This is part of my effort to write my way through a number of development-focused books, starting with The White Man’s Burden. Previous chapter: one
Chapter Two – The Legend of the Big Push
In the 1950s, economist Paul Rosenstein-Rodan popularized the notion of a “Big Push” solution to global poverty: that if only the West gave a sufficient financial/institutional kick to developing countries, those countries could escape the “poverty trap” once and for all. The majority of this chapter involves Easterly arguing that poverty traps don’t exist, and that the “Big Push” has failed.
He then makes the case that it is actually bad government that is to blame for low levels of growth in under-performing economies:
“When we control both for initial poverty and for bad government, it is bad government that explains the slower growth. We cannot statistically discern any effect of initial poverty on subsequent growth once we control for bad government.”
Before moving on to the substantive points, two small criticisms. Early on in the chapter, Easterly compares poor countries that received below-average amounts foreign aid with those that received above-average amounts of aid, and found that
“countries with below-average aid had the same growth rate as countries with above-average foreign aid. Poor countries without aid had no trouble having positive growth.” [emphasis mine]
The conclusion doesn’t follow from the data he described; many of the “below-average” countries would still be receiving a great deal of aid. Further, there are myriad confounding variables that could skew the results. If the West provided the most aid to the “worst-offs,” then it isn’t unreasonable to see why they may have disappointing GDP growth: structural factors could keep growth low no matter how much money is poured in, or perhaps the amount of aid helped the country grow at 1%, rather than the -2% it would have faced otherwise.
Next, he makes the case that poor countries weren’t in a poverty trap because
“average growth of the poorest during 1950-1975 was still a very healthy 1.9 percent per year (roughly the same as the long-run growth rate of the American economy, for example).”
But is a poor country growing at 1.9% per year actually “healthy?” Think of it this way: if China had grown at 1.9% a year for the past 30 years, would we believe that it was doing well economically or that it was doing poorly? We’d say it was “failing to thrive” because it’s low capital stock (broadly, their “factors of production” – labor, land, and capital) predicts that it should have a high growth rate relative to countries with a higher capital stock (like America).
For the sake of discussion, let’s assume that Easterly’s data and analysis are accurate. As I read through the arguments, a few thoughts came to mind:
- The term “poverty trap” doesn’t seem to have a specific definition. This is frustrating, as it devalues the arguments made by Easterly and others; they can just talk past each other. By framing the discussion around a specific set of criteria – say, countries that are growing much slower than their factors of production would suggest– a more thorough conversation could possibly emerge
- If bad government destroys growth, and we decide growth is good and therefore should be promoted, then one of the right questions to ask may be “how can the West help improve governance (if at all)?” The history of Western meddling is long and littered with unintended consequences (see: Afghanistan, Pakistan, Iraq, Iran, half of South America, most of Africa, etc.) but it seems fatalistic to assume that there is no proper role other than to sit and watch
- A Big Push may fail to remove countries from poverty, but that says nothing about the effects of slow, sustained progress over time. When we fail to remember that the West took hundreds of years to industrialize and create long-term, steady growth, we put unreasonably high expectations on what aid can actually accomplish
- Aid that is used to finance consumption – and not investment – is still beneficial! It saves lives. Easterly acknowledges this, but it’s worth remembering
None of the evidence (yet) really supports the contention that aid is destructive, or that aid delivered in the appropriate manner is ineffectual. As I’m reading, I’m finding that Easterly’s reputation for skepticism is less warranted than I originally understood (in a good way); his preference for targeted interventions seems reasonable and not mutually exclusive with significant aid efforts. To support his view, he cites studies that “point to piecemeal ways to move toward prosperity, such as keeping roads in good condition or pursuing good monetary policies to keep inflation low – not big answers or comprehensive reforms,” which seems to open the door to a larger role for aid. Roads in good condition are less useful if the population is in poor health or illiterate, so perhaps in addition to roads, aid could fund community health workers and schools in rural villages – inching closer to what some may describe as a “comprehensive reform.”
All in all, an interesting chapter, though I came away from it unsettled; the premises seem sound (excluding the two I brought up above) but I don’t know if I agree that they support the conclusion. Will be interesting to see how my views evolve as I continue learning.