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What must we do to end world poverty? At last, an answer

OK, that’s too good to be true. There has been a search for sixty years for the right answer. Now most economists confess ignorance how to raise the rate of economic growth — how to progress more rapidly towards development and the end of poverty.

To get out of this dead end, I would respond to this question with more questions.

First, who is “we”? It seems like whoever “we” are, “we” must have unconstrained power to implement “the answer”, so “we” sounds like authoritarian leaders (national autocrats or World Bank officials dictating conditions).

Second, are “we” going to allow poor people to choose their own paths? Of course not, because “we” already know the “right answer” for them.

So this question only makes sense in approach to development that is authoritarian and paternalistic, using Top Down Planning, which in fact has been the prevailing – but unsuccessful – approach to development for six decades.

The paradox of development economics is that Development does NOT require any one person (Expert, Leader, or Aid Official) to have a comprehensive understanding of how to achieve Development (sort of like how evolution managed to happen on its own before Darwin).

(I am drawing on a lecture I gave here at NYU.)

Why is it so hard to figure out how to raise growth? Nobel Laureate Friedrich Hayek once suggested a possible answer:

The growth of reason is based on existence of differences. . . . {between} individuals, possessing different knowledge and different views. [I]ts results cannot be predicted . . . . [W]e cannot know which views will assist this growth and which will not.

Growth is innovation, and you can’t know in advance how to do the innovative thing, or else it wouldn’t be an innovation. Development is BOTTOM-UP outcome of lots of unpredictable individual successes and failures.

But this is not a counsel of hopelessness; in fact, it means economists can still say lots of useful things. You want an environment that is favorable for “searchers:” the private and social entrepreneurs who figure out these innovations. You want to create as many opportunities as possible through comparative advantage, gains from trade, and gains from specialization. This means individual rights, property rights, and not too much interference with markets or free trade. Public goods like infrastructure, health, and education are necessary, but arise best in response to demand, not determined by bureaucratic supply. This means a democratically accountable government. Individual freedom and democracy also allows social entrepreneurs to flourish.

Institutions are necessary to make markets work, but institutions also evolve from the Bottom Up, with pro-market institutions arising from values like individualism, trust, and respect for others.

So the paradox of development economics is that it’s the study of how to get rich without knowing how. As Hayek put it:

It is because every individual knows so little and… because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it.

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14 Comments

  1. Jim wrote:

    This sounds like a lot of wishful thinking. You would like development to be about bottom-up innovation by autonomous individuals in small-government, free-market countries, but in fact the historical record tells us that’s not the case. That evidence is inconvenient, so it just gets left out. This piece is a political tract, not an economic analysis.

    Posted October 19, 2009 at 2:52 am | Permalink
  2. Julian H wrote:

    Great post, and of course history does show that people thrive when not burdened by government. Indur Goklany’s work provides examples too numerous to list in a blog comment. Wishful thinking is in fact the preserve of Bono and his interventionist pals. Wasn’t aid supposed to have saved the world by now?

    Posted October 19, 2009 at 5:41 am | Permalink
  3. Sceptical Secondo wrote:

    Heck, still either or, huh?

    Building a new compund, never include foot paths. Just wait a month or two and you’ll clearly see where they’re needed. However, no one would be walking without the initial buildings….

    Posted October 19, 2009 at 6:25 am | Permalink
  4. Justin Kraus wrote:

    Explaining away the planned economies of China, and for that matter most of the Asian tigers, requires more than one slide in your power point presentation.

    Posted October 19, 2009 at 7:04 am | Permalink
  5. GregL wrote:

    OK, so Somalia should be a raising economic star?

    And the US granting land for development of the railroads was an error?

    Posted October 19, 2009 at 9:05 am | Permalink
  6. jose wrote:

    You mean “nothing” is the answer? It does not look like the American way, which I believes is a nation of problem-solvers.

    The probability section is one of the stupidest things I read lately. I mean, it was not random that Chile developed more than Peru, or that South Korea did better than Philippines.

    If you want to be a little bit less superficial you would look at different cultures, policies, institutions, whatever, but you just can not say “random” and think yourself as a social scientist.

    Posted October 19, 2009 at 9:43 am | Permalink
  7. Roberto wrote:

    A logical conclusion should be to give the poor the opportunity to spend according to their initiatives and needs. All international cooperation money and all natural resources rents should be unconditionally redistributed among all citizens in those countries, not once but regular and permanently, based on simple rules (lump sums once a year, directly, the less bureaucracies the better).
    Sounds naive? OK, but experiences show that all cash transfer schemes have been successful (from Bolsa Familia to Bonosol, from Progresa to Keluarga Harapan), and top down planning may seem grandiose but it has been a failure all over the world, as you demonstrated. There is money, particularly in those countries endowed with natural resources with so much of its people living in poverty.

    Posted October 19, 2009 at 10:01 am | Permalink
  8. Josh Harris wrote:

    Here at ALNAP we have been looking at the role of ‘innovations in humanitarian action’, as part of our 2009 Review of Humanitarian Action. Whilst recognising the process of innovation is neither fixed nor linear and depends on political and organisational context as well as chance and serendipity, we believe more can be done to foster innovation in the humanitarian sector. Encouraging humanitarian organisations to develop strategies to manage innovations; better information sharing between organisations to create innovation partnerships and a sector-wide mechanism to promote and facilitate innovation in the sector are just a few of ALNAP’s suggestions which could make it easier for bottom up innovation to come about.

    Posted October 19, 2009 at 1:01 pm | Permalink
  9. Per Kurowski wrote:

    Some would hold that there has been no failure at all but a great success… for the experts.

    But what I would want to focus on is that the pure presence of outside experts often corners the debate and silences the possibilities of the many small individual pieces of local knowledge and that count with so little credibility to permeate and accumulate into some useful development policy.

    If you don’t find sufficient evidence in terms of development then try to look at it in terms of de-development and consider the current financial disaster caused by the experts of the Basel Committee who decided we should incentivize our banks not to take risks and have them following the opinions of the experts of the experts, the credit rating agencies.

    Posted October 19, 2009 at 4:07 pm | Permalink
  10. Robert Vesco wrote:

    Bill, I totally agree with what you said.

    But what role does culture play?

    Even if all barriers to “searchers” were removed and a favorable environment for them was achieved is that sufficient?

    Likewise, even with the best soil and fertilizer – there is no guarantee that you would get good crops without good seeds.

    You also say that pro-market institutions arise from “values like individualism, trust, and respect for others.”

    So if a culture does not have those values, does that mean that pro-market institutions will not be born from the bottom-up?

    Posted October 19, 2009 at 6:25 pm | Permalink
  11. david phillips wrote:

    The argument is over for the “aid model”. We should now be talking about “development without aid” or “development after aid”.

    Posted October 21, 2009 at 12:13 pm | Permalink
  12. David wrote:

    Just a thought. If public goods like infrastructure, health, and education are necessary, are they not always in demand?
    Searchers can be inovative, when they have tools, health and knowledge.

    Posted October 22, 2009 at 9:31 pm | Permalink
  13. Ed wrote:

    First step is to increase visibility into issues of inequality from the grassroots up, up close and personal. Here’s something that shows you just how far removed from these issues we really are in our ivory towers: http://www.youintheworld.info

    Posted October 23, 2009 at 5:25 am | Permalink
  14. luca wrote:

    Shouldn’t economic liberalism, and the “free market” policies that you suggest also evolve “bottom-up.” Aren’t you committing the same thing that you criticize?
    Saludos

    Posted October 24, 2009 at 2:28 am | Permalink

5 Trackbacks

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