Economics - General

Lenin as the first development economist

William Easterly is a famous development economist at NYU. Yet in a 2007 paper in the American Economic Review, Easterly asks “Was Development Assistance a Mistake?

Easterly first recounts how development economics conventional wisdom on how to end poverty has changed over time.

  • 1950-1970s: Raising investment is the key to reducing poverty. “…[d]evelopment (i.e. economic growth) was a simple matter of raising the rate of investment to GDP, including public investments like roads, dams, irrigation canals, schools, electricity and private investment. However, private investment was usually not trusted to do enough or do the right things, and so there was a strong role for the state to facilitate and direct investment, guided in turn by the development experts.”
  • 1980s: Washington Consensus. This policy “…called for removing price distortions, opening to trade, and correcting macroeconomic imbalances (mainly budget deficits). The slogan of the new wave was ‘adjustment with growth.'”
  • 1990s: New Growth Literature. Here economists would would use hundreds of right hand side variables and regress them on growth in order to find the determinants of economic growth. “Durlauf, Johnson, and Temple (2005) pointed out that 145 different right hand side variables were significant as determinants of growth in various studies with around 100 degrees of freedom.”
  • 2000s: We don’t know. In 2005, the World Bank states that “different policies can yield the same result, and the same policy can yield different results, depending on country institutional contexts and underlying growth strategies.” The Barcelona Development Agenda proclaimed that “there is no single set of policies that can be guaranteed to ignite sustained growth.”

So how does Easterly sum up the contribution of development economists to the world?

“In sum, we don’t know what actions achieve development, our advice and aid doesn’t make those actions happen even if we knew what they were, and we are not even sure who “we” are that is supposed to achieve development. I take away from this that development assistance was a mistake.”

In fact, Easterly likens development economists advice to that of a communist central planner.

“The 20th century’s first development economist may have been Lenin, who wrote a famous pamphlet in 1902 called ‘What is to be done?,’ and said that the revolutionary intelligentsia had the answer. A long line of such diverse thinkers as Edmund Burke, Karl Popper, Friedrich Hayek, Isaiah Berlin, and James C. Scott have criticized the idea that experts can re-design society, all the way back to the French Revolution, and the catastrophic outcomes of the more extreme attempts to do so supported these criticisms. Yet the unquenchable demand for experts who can call tell “us” the right answers shows no sign of ending soon.”