Notebooks

Development Economics and Economic Growth

25 Jan 2016 15:53

By a "developed" economy, people roughly mean ones with a high, persistently-growing per-captia income which is not simply based on resource extraction (i.e., oil) or remittances or rentierism — an industrial (or, if there is such a thing, post-industrial) economy which makes most of its participants reasonably and increasingly prosperous. While there are of course differences among them --- the United States is not New Zealand, which is not Belgium, which is not Finland, which is not Japan --- they are all more similar to each other than they are to the vast variety of "undeveloped", "under-developed", or (most optimistically) "developing" economies across the world. (Some people refer to the developed countries as "the North" and the others as "the South"; this drives me up the wall, if only from looking at where China and Australia are on the map.) Economies in the first category tend to stay there; so, sadly, do countries in the second. Development economics is the sub-discipline of economics which attempts to study how economies which have not attained this happy condition can be made to do so, and the factors which hold others back.

It is not clear whether there were any developed economies before the 20th century, or at best the very late 19th. (There certainly were industrial economies in Europe and North America by the 19th century, but the degree of poverty of the European proletariat was indeed very shocking; I don't know enough about the North American case to pronounce on that.) It is also not clear whether the ways in which the currently-developed economies became so have any relevance for development under current conditions. Technology is very different, internal institutional arrangements are very different, and perhaps most to the point the global economic context is very different. I have been speaking, as is common, as if each territorial state had its own independent economy, but of course they are all linked through the world markets, and have been since before there were any developed economies... It is also not clear whether there are any really important connections between the causes of under-development in whole countries, and the causes of persistent poverty in segments of otherwise-developed economies. Finally, it is unclear whether the causes of the continued growth of developed economies have anything to do with the causes of becoming a developed economy. However, it's also not clear that these are two completely separate sets of causes, so I'll lump both kinds of references here.

Most of what's securely known on the subject is what doesn't work. Imperialism doesn't. Communism — the nationalization of the means of production under the control of a party-state, with comprehensive planning — doesn't. (This surprised many people, including many who thought capitalism morally superior.) Import substitution doesn't work either. A robust market system seems essential, but "let the market take care of it" doesn't work. Etc. Institutions matter somehow, but nobody's quite sure how... All in all, this subject is a mess.

See also: Evolutionary Economics


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