Friday, 22 August 2014

Understanding Growth and Development

Understanding Growth and Development
Fundamentally what has preoccupied most of economic thinking over the centuries has been the question “how can living-standards be improved for most of humanity”. Answers have varied but the quest remains the same.
In some sense this has been an eternal struggle for mankind. Most religions have been based on giving us order so that human welfare can be maximized. Utopian philosophers have also developed visions on how to organize society so that people can live better.
This very human quest also fires up debates and people tend to be vehement in defending their version of utopia or faith without even feeling that they are merely preaching. Everyone seems to know how people’s lot can improve if only their prescription were followed.
The development community has also fallen prey to this prescriptive approach.  Experts pretend to have solutions which if followed will lead to riches not only created but well distributed among the citizens of a country. We are frequently told that all that is needed is “Implementation! Implementation! Implementation!” Thus these experts set up all manner of monitoring mechanisms such as the Millennium Development Goals to measure and make development happen.
Yet 70 years of expert development policy, aid funding and many consultants, plans and monitoring, development has eluded a large number of poor countries.  Why is that?
Donors and experts have an easy answer: their prescriptions were not well implemented. Often this is summed up in a phrase “political will”!  So they have an easy out. If it happens experts and their funding agencies can claim victory. If they have it wrong, blame politics and lack of implementation.  
For decades expert advice has been based on developing models drawn from ‘bestpractice drawn from other experiences. Thus all countries had worked on similar policies and built the same model of economic policymaking as elsewhere.Moreover since prescriptions were well known, the government was the best implementing agency. The approach was and remains top down. The solutions come from mostly from foreign experts with ample funding. Implementing agencies are created, Land Cruisers bought, consultants come and go and there is great expectation of development. Yet the results are less than inspiring.
What is wrong with this model? Basically, the ideological model and that of donor experts assumes that society and development is an engineering problem. All we have to do it plan properly and if everyone lives according to plan good things will happen. Development will be delivered ‘top down’ to a passive population.
What they forgot is that engineers deal with inert materials while in social economic problems we deal with self-willed, individualistic human beings. People have plans, ambitions and desires, individually and collectively. They will not easily change their plans merely because the consultant said so.
Most serious economists have moved away from this approach. Increasingly there is a realization that the economy is shaped by a series of individual and group decisions. In this view the economy is built “bottom up”. It is the actions of many people in their formation of enterprises—profit and nonprofit—that generates productivity, products, activity and trade and exchange. Development then is a byproduct of all these individual efforts. It is not the mere sum of these efforts but could be larger than these efforts as public and community good creation and innovation and entrepreneurship increase the menu of choices and discover new technology.
In other words, development emerges from the many transactions undertaken by people individually or networks. Planning and government efforts that are based on an assumption that the expert knows where to invest and what people should do are bound to fail because the command control method does not work in a ‘bottom-up’ complex system.
Even clearly well motivated plans to send kids to school come unglued despite all manner of goal setting and quantification because family decisions are more complex than the simplistic assumptions of planners.
Development is also not uniform across the country contrary to planning wishes.Local issues, local culture and local community, social and human capital plays a critical role in developing local welfare. Planners try their best even out these difference often at huge cost but with little success.