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Truth is the safest lie: A reassessment of development economics


Truth is the safest lie: A reassessment of development economics

Truth is the safest lie: A reassessment of development economics
Photo credit: Africa Development Promise

Most African politicians have, on average, been bad leaders. But the failure of economic development is primarily due to the pervasiveness of bad ideas, which translate into bad advice by influential economists – those in the position to shape or influence policymaking.

Poverty and underemployment in Africa today (at a time when resources of all kinds and opportunities have never been so numerous and so cheaply available everywhere) primarily reflect the imagination deficit among development economists – not the incompetence of politicians. After all, politicians everywhere do what they are supposed to: politics, a selfish and often dreadful sport.

It is the responsibility of economists to put great ideas on the table and find ways to positively influence the public discourse and the policies that are implemented. Retreating to their ivory towers, and complaining that political leaders do not solicit their wisdom and knowledge, is an easy escape route. It does not absolve them from their duty as elites, intellectuals, social leaders, and minority members of a community in which they represent what W.E.B. Du Bois called “the talented tenth.” They do not seem to fully grasp the burden of the responsibility that comes with being highly educated in a society that craves for knowledge and learning.

To repeat: What exactly happened to Ghana and to other African and developing countries? In my view, two basic dynamics negatively reinforced each other over decades. First, national leaders gained political power, often in unconventional ways, and spent most of their energy either trying to replicate the governance models from colonial times, or to imitate policy frameworks in vogue in advanced countries but inappropriate for theirs. Then, they quickly ended up succumbing to the intoxicating luster of authority and struggling to maintain their grip on the levers of state political and financial power. Many of them failed to understand that the most effective way to remain at the top and retain control was to deliver quick, tangible results, and to improve the lives of their people. Most of the time, they consistently picked and implemented bad ideas, often from well-meaning economists and development experts.

The combination of the two processes gradually made things worse and worse. The main results were economic failures, massive unemployment, poverty, despair, distorted belief systems, social and political chaos, and the generalization of witchcraft.

Frustrated by the course of events, many good economists gave up – in fact, the field of development economics was pushed to the fringes of the discipline for much of the sixties and seventies. Others opted for intellectual laziness, spending their time in intellectual mimicry, and simply transferring whatever concepts or theories were in fashion in Latin America and Asia to their analyses of African countries. It is not surprising that a lot of development economics has been dominated by the identification of the sins committed and the search for who is to blame.

The good news is that time has gone by. Lessons have been learned. Spectacular successes such as the rise of China, Taiwan-China, Singapore, South Korea, Dubai, and the United Arab Emirates, and unfolding ongoing successes in Mauritius, or Vietnam, have shed light on what should be done or avoided. Despite many failed experiments, economic history now provides enough good stories that do not have to be copied but that can certainly inspire both researchers and policymakers. There are possibilities of redemption for political leaders and development economists in Ghana and elsewhere.

This note summarizes some of the key elements of the knowledge accumulated in development economics. It is obviously biased toward my own work with Justin Yifu Lin (under the label New Structural Economics), and Joseph Stiglitz (on the rethinking of industrial policy) – a selected reading list is provided in the references. Section 2 challenges the dominant paradigms of development thinking, from a fundamental, philosophical perspective. Section 3 sums up the key recommendations for a more appropriate approach. Section 4 offers concluding thoughts.

Economics as a Prayer: A Critique

The wrong assumptions and preconditions

Choosing the wrong model or reference economy to copy carries some heavy implications and leads to risky optical errors. Instead of seeing the resources already in place in each poor country and focusing the intellectual and policy resources to maximizing the existing assets and building on successes to accelerate reforms, one focuses only on the missing ingredients for growth and prosperity, and quickly becomes obsessed with the lengthy list of preconditions to be fulfilled – before the growth process can be ignited. This is a disturbing trend, and a counter-productive intellectual attitude.

That mindset of “missing elements” and “gaps” has translated into a peculiar intellectual posture: economists have confined themselves to the role of detectives, if not prosecutors. Without fully realizing it, many development experts behave like detectives in Arthur Conan Doyle and Agatha Christie novels. They have converted themselves into a Sherlock Holmes or Hercule Poirot whose divine mission is to find what is wrong with low-income countries, not what may be right and sufficient there to start something good. The “gap” mentality among researchers has therefore stimulated the emergence of a dominant brand of development policy that is basically an obsessive (if not compulsive) quest to correct the “deficiencies.” Of course, the search has produced long lists of true or false deficiencies, real or imaginary gaps, and truly missing or illusory ingredients for development recipes, which are presented as necessary conditions for economic progress. But the whole exercise has not paid off. Indeed, the search has created more problems for economists and policymakers than it has brought solutions. Instead of focusing on what each country – even the poorest – already has to build a viable development strategy, the compulsive search for the missing gap has validated and legitimized the notion that little can be done in poor countries unless they meet a long list of preconditions. Instead of adopting the mindset of how to maximize whatever few production factors are in place, development economists have too often devoted their energy and creativity to what must be done as preconditions for growth and prosperity. Instead of looking at the glass as half full, they have consistently seen it as almost completely empty.

Yet, we know from the history of development that no single successful economy in the world started out with ideal country conditions. Successful development processes always emerge from average if not very poor institutional and policy environments. Neither the United States nor Great Britain had “excellent” infrastructure stocks prior to the Industrial Revolution, or even in the years and decades after that. China did not have “adequate” levels of human capital when Deng Xiaoping launched the shocking economic journey of growing the economy by nearly 10 percent a year for three decades and lifting some 600 million people out of poverty.

By succumbing to the Sherlock Holmes syndrome, some researchers miss what should be the focus of economic policy in low-income countries – and that is structural transformation, the transfer of human resources and capital to the most productive activities. This may be because many of us limited the development agenda to the Washington Consensus policies, mainly designed to address macroeconomic imbalances that developing countries experienced in the 1980s. Macro stabilization and structural reforms were necessary but not sufficient conditions for prosperity. They were not necessarily recipes for creating employment. Rwanda President Paul Kagame has declared that his country scores among the top-performers in almost all categories of the Doing Business Indicators but has not created enough employment in the formal sector. That is true: his country has done remarkably well in improving the business environment, but it must still do even more to generate the kind of good laborintensive industries that will eventually bring prosperity to the people.

Another issue not always carefully studied is good governance. We all know how important that is and can see the correlation with GDP per capita in cross-country regressions. But we need to dig deeper, define it more precisely in our research, and customize what “good institutions” might look like in different country contexts. Let me just give one example to illustrate the point. Late Presidents Félix Houphouët-Boigny and Julius Nyerere are among the most admired in recent African political history. Yet, the former – who once said at a press conference that any “serious individual” should have a Swiss bank account and urged people not to dwell on high levels of corruption in Côte d’Ivoire – was able to propel his country on a long path of high growth. Compare his development performance with that of President Nyerere, widely perceived as a near saint for running arguably the least corrupt African government of the post-independence era, who apologized for failing his people with low growth and high poverty. Clearly, poor governance is a grave issue to be tacked energetically. But even as this is still under way, smart growth strategies can be implemented and yield satisfactory results.

Development thinking should aim at providing more actionable sets of policies to political leaders, and avoid offering laundry lists of reforms that are politically difficult to implement and may not immediately yield the intended results. Leaving economic development to the market is taking a bet on what I call the painful economics of chance, approaching economics as a prayer that may or may not be answered. Different industries require distinct types of infrastructure. And since low-income country governments do not have the financial resources to accommodate all industries at once, it is best to work with the private sector to identify industries where the economy has a comparative advantage, and to focus on providing specific infrastructure and transparent, limited incentives that would allow these industries to grow.

Look at the list of recent success stories in Africa to understand the role of industrial policies. Textiles in Mauritius, apparel in Lesotho, cotton in Burkina Faso, cut flowers in Ethiopia, mangos in Mali, and gorilla tourism in Rwanda all required that governments provide different types of infrastructure. The refrigeration facilities needed at the airport and the regular flights to ship Ethiopia’s cut flowers to the auctions in Europe are obviously quite different from the improvements required at the port facilities for textile exports in Mauritius. Similarly, the type of infrastructure for the garment industry in Lesotho is distinct from the one for mango production and export in Mali or for attracting gorilla tourism in Rwanda. Because fiscal resources and implementation capacity are limited, the government in each of those countries had to prioritize and decide which specific infrastructure they should improve or where to optimally locate the public services to make those success stories happen.

Dr. Celestin Monga is the African Development Bank’s Chief Economist and Vice President, Economic Governance and Knowledge Management. The findings of this Brief reflect the opinions of the author and not those of the AfDB, its Board of Directors or the countries they represent.


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