During the past thirty years, concern about economic development has reached unprecedented heights. Academic writers, periodical editors, foundation directors, and governmental officials have expended much time and effort in attempting to understand why economic development occurs, why it proceeds more or less rapidly, and how to hasten it where it appears too slow. Unfortunately, as a distinctive field of economic development studies has emerged, complete with textbooks and scholarly journals, a body of misconceptions and myths also has emerged to diminish the potential fruitfulness of these efforts to understand the process of economic change.
Significant progress would result from following ten simple rules of inquiry. Their value is, for the most part, self-evident; but readers familiar with the literature of economic development will recognize that they are more often ignored than obeyed.
1. DO NOT DICHOTOMIZE THE NATIONS OF THE WORLD.
Almost all writers have classified the nations of the world (sometimes only the noncommunist world) as either rich or poor, developed or developing, more developed or less developed. This dichotomization is both false and misleading: false because the nations do not fall into two neat camps; misleading because such a division encourages the search for explanations of poverty that, with more or less sophistication, blame it on the rich. In fact, by any measure one cares to use (e.g., income per capita, literacy rate, expectation of life), the nations of the world occupy a continuum, not a dichotomy. The richest and the poorest countries differ starkly, to be sure, but between them lies an enormous variety of intermediate conditions. As one descends from the United States and Sweden through Greece, Mexico, and Turkey, to reach India and Ethiopia, where can a line be drawn to separate rich from poor?
2. DO NOT PERSONIFY THE NATIONS OF THE WORLD.
How often does one read that "Brazil has done this, India has done that." Usually, what is meant is that a certain Brazilian or group of Brazilians has done this, a certain Indian or group of Indians has done that. Nations are abstractions; they do not act. Of course, no one openly disputes this obvious fact; and everyone knows that economy of expression sometimes warrants the personification of a national society. Yet such usage subtly supports the implicit and mistaken notion that all members of a nation are alike in essential respects, that all share the same conditions, attitudes, and objectives. Nothing could be farther from the truth. Brazilians, like Indians,
Thais, or any other people, are diverse in the extreme. They differ greatly in their conditions, attitudes, and objectives. To suppose that "Brazil does such and such" is to overlook the rich diversity of the individuals who, in the aggregate, constitute the Brazilian nation. It is especially important to notice that many individuals and groups in the poorer countries are rich, and many individuals and groups in the richer countries are poor.
3. DO NOT ASSUME THAT THE POORER NATIONS ARE NOT DEVELOPING.
Writers who set out to explain "economic stagnation" or "low level equilibrium traps" are addressing themselves to rare circumstances. By any accepted measure (e.g., income per capita, literacy rate, expectation of life), most of the poorer nations are currently developing. Moreover, their rates of development compare favorably with those experienced either historically or currently by the richer countries. This rapid change is not an artifact of social accounting. Close observers of such countries as India, Egypt, and Peru (supposedly slowly developing countries) report sweeping changes in the mode of economic life. In such places as Thailand, Greece, and Mexico the rapid pace of change is even more obvious. To picture the poorer economies as tradition-bound, stagnant, and resistant to change is to accept a false description of current reality. Only a few backwaters remain to fit this long-accepted characterization.
"Underdeveloped countries may be poorer and weaker from an economic point of view than the developing ones, but the painful symptoms from which they suffer are the same and the disease is the same, no matter whether it is called `interventionism,’ `statism,’ or ‘collectivism.’ " Gustavo R. Velasco
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4. DO NOT CONCEIVE OF DEVELOPMENT AS SOLELY ECONOMIC.
Economic development revolves around the growth of economic productivity, but such growth takes place as a result of changing human actions. Changes in economic behavior cannot be viewed in isolation from other dimensions of human action. People raise their productivity in order to gain comfort, wealth, status, power, or security, the principal impetus varying from one individual to another. The incentives that encourage or discourage productivity-raising behavior emerge from the institutional, cultural, and historical environment within which the individuals act. Changes in this environment must precede wide involvement in the search for higher productivity. Perhaps the impetus comes from contact with another culture or from foreign technical knowledge, from new religions or novel organizational schemes. In any event, economic changes grow out of changes in the noneconomic environment. Human behavior forms a whole. To imagine economic development occurring without corresponding developments in the rest of society is grotesque.
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"The value of American aid to underdeveloped countries, while scarcely negligible, is basically limited, because (a) growth requires more than capital, and (b) ‘saving’ must be done by the growing country itself."
William R. Allen
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5. REMEMBER THAT ECONOMIC DEVELOPMENT IS INHERENTLY DISRUPTIVE AND COSTLY.
While economic development augments the comfort, wealth, status, power, and security of some people, it concomitantly diminishes these desirable things for other people. One man’s innovation often implies another man’s obsolescence. And as individuals, few can escape the varied, undesirable side-effects of the development process. Friedrich Hayek expressed this problem eloquently:
. . . it is not certain whether most people want all or even most of the results of progress. For most of them it is an involuntary affair which, while bringing them much they strive for, also forces on them many changes they do not want at all. The individual does not have it in his power to choose to take part in progress or not; and always it not only brings new opportunities but deprives many of much they want, much that is dear and important to them. To some it may be sheer tragedy, and to all those who would prefer to live on the fruits of past progress and not take part in its future course, it may seem a curse rather than a blessing.1
6. DO NOT POSTULATE THAT ECONOMIC DEVELOPMENT IS THE SOLE OBJECTIVE OF SOME (ANY) RELEVANT DECISION MAKER.
Simply put, people value many things, and economic development is only one of them. As Peter Bauer has insightfully observed:
. . . conventional incomes could be increased by forcing people to work longer hours or to transfer to more lucrative but also more arduous or for some other reason less-preferred occupations.
Housewives could be forced to go into paid employment. In fact countless people in rich and poor countries could be compelled to increase their conventional incomes by forcing them to give up working habits, attitudes and beliefs which they cherish. It is bizarre to say the least to describe people as irrational for not trying to maximize conventionally measured incomes. It is an approach which disregards people’s own preferences in such matters as life expectation, possession of children, working habits, personal values and social mores, including personal preferences for leisure and contemplation against higher conventional incomes; it also disregards considerations of national security.2
7. DO NOT PROJECT YOUR OWN TASTES AND VALUES ONTO OTHERS.
To assume that everyone wants what I want, and will bear the same cost to get it, is certain to mislead. Tastes and values differ enormously among the people of the world. If the poor Indians would only eat their sacred cows, they could avert the threat of starvation—advice that is easy for me to give, but rather difficult to take for people deeply committed to the inviolability of all animal life. A long and laudable list of human values (e.g., loyalty to family members in Latin America, devotion to a contemplative style of life in Asia, adherence to tribal customs and traditions in Africa) has been held up by development enthusiasts as "barriers to progress." How narrow our vision; how insensitive our appreciation of the values of others.
8. DO NOT ASSUME THAT COMPREHENSIVE GOVERNMENTAL PROGRAMS ARE NECESSARY TO CREATE OR ACCELERATE DEVELOPMENT.
All the countries of Western Europe and their offshoots in the New World, as well as Japan, managed to develop without comprehensive governmental planning. Many poorer countries (e.g., Greece, Spain, Mexico, Taiwan, South Korea, Thailand) also are doing so. Yet the notion is widely accepted that development requires comprehensive governmental planning. Ultimately, the case for comprehensive planning reduces to the simple fact that some (including the planners) wish to coerce others to do what will not be done voluntarily.
If people want economic development enough to bear its costs, they voluntarily take the actions that promote it. They migrate to locations of superior economic opportunity, innovate on farms and in factories, obtain better educations. If they do not consider the net gains sufficient, they will abstain from such actions. How ironic, then, that the planners should attempt to "improve the welfare of the people" by compelling them to bear costs that, in the people’s own judgment, outweigh the corresponding benefits.
"You can be sure that if each Asian worker were backed by $30,000 in capital, there would be no mass starvation and no 25-year limit on the average life span. Such is the miracle of wealth. Only a few know how to create it. And the impartial and all-wise free market will distribute it in a manner which creates harmony rather than conflict among men."
Harry Lee Smith
9. DO NOT ASSUME THAT GOVERNMENTS ARE IMPARTIAL AND BENEVOLENT AGENCIES TO PROMOTE THE PUBLIC INTEREST.
Governmental officials are not, in general, disinterested humanitarians. More commonly, they are self-interested bureaucrats, politicians, soldiers, and dictators. In any event, they are members of the society they rule, and each brings to his office the preferences and loyalties characteristic of his own class, religion, region, and ideology. Even if the rulers sincerely wished to promote the "public interest," however, they could not do so. The public has many interests; indeed every individual possesses a unique and multifarious set of interests.
It is sometimes said that people do not know how best to serve their own interests, and that therefore the government must act to fill this gap in knowledge. Of course, a governmental official may know something that I do not know and could benefit from knowing. But the converse is also a possibility. In particular, my precise circumstances and desires, ever changing as they are, can hardly be known to anyone but me. The same can be said, of course, for almost every individual.
Governmental officials simply cannot be relied upon to possess superior knowledge. As Hayek says, "Compared with the totality of knowledge which is continually utilized in the evolution of a dynamic civilization, the difference between the knowledge that the wisest and that which the most ignorant individual can deliberately employ is comparatively insignificant."3 And even if governmental officials did possess superior knowledge, they could not, for obvious reasons, be relied upon to put that knowledge to good use. As Scott Gordon once put it, "How much enthusiasm for statism would evaporate if one were to assume that the government will be run by people like Haldeman and Ehrlichman?"4
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"When a businessman is granted a tax concession in any country, he would be well advised to prepare himself for the confiscatory taxation or nationalization that will soon follow."
P. Dean Russell
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10. DO NOT FORGET HISTORY.
If this rule were strictly followed, the others would be largely superfluous. Yet development economics, a quintessentially historical subject, has been practiced mainly by researchers with neither much knowledge of nor interest in history. Economic development, however, is a historical process. To neglect history is to neglect the facts of the matter. And an empirical study that neglects the relevant facts is an absurdity.
‘Friedrich A. Hayek, The Constitution of
²P. T. Bauer, Dissent on Development (Cam-Liberty (Chicago: The University of Chicago bridge, Mass.: Harvard University Press, Press, 1960), p. 50. 1976, rev. ed.), p. 200.
²P. T. Bauer, Dissent on Development (Cam-Liberty (Cambridge, Mass.: Harvard University Press, Press, 1960), p. 50.1976, rev. ed.), p. 200.
3Hayek, op. cit., p. 30.
4Scott Gordon, Review of Business Civilization in Decline, by Robert L. Heilbroner, in Journal of Economic Literature 15 (March 1977): 103.
Robert Higgs
Robert Higgs is Senior Fellow in Political Economy for the Independent Institute and Editor at Large of the Institute’s quarterly journal The Independent Review.
He is a member of the FEE Faculty Network.