This week we carry on with the book about why some countries reach growth and development and others not. Economists and policymakers in Brazil must study hard about development and growth, because since 2011 brazil has not grown enough to overcome its weakeness and past failures and to improve the life of its population. Including, since 2011 has not grown more than its populational growth. Indeed, many economists call the past decade (2011-2020) a lost decade. And the current decade did not begin well, in 2021 and 2022, Brazil kept growing below the world average. The forecast for this year, 2023 is to keep this low growth, below the world average. This post is a summary of the introduction of the book with the title above, published in 2022 at https://www.oecd-forum.org/posts/gambling-on-development-by-stefan-dercon. The second summary is a review of the same book published at https://simonmaxwell.net/blog/gambling-on-development-why-some-countries-win-and-others-lose-by-stefan-dercon.html
When I wrote 'Gambling on Development', COVID-19 was ravaging the economies and societies of poor and rich countries alike. What would happen next was uncertain, but what was certain was that political leadership worldwide would be tested for a long time to come. Leaders in better-off countries were invariably using terms involving what had been lost, promising to "build better back". For some of the fastest-growing economies in recent times such as China and India, as well as Ethiopia, Rwanda, Bangladesh, and Ghana, the general tenor was about the need to find ways to resurrect their earlier fast growth. For many of the other countries struggling on the eve of the crisis, such as Lebanon and Nigeria, it was hardly about building back because the recent past was dismal. Instead, populations were hoping for a way out of the growth and development traps in which their countries found themselves. In fact, expectations were high, and politicians everywhere were scrambling to take the initiative. With finance from both East and West more constrained and global cooperation under duress, pressure to ensure that even the poorest countries would find economic recovery models consistent with climate goals was not making matters simpler. Meanwhile, development experts, and others were tossing out prescriptions for what developing countries should or could do. And this is what worried me and why I wrote this book. Often those espousing or considering solutions lack a basic understanding of what has been going on in recent decades. I want to move on from the endless talk and writing about what needs to be done as if there were a silver bullet that would enable countries to pursue successful development. Those of us in the development community are told to get economic policies right, commit to green growth and build institutions so you can develop, in fact, everyone seems to have their own recipe for development. And yet most of these recipes come with few instructions about how to prepare the dish, that is, how to make development happen in a practical sense. And with few explanations of why reasonably sensible steps are taken in some places but not in others. My book, then, is about how and why development has come about here and not there. Successful growth and development requires the presence of a development bargain, that is, an underlying commitment to growth and development by members of a country's political elite. China is a growth and development success story, at least in terms of moving from a desperately poor country with high levels of deprivation to one that has grown quickly and eradicated the most extreme forms of poverty. What China did not doubt worked for its take-off, Indeed, if this state-led model was to work anywhere, it was bound to be in China: no other country of any scale has exceeded its two-thousand-year history as a centralised state, with its well-oiled bureaucratic machinery and centralised taxation. So much attention is paid to the specific blueprints for development, and yet successful countries appear to have pursued a relatively diverse set of economic and other policies. Countries that have achieved their development goals have achieved macroeconomic stability, invested in infrastructure and education, managed their natural resources prudently, provided a investment environment for private sector growth, allowed the market to play a central role but with a broadly supportive state, focused on international trade. Moreover, specific programmes have helped to further reduce poverty. Successful growth and development requires the presence of a development bargain, that is, an underlying commitment to growth and development by members of a country' elite (poilitical and economical). The idea of a development bargain is not simply a restatement of good institutions matter, as in a shared set of laws, informal norms, or understandings that constrain economic or political behaviour. No doubt they matter, how could anyone disagree? In fact, several of the success stories described in my book did not necessarily have strong institutions at the time of take-off. The political and economic elite have more agency than is usually allowed by the historical approach to institutions. A development bargain is just one of many possible deals among the elite. Any stable elite bargain is not just a political deal, but also an economic deal about access to and distribution of the resources of the state and the economy. In a development bargain, this economic deal is centred around pursuing growth and development. It needs to provide the basis for peace and stability, and it determines the extent to which the state apparatus is best used in pursuit of economic progress. One thing is clear: when those in the political and economic elite move towards longer-term growth and development, they are making a bet that may not pay off. They yend to gamble that restraint and lower gains in the short term may pay off later. Vested interest are bound to be affected, and risk to their positions are obvious. This book puts politics at the centre, and argues strongly that development only happens when an elite bargain is in place, linking politicians, business leaders and intellectuals. Aid will work when such bargain is in place, and when donors take a long-term view. The book begins by examining four propositions about why countries and people are poor, and cross-referencing these against the ideas of best-seller authors like Sachs, Collier and others. The four propositions are: countries and people are poor because they are poorly endowed; and growth traps stem from failures in states and their governance. You might think that the development bargain idea is consistent with the proposition on governance. Dercon writes favourably of Acemoglu and Robinson on this topic. In writing about the ideal of Sweden, he says that 'the main lesson from Sweden is not where it has ended up, but how it got there. Sweden was already a high income country by the time the Swedish model and the idea of Sweden emerged'. The drivers of change are internal: 'the primary challenges that developing countries must overcome reside within those countries, not in global markets, global challenges are not enough to explain failure'. In practice, the evolution of a development bargain plays out differently in different places. Leadership is important. Dercon looks in detail at more than a dozen cases. He is impressed by some (China, Indonesia, Vietnam, Ethiopia), less by others (South Sudan, Malawi, D.R.Congo). The case studies make up about half the book. Finally, the global environment is not entirely irrelevant to either set of countries, the messy places or the others. Dercon argues for trade agreements which give access to develop country markets, especially for goods and services with complex supply chains.
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