ensure the rule of law, anti-corruption, property rights, political and legal stability, the political space in which to plan long term investments. This is roughly the William Easterly position - one which emphasizes the "capillary" level of development, one institution at a time. What matters, first of all, is governance at the national level, and then reaching down through the subnational levels, and the promotion of stable bourgeois institutions of government to ensure favorable conditions for investment. Not necessarily liberal - but bourgeois. On this view, the Sachs approach pours resources into the "wholesale" level, the "arterial" level, but fails to take account of the fact that the problems lie less at the wholesale level than at the highly retail level, the "capillary" level, of development. This is a slightly different point than the institution-governance point, but they are closely related and in support of each other. And on this model - very different from UN-Sachsism - governance provides the capitalist-bourgeois shelter within which long term private direct investment can take place, to provide employment, jobs, and ultimately raise incomes. Public infrastructure is important, but the engine of growth is ultimately private investment.

I may as well say, if it is not obvious, that I think the institution-governance model is by far the better approach, based on my years doing development work through various organizations. These are the two main models for debate, Sachsism and Institutions/Governance Reform. It has large practical implications. For example, the UN occupies a very particular position in this debate, having embraced Sachsism through the Millennium Development Goals - which amount to a central planning five year plan by any other name, and, as with Soviet style five year plans, in fact no one except for credulous journalists and children ever took it seriously.

The US has mostly taken the institutions-governance view - as have, when it comes to much of the actual work that they do, national European aid agencies - and has therefore wanted to fund things very differently in order to provide incentives to good governance. This produces severe clashes between the US and the UN, and the UN's enablers, the European governments. Any time someone wants to measure global anti-poverty efforts by looking merely at how much money got shoveled out the door, which is to say, anytime anyone wants to attack US policy on development - there you find Sachsism, the UN, most of the World Bank, all agencies public and private looking to extract their transaction costs, and the editorial board of the New York Times, in full-throated scold mode.

(There are many micro-level, rent-seeking connections here just in terms of who staffs the UN agencies, made mildly notorious in the last year by the hiring practices of UNDP - few Americans and relatively more Europeans with the support of their governments for their rent-seeking activities. Part of the reflexive Euro-support for UN-Sachsism is not just ideology, but convoluted personal and national ties within international organizations that facilitate rent-seeking behaviors. Dutch government support for cronyism by Dutch nationals at UNDP in ways that would likely - at least one hopes -not be acceptable in Holland itself is a good example. It is an understudied area, and likely to remain that way.)

It also bears noting that although in practice, when it comes to funding and spending money by countries, there is a relatively clear division between the two paradigms, at the level of ideas and paradigms, it is all pretty mixed up. Sachs says lots of things in support of institutions; Easterly does not deny the importance of public infrastructure. The US supports governance reforms, but spends lots of money and emphasizes public health, universal public education, many other large scale public expenditures quite independent of governance issues. European aid agencies all understand perfectly the governance and institutional issues. The most important document on this subject in recent years is a World Bank paper that monetizes the effect of institutions of social stability and the rule of law, to show the relative differences between countries of the multiplier effect such stability has on the labor of an average individual.

I labelled the above positions (2) and (3), respectively, rather than (1) and (2), because we can usefully add two more positions as "outliers" on either end of the spectrum. If we think of development paradigms as a spectrum, then we can start with something we might call the income transfer paradigm:

(1) International income transfer welfare model. Sachsism asserts that it is about ending poverty, but says that despite the vast amounts of money spent in earlier decades with little discernible effect, massive new resources are needed for that. The other way of looking at this, of course - and one which tacitly holds sway yesterday and today among more people than one might think, if everyone were honest - says, at bottom, that nothing is actually going to end poverty as a matter of development. The best one can hope for is welfare - global welfare, income support. Forget about curing the conditions of poverty; the best you can do is globalize the national welfare state model, and engage in massive income transfers. You would do well politically to call it development or anything else to make it palatable, but in fact it is permanent support on a redistribution model. If particular places do manage to grow themselves out of poverty, great, but we do not actually have a clue how to make that happen or any reason to think that we can make this happen from the outside, so really the best one can do is humanitarian relief on a global scale, and try to create the welfare state on a global scale. In the past, theories of neo-imperialism, in which the poverty of the poor world was seen as being in zero-sum relationship to the wealth of the rich world, this welfare redistribution could be justified on the basis of justice alone. Today, the plight of the world's poorest people is that they are pretty much irrelevant to the world economy - too poor even to bother to exploit - and so the justification for income transfer is one of pure pity and charity (and persuading them, in an era of mobility, not to pick up and come collect their welfare payments in person). (My personal, anecdotal sense is that lots of Europeans really, if they were honest, hold something like this view, and regard the Americans as hopelessly naive for believing that you can actually undertake development as such by improving institutions and governance.)

But there is another outlier view, on the other side, so to speak, of the (3) institutions/ governance paradigm:

(4) Deep culture, or 'embourgeoisization' - and its failure. This is a highly simplifed version of the argument by Gregory Clark in his excellent, highly provocative new book, A Farewell to Alms. It is a highly complicated thesis about Malthusianism, the Industrial Revolution, and the whole sweep of global economic history. But it contains important implications in trying to explain why much of the world has not followed the path of the Industrial Revolution, at least in income gains. The core factor, Clark says, is inefficient use of labor, even among unskilled labor, permitting society to capitalize long term on technological innovation.

Contrary to Ricardo, returns to land have been minimal and declining in places where the Industrial Revolution took hold. Contrary to Marx, returns to capital have been less than the author of Capital might have thought. The returns of the Industrial Revolution have mostly been to labor and, remarkably - given that the engine of growth is technological innovation - most of that to unskilled labor over the whole sweep of the Industrial Revolution, not to skilled labor (although I have questions as to whether that is not changing in our increasingly winner-take-all society).

The concluding chapters of Clark's book are very pessimistic. They identify the inefficient use of labor as being the fundamental reason why some societies have income growth and others do not. Innovation in technology is the driver that brings any society at all out of the Malthusian trap; but innovation spreading worldwide is insufficient to bring all societies out of it, and indeed those that remain are, in fact, worse off than preindustrial Malthusian societies, in both absolute and (of course) relative terms. The reason for that is largely the success of modern medicine, which in a Malthusian world translates increased well being into increased population, not long term increased income.

But the heart of the pessimism does not lie in the fact that Malthusianism remains present in the developing world. It is, rather, that in order to take advantage of innovation to get beyond Malthus requires the efficient use of labor, including unskilled labor. Yet the efficient or inefficient use of labor lies in cultural factors, not in Sachsian resources and only secondarily in Easterly institutional and governance predicates. Institutional and governance failures are part of the problem, of course, but mostly as effects of larger cultural patterns in the efficiency of labor, rather than as causes. If that is so - I simplify 600 pages of text into two sentences - then institutitional and governance reform is not likely to be effective in raising growth and incomes or, more precisely, is not likely to come about because they, too, require a certain underlying, precursor culture.

That culture is more or less what, worldwide, we think of as the bourgeoisie. Moreover, Clark says simply that it is completely unclear from an economist's perspective - rationality and incentives - why some cultures are or become more efficient in the use of labor, and others do not. He means by that efficiencies and inefficiencies that are not attributable to weak institutions and poor governance as causes; he sees them as underlying weak institutions and poor governance, rather than the other way around.

(Bourgeoisie is a difficult term, and it is my interpolation of Clark's text. I mean it here in its 19th century usage, its Marxist usage as a marker of production, rather than its contemporary 'lite' usage denoting merely middle income consumer society found to some extent everywhere in the world. It would be very interesting and valuable to have a Marxist critique of Clark by Robert Brenner or Josh Cohen; the historical antipathy of Marxists to Malthus combined with a thesis that seems highly unsatisfactory for anyone who wants a forward-moving view.)

(I'd note as well that Clark's conclusion, and indeed he nearly says so directly, opens the way for sociological, social theory, and anthropological (and let me add, legal anthropology and critical theory as well, although I'll try to say something about that later) evaluations of globalization and economic growth, because he freely admits that rationalist economics does not seem to be able to answer the fundamentally social question of why some societies efficiently utilize labor to income growth and others do not. It is one of the few relevant openings for such areas as social theory and critical theory in what is otherwise the relentless - because, let's be clear, largely successful - colonization by the economics of rational incentives and rational choice theory. There is a role here for social theory beyond rationalist economics, and it is one of the few places in which it is so, and perhaps more remarkable, that an economist admits this is so. )

The implication of Clark's culture-critique of development is that neither Sachsism nor governance reform will necessarily have much impact on the neo-Malthusian societies of poverty in the world today. As a matter of policy, then, what? One can do nothing, opt for welfarist income transfer on a humanitarian basis, or come up with something else. The question is what that something else might be, which will be the subject of a later post. Clark's concluding chapter, however, does not leave much as a positive development program.

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Seen from the standpoint of a taxonomy of development paradigms, we now have four programmes:

(1) Income transfer-global welfarism
(2) Sachsism
(3) Institutional-governance reform
(4) Bourgeois culture and its development - or failure

The 'outer' two, one and four, could be seen as skeptical-of-development paradigms; it might be better to call this the two-and-two taxonomy.

We could add many more, of course, some of which - like autarky - have been broadly discredited, or theories of neo-imperialism, which always seem to live to see another day, mostly because they always provide an avenue for blaming the rich world for the poverty of the poor world. I'll try to add some of those later.

But it seems to me that these four - the two interior paradigms seeing the way forward for actual growth, and the two exterior paradigms skeptically questioning whether or how much - capture the main debate today.

(ps. There is a good collection of essays by leading economists, development experts, etc., over at the Templeton Foundation website on directions for international development today. They are all far less pessmistic than Clark's analysis would suggest.)

(pps. Robert Samuelson has a column that does a reasonably good job of summing up Clark's complicated book, in the Washington Post, here. I note it provoked a irritated letter to the editor from an anthropologist protesting that all the bourgeois virtues of income growth can be found in all sorts of different places in the world. Possibly this is so; you would be hesitant to think that a demonstrated factual statement given the a priori ideological vehemence of the letter writer. But this is one of the problems with anthropology today. True of course that anthropology of yesterday was notable for celebrating white European cultural superiority; today's equally ideological anthropology engages much of the time in either showing that, when it comes to good things, all cultures are equally filled with them or, alternatively, that the West is filled with bad things. None of this is going to do much, however, to convince those of who stand outside anthropology's sternly engage political and social prior commitments of the value of its supposed empiricism. Many works of anthropology I read today are either political tracts or else little more than development work, committed to a paradigm in development work, whereas what we need is empirical research into the connections between forms of development work and its actual function and results in different cultures and societies; anthropology dwindled into engagement in development loses much ability to help see a picture beyond a particular development paradigm.)