Economic Development Is Easy

 

 

Economic development is easy.

So is getting depressed about global poverty.

Go to a poor nation and you see enormous slums.

You see open sewers.

You seeing people with no legs begging in the street.

You see whole families making their entire family income for the week selling popcorn at thirty cents a bag.

 

We think of global poverty and we think about this:

 

 

In reality, when we think about global poverty, we ought to be thinking about this:

 

 

 

 

 

 

 

 

Statistics are a lot more boring than pictures. But the statistics tell an important story.

 

The World Has Been Getting Richer and Richer For the Last 150 Years.

This Is Not Just the Rich Nations.

It is the Poor Nations Too.

Africa, Asia and Latin America Have Been Getting Richer.

 

    

Economists were very worried about Africa because it had a period of stagnation and decline between 1980 and 2000. But since 2016, even Africa has been growing at a steady rate, although admittedly from a low base.

    

If the graph were extended to 1500 or to 0 AD, it would show an even more consistent pattern of economic growth, although growth rates have been higher since the Industrial Revolution.

 

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I trot out these development statistics to make a point.

 

Economic Growth Is Normal, Not Abnormal

    

Yes, there is nothing absolutely guaranteed about future economic growth. There is an essay on this website on that very point. But stagnation is rare and so is catastrophic decline. Under most conditions, most nations grow. Under most conditions, countries get richer. Under most conditions, poverty is reduced.

    

This does not mean relief for all of the poor in the world is going to happen immediately. Economic development is slow. Most of today’s poor will only see modest improvements in their prospects. Most of the rich countries in the world still have some poverty. But the overall long-term trends are positive.

 

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Why do we think economic development is hard?

    

This is because we have inflated ideas about what it takes to produce economic development – and by those high standards, most of the poor nations in the world do not ‘have what it takes’.

   

We tend to think that every country that develops has to develop the same way that the economic superpowers of the world developed. They have to be like Britain in the Industrial Revolution. They have to be like the United States in the Automobile Age. They have to be like Germany when Germany was building its late nineteenth century military superstate.

    

All of these countries had proprietary technology. All of these countries were superior to most of the world in education, in science and in engineering. They used that technological domination to charge the rest of the world monopoly prices. They used those monopoly prices to get rich.

    

If you are Malawi or Rwanda or Nepal, you ask yourself if you could possibly get the same technological dominance that Britain or the United States or Germany had. The obvious answer is no.

    

Everyone gets depressed.

    

Alternatively, you look at the East Asians who have led the world in rapid economic development. Japan, South Korea and China all had super technocratic whiz-kid governments that did amazing economic planning and got rich.

    

You look at the rest of the world, where government corruption is rampant and the quality of the expertise in public service is at best an on-again off-again thing. Could Laos, or Paraguay or Tonga rise to the technical, uncorruptable superlativeness of the East Asian Tigers? The obvious answer is no.

    

Everyone gets depressed.

    

The fallacy here is thinking that everyone has to get an A+++++ in Economic Development in order to pass the course. In fact, you can reduce poverty and produce economic growth perfectly well while getting a C- on the Development Final Exam.

    

Nearly every economy in the world increases its GDP every year. (Except for the ones having civil wars).

    

Nearly every economy in the world increases its standard of living every year. (Except for the ones having civil wars).

    

You want to make your country richer and reduce the level of poverty?

    

Don’t have a civil war!

 

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Note that the currently rich countries did not have any fantastic technological advantages or super-humanly competent governments either. What were the great inventions that came out of Austria? Or Finland? (Nokia phones only came out after Finland was already developed.) What is New Zealand’s great technological monopoly that the world pays a fortune to be able to use?

    

Likewise, while all of these countries were well governed enough, there were no dramatic bursts of growth that were unprecedented in economic history. None of them had an economic development plan that was particularly remarkable. None of the histories of developmentalist states (states with superlative records of economic planning) ever refer to these countries as great developmentalists.

    

Essentially most of the currently wealthy nations grew by making simple consumer goods and selling them to themselves. Some exported agriculture of one kind or another. New Zealand exported wool. Finland exported lumber. Their industrialists were not world-beaters who were to create great global monopolies. They made shoes and scarves and sold them to their own populations. They made canned soup and beer and sold it to their own populations. They printed newspapers to report on local events. The newspapers sold ads for local companies selling shoes or scarves or canned soup or beer.

    

There is no reason that Jamaicans or Malawians cannot make shoes or scarves or canned soup or beer. You do enough of that and the economy grows.

   

Yes, there are ways the economy can be made to grow faster or slower. Macro-economists actually do useful jobs and make recommendations on government policy that can be helpful. You can have credit programs that are better or worse. And yes, education matters – the more of it, the better.

    

But economic growth is a normal condition, not an abnormal condition.

    

Now if we could do something about all those civil wars ….