Of Subservient Peasants and Economic Booms

Here is a sentence I never thought I would see in 2013:

Peasants, many of whom still long for absolute rule, remain remarkably subservient.

That’s from a new bit in Foreign Affairs called “Booming Bhutan,” part of a five-part series looking at the fastest-growing economies in the world in 2012.

I know only the vaguest outlines of Bhutan’s recent history, but I’m instantly suspicious of any claim that a large group of people longs for absolutism. As the article describes, Bhutan has experienced a lot of political and socioeconomic disruptions in the past decade, and many of those changes have directly not benefited the small farmers who comprise a substantial share of the country’s population:

Karga Lama, a journalist who has covered Bhutan, wrote to me that he wonders whether “people at the grassroots [are] really enjoying and benefitting from the process of democracy, or [if] the few people at the upper echelon of political structure [are] taking the cream.” Indeed, 40 percent of the population are still subsistence farmers, crowded on the country’s small portion of arable land. Seeking better opportunities, many young Bhutanese are moving to Thimpu, the capital, but few are finding gainful employment. Cheaply constructed commercial and residential buildings have been erected to house new inhabitants and the city is losing its unique architectural character. Traffic jams and petty crimes have also become more frequent.

I read that passage and I think: Maybe it’s not “absolute rule” these “peasants” long for but the relative assurance of the life that came before these developmental push of the past 10 years. I think of pensioners in the former Soviet Union who are often described as yearning for tyranny because they vote for the Communist Party and talk wistfully about the benefits they enjoyed in the old days. A distaste for uncertainty about one’s ability to produce or afford food and shelter should not be conflated with an affirmation of all aspects of an old order that predictably delivered those things. Maybe it isn’t absolutism these farmers want so much as freedom from the intrusions of the developmental state those “few people at the upper echelon of political structure” are attempting to construct for their own aggrandizement.

More generally, I wonder about the premise of the series of which this essay is a part. You see this kind of “best practices” logic a lot in writing about development—find the cases that are doing something you’d like, see what’s making them tick so you can try to replicate or emulate it elsewhere. In the case of economic growth, though, this approach is almost always going to be misleading. Economic growth is measured as a percentage, and as Charles Wheelan writes in Naked Statistics,

Percentages don’t lie—but they can exaggerate. One way to make growth look explosive is to use percentage change to describe some change relative to a very low starting point.

The countries at the top of the IMF’s 2012 list nicely illustrate this principle in action. According to the IMF, the five fastest-growing economies in 2012 were Sao Tome and Principe, South Sudan, Guinea, Bhutan, and Mongolia. What does that set of cases tell us about the causes of exceptionally rapid economic growth? Just start from a low baseline—in other words, be poor—and possess copious natural resources that are currently in high demand! (In Bhutan’s case, that natural resource is hydropower,which it sells to its power-hungry neighbor, India). Or, if you’re not especially poor now, you can always knock output down and set yourself up for a nice rebound effect with a civil war and state collapse, like #8 Libya did. Lessons learned, indeed.

Development as Ideology

In a blog post yesterday, Duke economist Marc Bellemare responded to a recent contrarian piece on Foreign Policy‘s Democracy Lab about development trends in Africa. In the FP essay, Rick Rowden argued that recent claims of “Africa rising” ring hollow because the expansions of GDP and trade on which those claims are based aren’t driven by industrialization. Bellemare’s having none of it:

Not everyone agrees as to what “development” means, but for most economists, development means increased standards of living, which are best measured via economic statistics such as gross domestic product (GDP) per capita, which may or may not reflect growth in the manufacturing and services sector of the economy.

I think Marc’s right that it’s more useful to define (human social) development in ways that are agnostic of specific causes, and that many professional economists nowadays think in those terms. At the same time, I get a little uneasy whenever development is linked tightly to GDP growth. Being acquainted with Marc, I suspect that his aim in doing so is simply to make empirical analysis of development more tractable. Still, it’s also true that there’s a powerful strain of technocratic thinking in some quarters of economics, one that prioritizes growth over all other things, and this myopia can sometimes become pernicious. In a recent piece for The Atlantic, for example, Armin Rosen accuses Jeffrey Sachs, a leading candidate for president of the World Bank not so long ago, of turning a blind eye toward the human-rights violations of authoritarian leaders in his pursuit of improved standards of living in Africa and elsewhere. The technocratic mindset was also on full display in a now-failed plan for charter cities in Honduras pushed by economist Paul Romer, and it’s a recurring theme in the columns of Thomas Friedman, whom development professionals love to hate.

In fact, even the driest definitions of human social development will inevitably carry a strong whiff of ideology, because the standards we set and the ways we measure progress toward them shape our behavior. Any definition of development implicitly or explicitly prioritizes some vision of the good life over others, and those visions generally entail some specific ideas about how to get there. The choice to include or expunge industrialization from a definition of “development,” for example, can influence what kinds of policies governments adopt in the pursuit or distribution of aid and loans tied to those metrics, and those policies can have vast consequences.

This is not a concern that’s unique to economics. In American political science, at least, when someone talks about “development,” they often mean to invoke a cluster of economic, social, and political changes that Seymour Martin Lipset called “modernization.” That cluster includes the improvements in standards of living that Bellemare emphasizes, but it also includes the industrialization Rowden spotlights, along with other things like urbanization, education, the spread of liberal values, and, perhaps most important, the emergence of a specific form of political democracy. In short, to “develop” was to follow the specific trail of socioeconomic transformation from primitivism into modernity that was blazed by Europe in the 19th and 20th centuries, and that emphasis on mimicry has profoundly affected the ways the U.S. and Europe have tried to promote development.

When Lipset was writing, modernization theory’s chief intellectual and political competitor was Marxism. For Marxist theorists, Europe wasn’t a model to emulate; it was a bastion of economic inequality and plutocratic “democracy” that would eventually and inevitably collapse under the weight of its internal contradictions. Industrialization was a critical feature of capitalism’s late stages that enabled maximal exploitation of labor by capital. It was both bad and good—bad because of the depths of exploitation it entailed, but good because it meant the end was nigh.

Of course, it was the USSR and its European client regimes that actually collapsed, and in the two decades since, almost all of the purportedly communist states left in the world have abandoned their commitment to Marxism and adopted variations on the capitalist theme instead. That turn in international political economy has hardly killed class-conscious theory, however. Although the strict Hegelian version of Marxism is rarely seen nowadays, the concern with economic inequality and its political consequences remains a central theme in leftist politics. Flip this concern around, and we arrive at yet another definition of development. For many leftists today, development is about the spread of social justice, and the essence of social justice is not wealth but fairness. Industrialization, electoral democracy, and economic expansion are not things to be valued in themselves but means (or, in some cases, obstacles) to these deeper ends.

Economic growth, modernization, and social justice are probably the three most prominent conceptualizations of development today, but they certainly aren’t the only ones. You might not think of libertarianism as a theory of development, but in an important sense it is. For libertarians, the good life is understood as one in which individuals are free to do as they please within only the sparest of constraints. Here again, industry, democracy, and growth are all beside the point. Liberty is the goal, and social and political changes that expand freedom can be understood as developmental gains. This idea finds one of its sharpest expressions in the Heritage Foundation’s Index of Economic Freedom, which that organization deliberately presents as an alternative to conventional measures focused on specific outcomes like poverty and education rates.

All of which is a very long-winded reminder that no conceptualization of development can exist without an ideological foundation. That would be like a shadow without a light source, a hole when there is no surface. To talk about “development” is to set goals for human social improvement, and the choices we make in setting those goals are inherently normative. We can’t escape this circle, so we might as well be explicit about it.

PS. Yes, I’m aware this has all been said a thousand times before, and often better. I decided to write the post anyway because it helped me organize some of my own thinking on the subject, and because the occasional reminder still can’t hurt.

Strong Evidence that Donors Use Development Assistance to (Try to) Influence Elections

Researchers have scrutinized foreign aid’s effects on poverty and growth, but anecdotal evidence suggests that donors often use aid for other ends. We test whether donors use bilateral aid to influence elections in developing countries. We find that recipient country administrations closely aligned with a donor receive more aid during election years, while those less aligned receive less. Consistent with our interpretation, this effect holds only in competitive elections, is absent in U.S. aid flows to non-government entities, and is driven by bilateral alignment rather than incumbent characteristics.

That’s the abstract from an important new paper by UC-San Diego economists Michael Faye and Paul Niehaus, forthcoming in American Economic Review. Technically, official development aid (ODA) is supposed to be about promoting economic development and improving popular welfare. Nevertheless, Faye and Niehaus show a strong link between election cycles and aid flows that fits what we would expect if aid were also being used for political ends. In cases where elections are competitive, donors crank up the aid to friendly governments facing tough elections while reducing aid to hostile ones. In cases where elections aren’t competitive, aid flows don’t vary much around elections (why bother, right?). Meanwhile, assistance to non-governmental organizations and opposition groups from the U.S.’s National Endowment for Democracy (NED) follows the same cycles, but the pattern is reversed (albeit not statistically significant): assistance to opposition groups goes down around election time in countries with friendlier governments, and it goes up around election time in countries with more hostile governments.

All in all, it’s a pretty compelling set of results that should put another big dent in the “development aid isn’t political” narrative.

Thanks to NYU’s Cyrus Samii for pointing this paper out on Twitter.

Measuring and Visualizing Economic Complexity

Modern societies can amass large amounts of productive knowledge because they distribute bits and pieces of it among its many members. But to make use of it, this knowledge has to be put back together through organizations and markets. Thus, individual specialization begets diversity at the national and global level. Our most prosperous modern societies are wiser, not because their citizens are individually brilliant, but because these societies hold a diversity of knowhow and because they are able to recombine it to create a larger variety of smarter and better products.

That’s from the preface to The Atlas of Economic Complexity, an intriguing new piece of mind- and eye candy. According to its authors, the atlas…

attempts to measure the amount of productive knowledge that each country holds. Our measure of productive knowledge can account for the enormous income differences between the nations of the world and has the capacity to predict the rate at which countries will grow. In fact, it is much more predictive than other well-known development indicators, such as those that attempt to measure competitiveness, governance and education.

I can’t get the online visualization tool to work properly, but the country charts in the downloadable PDF (warning: 75MB) nicely show what the data can do.

More frustrating, I can’t find a way to access the underlying data. I suspect that economic complexity is more tightly associated with risks of violent conflict and processes of democratization than per capita income is, and I suspect that the relationship between economic complexity and economic growth is conditioned by the design of a country’s political institutions. The data in the atlas could be used to test both of those conjectures, but you’d actually need the data to do that. I’ll try writing the authors; in the meantime, if any readers find a link I’m overlooking, please share in a comment.

PS. Here’s a nice blog post from Aid on the Edge of Chaos that goes into much more detail on what the atlas measures and how it might be useful.

Raising the Human-Rights Bar for Development Assistance…But Will It Make a Difference?

The U.S.’s Millennium Challenge Corporation (MCC) has raised the bar for countries seeking its development-assistance grants in 2012 by adopting stricter standards for civil liberties and political rights. The intentions behind this change are clear and laudable, but larger weaknesses in the MCC program and the increased availability of unconditional aid from other sources lead me to expect that this change’s impact on political development in the targeted countries will be negligible.

For readers who aren’t aid wonks, some background is in order. The MCC is a U.S. government-funded but independently managed aid agency that aims to help its recipients reduce poverty by funding programs that are meant to boost economic growth. The MCC was established by President Bush in 2004, but it was the brain child of Stanford international-relations professor Stephen Krasner, who went on to serve as director of the State Department’s Policy Planning Staff for part of Bush’s second term.

The big idea behind the MCC was to give poor countries stronger incentive to improve their economic and political governance by making a big, new pot of aid funding available, but making access to that pot conditional on countries’ performance on a basket of governance indicators. In theory, it’s like setting up a smoothie bar  in a high-school cafeteria and then telling the hungry students they’ll get free smoothies, but only if they’ve done well enough on their report cards. If they’re hungry enough (and like smoothies enough), anticipation of that reward should encourage them to improve their schoolwork, and everyone ends up better off for it.

To be eligible for MCC grants, countries a) have to be relatively poor (“low income” or “low middle income” in World Bank parlance, meaning they have an annual gross national income per capita less than $3,975); and b) have to satisfy a battery of selection criteria across three thematic groups: “economic freedom,” “investing in people,” and “ruling justly.” The MCC spells out its criteria in painstaking detail in an annual report, identifies candidate countries based on income, issues “report cards” on those countries’ governance practices, and then, finally, announces which countries have qualified for its assistance.

The big change announced by the MCC in 2011 for fiscal-year 2012 comes in the way it handles the “ruling justly” category. In the past, countries could qualify by scoring above the median on “controlling corruption” and any two of the five other indicators in that bin: political rights, civil liberties, voice and accountability, government effectiveness, and rule of law. Starting in fiscal-year 2012, however, countries have to score above a threshold on two of those six “ruling justly” indicators: still “controlling corruption,” but now either “political rights” and “civil liberties” as well.

This change is potentially significant. Of the six “ruling justly” indicators, only three are directly indicative of democratization: political rights, civil liberties, and voice and accountability. This meant that, under the old rules, highly undemocratic countries could qualify for MCC grants, as long as they were well administered relative to their low-income peers. Under the new rules, however, countries have to be at least moderately liberalized or democratized to get through the door. (For those of you who are familiar with the Freedom House political rights and civil liberties indices used to measure these dimensions, the minima for 2012 are 4s on both scales.)

To see what this rule change might mean in the real world, I poked around the MCC’s data in search of countries that would have cleared the “ruling justly” hurdle under the old system but fall short under the new one. Instead of trying to determine overall eligibility, which is pretty complicated and sometimes involves additional considerations, I just looked at the “ruling justly” category. This unofficial and possibly error-prone exercise identified the following four countries as ones that would have made the old cut but fail to make the new one:

  • Djibouti
  • Ethiopia
  • Rwanda
  • Vietnam

That list nicely reflects the intentions behind the 2012 rule change. I know little about Djibouti, but Rwanda and Vietnam readily spring to mind as countries that often get lauded for their technocratic performance in spite of their clear failings on human rights and democracy. I would have guessed Ethiopia was more of a mixed bag, but it just barely tops the peer-group thresholds for “control of corruption” and “rule of law” while easily clearing the bar on “government effectiveness.”

Of course, the big question is whether or not MCC’s scoring change will actually help motivate the governments of those four countries to initiate political reforms they otherwise would not have taken. On that count, I’m hopeful but pessimistic. Seven years after its creation, the MCC isn’t having the transformative effects its designers intended, and that pattern isn’t likely to change any time soon.

The basic problem is that the MCC’s pot of money is too small to have the kind of “transformative” effect on the vast political economy of aid that its creators intended.  In part, that’s a function of supply. As originally envisioned, the MCC’s Millennium Challenge Account was supposed to have an annual budget of $5 billion. In fact, the budget has hovered closer to $1 billion per year, thanks to smaller requests from the presidents and smaller allocations from Congress. Given the current state of the federal government’s finances and the domestic politics of foreign aid, it’s hard to imagine that budget growing much larger in the next several years.

Budget woes aside, any transformative effect the MCC might have is also impeded by limited demand. Poor countries seeking development assistance have other options, and most of those other options don’t come with political strings attached. Faced with the choice between adopting political reforms that might threaten their grip on power in order to pursue a modest-sized grant from the MCC or seeking assistance elsewhere, it’s hard to imagine many authoritarian rulers opting for the former. In the 1990s and early 2000s, when the U.S. and Europe were pretty much the only game in town for development assistance, the MCC’s conditional offers might have been more tempting. In recent years, though, rapid growth in foreign assistance from China in particular has expanded the pool of available funds, thereby diluting the power of the MCC’s medicine.

In sum, while I applaud the MCC for making this change, I doubt it will make much difference. They’re trying to do the right thing, but it’s hard to move the world with a short lever and a shaky fulcrum.

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