There is a longstanding debate about whether development assistance and related policies have helped or hurt the poor. It is a difficult question to resolve because of the absence of a counterfactual. There is no way of knowing whether many poor countries in sub-Saharan Africa, for example, would be better off or worse off without foreign assistance because we cannot observe how they would have done had they not received aid. In addition, most foreign aid flows to countries with difficult problems, rather than to those endowed with sound institutions and competent economic management. Because of all these complicating factors, contrasting the outcomes of countries based on how much development assistance they receive is not very meaningful.
Bill Easterly is a notorious critic of foreign aid and has written brilliantly about its failures. He does so from an insider’s perspective: he was a World Bank economist for years. I recently wrote about his latest book, The Tyranny of the Experts, in the Journal of Economic Literature.
Easterly describes a hypothetical world that is a horse-race between the philosophies of two famous economists and Nobel Prize winners: Gunnar Myrdal and Friedrich Hayek. Myrdal was a proponent of state-led development, while Hayek championed individual rights and initiative. Myrdal’s work became central to development economics and thinking for decades (and the field was a backwater in economics for many years). Hayek’s thinking, on the other hand, was critical to the influential Chicago school. Easterly’s book provides detailed histories of failed centrally planned development efforts, ranging from Mao’s China to post-colonial sub-Saharan Africa. He highlights the long-forgotten individual rights of the poor as the pinnacle of many development failures, and the “tyranny” of experts in the international financial institutions as primary culprits.
There is, of course, some reason in his argument. The fundamental flaw, though, is that, like development in general, it is just not that simple. For example, development economics has come a long way in recent decades, in large part due to the rigorous precision and lessons learned from randomized control trials (RCTs), the usage of which in economics was pioneered by development economists (and is now practiced much more broadly in economics). Yet that precision only tells us what interventions work and which do not, but cannot tell us why they worked and if they would work in another context. Yet those are the key questions in development. Anyone who has ever tried to explain why the Congo is not Costa Rica understands the limits to RCTs, despite their scientific elegance.
Easterly takes a different approach and centers on the story of the unplanned, bottom-up experience of one large block in Soho in New York City, beginning circa 1640—a time when health and sanitation standards there were similar to those in the poorest parts of sub-Saharan Africa today. He details how individual initiative and bottom up pressure for things such as property rights and regulation led to a thriving and prosperous community, complete with Christian Dior stores, a few hundred years later. Surely some of his arguments can be generalized; the history of the United States is full of stories of driven individuals, equipped with freedom and bright ideas, moving markets and inventing things like phones, electricity, and motor cars.
The problem, though, is that bottom up is not always beautiful. Ken Arrow, another Nobel prize-winner, showed that efficient outcomes can emerge from decentralized markets. But he also noted that was not always the case. Influenced by Arrow, a host of complexity theorists—including my Brookings colleague Ross Hammond—have demonstrated how decentralized markets and/or societies can generate emergent properties such as civil violence, ethnic tagging, and inferior norms of health, among other things. The primary barrier to eliminating extreme poverty by 2030, meanwhile, is in failing states, where bottom up is the only rule of law, as my Brookings colleagues Laurence Chandy and Homi Kharas have written.
Easterly proposes a world without development experts, which prioritizes individual rights rather than nation-states. There may be too many development experts, and there are nation-states that are terrible to their citizens. But governments and international institutions have also done tremendous good, not least in transferring technology and knowledge—as in the case of vaccines and other public health interventions—across international borders. This has allowed most developing countries to achieve life expectancies and literacy rates that are much higher than those that the advanced economies had when they were at similar levels of GNP per capita years ago.
Should we dismiss this potential for progress and rely on individual initiative and rights alone, even if it takes 200 years to acquire the same gains in health and education in some places? And will poor citizens in “bad” nation-states, where discrimination and social hierarchies are often the norm, freely exercise their rights and initiative? My research shows that they usually adapt to their realities due to low expectations rather than push for change. I would love to believe that if left alone, the Democratic Republic of Congo will turn into Soho, and Belarus into Sweden. But given the odds, tossing out the experts—and the wealth of knowledge that they can spread across borders—is a misguided proposition. They may make mistakes, but so too have Hayek’s disciples.
For further reading, see the review by Future Development co-editor Shanta Devarajan here.