Thursday, 20 May 2010

Easterly Compares Apples with Oranges

I heard Bill Easterly at the LSE last night, giving a talk in which he argued that "we do not know how to solve global poverty, and that is a good thing". His basic proposition is that decades of development economics have not served up any firm facts about economic growth. We are still, basically, in the dark. We are also plagued by problems of causality: does democracy improve economic growth, or the other way round?

Easterly is funny, I will give him that. And I like troublemakers, generally speaking. I think it is also important to make a case against Big Pushers like Sachs. But I have a real problem with the degree of generality on which Easterly bases his logic

He seems to be saying that we cannot find global, eternal rules for economic growth, and that, taking his cue from Hayak, growth comes when people solve the million little problems they are confronted with rather than being told to follow this or that formula. But actually, we know a great deal about growth when we look at development at a country or regional level. We know, for instance, that if it takes you 40 days to get goods out of customs you are unlikely to have a booming trade relationship with your neighbours. We also know that those sudden bursts of entrepreneurial activity, like Kenya's cut flowers trade with Europe, are dependent upon deliberate, conscious policies. The entrepreneurism may have been surprising and not amenable to planning, but the enabling trade conditions, in the form of the uniquely structured EU-ACP trade relationship, were deliberate. Entrepreneurism is not quite as anarchic as Easterly would have us believe. He also pointed out the absurdity of 'planning' markets, as part of a wider critique of the idea of development planning as a whole. But curiously, he is rather arguing against success. China's approach to markets has been highly conscious and highly eclectic. It adapts, and changes, but most of what China does has been done through a series of planning committees at the highest political level. Look back at all of the documents published, all of the forthcoming plans and then compare them to reality. Not an identical fit, but by no means anarchic. Look to South Korea, and how the government set out a vision for industry to move into IT, connectivity and related electronics in the 1990s to later become the nation with the fastest broadband and, in Samsung, one of the biggest players in that sector. Easterly is forced to put a lot of things down to coincidence.

By the same measure, he says that post-conflict reconstruction hasn't worked very well overall. "It sort of worked in Sierra Leone and Liberia, but not in Afghanistan or Iraq". But how can you compare Sierra Leone with Iraq or Afghanistan? These are completely different kinds of conflict, with completely different military interventions - for one thing, intervention in Sierra Leone - which was a civil conflict - took place after the failure of the UN to keep the peace. Intervention in Iraq followed an invasion made without the authorisation of the UN, and was tangled up with a whole host of geopolitical specificities stretching back a century. The fact that one intervention succeeded and the other one failed doesn't mean that each cancels out the other end leaves us with no conclusion. Surely, there are pretty clear reasons why it worked in Sierra Leone and has worked less well so far in Iraq or Afghanistan. Easterly wants us to look at all instances of military intervention together when we are evaluating its efficacy, just like he wants us to look at all instances of industrial policy. He argues this because, when we do that, we see no clear pattern. But surely, we should be comparing military interventions that are basically comparable, just like we should be comparing industrial policies that are comparable. How can you put the industrial policy of Nigeria alongside that of South Korea?

Finally, Easterly sought to categorise autocracy and democracy, and to argue against the use of the former in development. But the autocracy of Lenin is of a completely different order to that of the South Korean government, or indeed of Deng Xiaoping. I think it would be more accurate to think of a political continuum. Democratic states can suddenly spasm into autocracy, as occurs when there is a terrorist 'threat'. Autocratic nations can loosen into democracy, and then revert back to autocracy (witness Tiananmen Square). So his attempt to argue against autocracy in development is naive because autocracy is not a fixed state, and neither is democracy, and nations oscillate between the 2 to varying degrees.

Most frustrating of all, Easterly says the success of East Asia was not because of benevolent autocrats, but could well have been from 'other factors'. He doesn't go into any details as to what those factors were, just suggesting one - the role of Chinese merchants. He doesn't explain what they were, or how they bear responsibility for the rise of the East Asian nations. So he's basically saying no one has yet been able to explain the rise of East Asia, there were probably reasons for it but he doesn't really know what they are and neither does anyone else. Inspiring stuff.