Sunday, December 16, 2012

Thinking about national development

National development is about life getting better for the people of a nation. Increase in per capita GDP is an indicator of development, but as Charles Kenny points out in his book Getting Better: Why Global Development Is Succeeding--And How We Can Improve the World Even More it is not the only indicator of development. Life gets better if people are healthier, if they are happier, if they are better educated, if they are less subject to coercion and violence, it they are less often hungry, if they have more choices and better choices available, or in many other ways.

If people keep doing the same thing in the same way, they are unlikely to achieve development. Thus in some fundamental way, development is based on change. Change may, of course, contribute to bettering lives, to making lives worse, or be neutral with respect to the quality of life. It is clear that a change from peace to armed conflict is almost always a step back in terms of national development.

So what kinds of changes contribute to development? Sometimes they are big changes:
  • The U.S. Revolutionary War replaced foreign monarchy with home rule by elected officials
  • The U.S. Civil War resulted in the replacement of chattel slavery by free labor
  • The fall of Communism a couple of decades ago resulted in the replacement of centrally planned economies by market economies.
Sometimes they are smaller. I trained in operations research, which substituted computer based quantitative analysis in decision making for management by intuition; that is a smaller change than those listed above. Many inventions of new products and new processes lead to these smaller changes in the way things are done.

Often, however, a change that appears small at first glance turns out to be very complex. Thus one might think that a farmer could easily adopt a new variety of rice or wheat to grow in his fields. In India, the Green Revolution however required a massive effort to enable millions of farmers to make that choice. The improved varieties from the international agricultural research stations had to be adapted to local conditions. Farmers had to learn how to grow them. Irrigation systems had to be built to provide the water needed to realize the added growth potential of the varieties. Seed distribution systems had to be developed. So too did systems for the dissemination of fertilizers and pesticides to support the use of the new varieties. The wide spread use of monocrops of the new varieties implied a need for new and more effective pest and disease surveillance systems, as well as the continued development of improved varieties.

In order to be willing to change, people must think that they have the potential to gain from the change. In the kleptomacies found in many developing countries, others may steal the added benefits that would result from any innovation thus blocking innovation. So too, the potential benefits must be seen to outweigh the risks. A poor farmer living on the edge of subsistence might not be willing to try a new crop variety for if it failed it might mean starvation and death for members of his family. Obviously those with more resources are more able to risk failure of a specific innovation; those from supportive communities may be able to depend on help from friends and neighbors if an experiment goes wrong.

It also seems clear to me that political change, even though it is promoted by people in the hope of things getting better, is not enough per se to make things better, at least not in the short run. Replacing one set of politicians who are not doing well for a nation with another no better set is unlikely to help the nation. Even when the new group is better, it may take years for the changes that they introduce to produce improvements.

I think that help from a nation's friends also pays dividends on a national scale. The South Korean economic miracle benefited from U.S. and Japanese support; the Israeli economic miracle also benefited from support from the USA and Europe; the Asian Tigers benefited from Japanese subcontracting; the Celtic Tiger, benefited from EU support and access to EU markets, as well as from Ireland's close cultural ties with the USA.

Geography matters. Countries with valuable natural resources have an advantage. Given the importance of water transport, landlocked countries are often at a disadvantage. Tropical countries, with populations subject to major tropical disease problems are at a disadvantage unless and until those diseases can be controlled or eradicated.

As pointed out in my previous post, sometimes doing things better adds to GDP and sometimes it does not. When smallpox was eradicated, a lot of work was avoided in vaccinating people, in assuring that people entering the country were vaccinated, and in treating people who got sick from the disease. The Gross Domestic Product was reduced by the value of the goods and services that no longer had to be expended on smallpox. Providing good text books for schools rather than bad ones is likely to benefit the students but not change the costs of books to the schools.

However, it is useful to use growth in GDP per person as a surrogate for development because it is so often enables people to have better lives. In order to increase the GDP per person, more goods and services must be produced per person. There are a lot of well known ways to do this:

  • More people can be put to work. This can happen by decreasing unemployment, putting more people into the work force, etc. 
  • People can work more, for example by decreasing under employment.
  • People can work better, for example by being in better health and thus able to work harder or by being smarter, better trained or better educated.
  • People can have more and better tools and technology with which to work. 
  • The organization of work can be improved, by improving the operation at the workplace, by improving the functioning of the organizations in which people work, by improving the input and output markets for their enterprises, etc.
It seems clear that good policies and good institutions support those improvements.

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