The intellectual revolution in international development

Alex Singleton has an interesting post at the Globalisation Institute: The intellectual revolution in international development:

Three years ago, social justice was a left-wing term, about redistributing income and socialism. Now it means things like welfare reform and community entrepreneurs. That is quite an achievement. And that sort of achievement is what is needed now in the area of international development. The Department for International Development needs an intellectual revolution. We need to turn development policies upside down: we need to change to helping Africa from the bottom up.

Alex is right that those of us who care about international development should embrace practical ways that free markets can help people. 

But I think we need to unpack the following proposition carefully:

These enterprise-based approaches to development are vastly more effective than the top-down help of which the government, unfortunately, is still far too fond.

There are three questions I have about this.

Q1. If we believe that enterprises are the basis of economic growth, jobs and poverty reduction (which I do, as does Alex), does it necessarily follow that aid should be used to support enterprises?

I do not think this follows at all. I have commented before on the irony that those who most support the free market are often vocal in advocating public subsidies for enterprises.   For example, it is far from clear that if we believe in microfinance, we should subsidize it.  We too easily fall into the trap of thinking that because something is important, we should support it. Governments in both rich and poor countries should focus on improving what they are responsible for and which the market will not provide well, and on getting out of doing things that they are not good at.   While private enterprise is the foundation of economic growth, it does not follow that enterprise-based approaches to aid are the most effective use of aid.

Q2.  Are donors doing enough support the development of enterprise and free markets? 

As I pointed out here, the British Government, like other donors, rightly places great emphasis on development assistance designed to improve the supply performance of the economy.  Many of the reforms needed – such as reducing import tarrifs, fighting corruption or commercialising state enterprises – are expensive and require considerable external support, and a large part of our aid goes into just this sort of thing.  In fact, the UK Government is frequently criticized from the left for doing too much of this, by those NGOs who are sceptical about the value of free markets.

It is unfair of Alex to dismiss this support pejoratively as ‘top down’ (in contrast to ‘bottom up’, which everyone is in favour of).  This top-down investment is used to vaccinate children, support scientific research into new crops, build roads, schools, wells and hospitals, reform customs, remove import tarrifs, liberalise telecomms, support teacher training, fight AIDS, tackle corruption, meet the costs of free and fair elections, provide safe drinking water – all things, in fact, that it is necessary for a society to do to enable enterprise and free markets to flourish.

Q3.  Is there evidence that supporting NGOs and small businesses is a more effective use of aid than providing aid to governments?

If there is, I should like to see it.  Some of this so-called bottom-up aid supports fantastic projects which make an enormous contribution to the people to whom they provide services.  But much of it is ill-conceived do-goodery which is not sustainable and has high transactions costs for litle long-run benefit.  (I’m thinking, for example, of the idiotic idea of shipping computers to schools, many of which have no electricity or place to store them safely, let alone anybody who knows how to use them.)  If we are looking for transformation of these societies, and not merely alleviation of the symptoms of poverty, we need to contribute to transformation of systems and institutions.  Bottom up support for NGOs and small enterprises is unlikely to deliver that.

Conclusion

I’m with Alex Singleton in believing in markets and enterprise.  But I am more modest than Alex about my belief in what we can contribute directly to those. Good businesses will succeed, or not, because of the energy and enterprise of those who own them and work in them, not because of support we provide. The role of government is to put in place the conditions that enable those markets and businesses to thrive, such as transport and communications infrastructure, effective courts, and a healthy workforce.  There is, of course, room for debate about the extent of that responsibility – some societies believe that education should be provided collectively, some do not.   But it is not in doubt that many of the preconditions for enterprise are, in whole or in part, public goods, and that governments (and in the case of poor countries) donors may have a role in providing them.

Alex underestimates the extent to which the views he is advocating are already part of mainstream development thinking.  Development will be driven by the people of poor countries improving their own lives, through education, hard work, and enterprise.  There is much we can do, and are doing, to promote an environment in which that bottom-up growth can prosper and accelerate.  But it is at best an oversimplification, and at worst dangerous, to think that because small enterprises are the basis of development that this is where we should put our support.

Published by Owen Barder

Owen is Senior Fellow and Director for Europe at the Center for Global Development and a Visiting Professor in Practice at the London School of Economics. Owen was a civil servant for a quarter of a century, working in Number 10, the Treasury and the Department for International Development. Owen hosts the Development Drums podcast, and is the author Running for Fitness, the book and website. Owen is on Twitter and

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6 Comments

  1. Owen, aren’t you slightly missing the point? I can’t speak for Alex but i’d have thought the biggest change in thinking is away from prosperity via wealth transfer to prosperity via wealth creation. 

    I’m with Alex Singleton in believing in markets and enterprise.  But I am more modest than Alex about my belief in what we can contribute directly to those

    As you know i’m against top down support of bottom up approaches – it’s the geniune enterprises that need to be trumpeted, not the state financed ones. It seems you’re making an assumption that the solution implies aid. That whichever approach is best should be supported from afar. Isn’t it the hope that we dispense with the necessity for aid? Can’t we advocate a solution that doesn’t depend on aid?In other words, the fact that subsidising microfinance creates problems should be an argument against subsidies, rather than microfinance?We shouldn’t be "putting our support" anywhere, or favouring one type of business or another.  An endogenous solution (which is broadly speaking an "enterprise" solution) needs to firstly curb our appetite for thinking we know what’s best.Also, i’ve mentioned this before as well, but

    Alex underestimates the extent to which the views he is advocating are already part of mainstream development thinking.

    It’s clear who won the intellectual battle of the 60s/70s, and people are now returning to the view that the keyword should be "exchange" and not "exploitation". What frustrates me is the fact that attitudes have shifted (for the better), but those who used to say "aid not trade" are now saying "fairtrade not free trade" without acknowledging those who argued for trade all along.That PT Bauer has been vindicated is a very good thing. That Labour today can only survive by ignoring many of their socialist policies is a good thing. Alex is quite right to trumpet the importance of disclosure. p.s. can you make this text box a little bigger, i’ve no idea what i’ve just written and apologise if that’s evident!!

    Owen replies:  Anthony – I don’t know where you got the idea that P. T. Bauer has been vindicated.  Nothing could be further from the truth.  Like you, I would like aid to be unnecessary, and I think it is only a small (and relatively unimportant) part of what rich countries can and should do to promote development.  But Alex is talking about aid and other forms of development assistance – for example, he quotes the example of Technoserve. Unlike Alex, I don’t believe that this is necessarily the best form of aid, even though I agree that the goal is bottom-up growth.
     

  2. Peter Bauer is in a class of his own as an outstanding economist. The orginality, force, and extensive bearing of his writings have been quite astonishing. He is a real pioneer of modern development economics…Many of Bauer’s claims, while resisted at the time, have become a part of the new "establishment" of ideas. Like the old lady who went to see Hamlet and felt it was full of quotation, a young reader of Bauer’s early books may find his arguments rather familiar. This is, to a great extent, evidence of his triumph, though the new enthusiasts for Bauer’s ideas often do not give him enough credit. 

    Guess who said that?! 

    Owen replies: Amartya Sen? I don’t think that vindicates him.

  3. I think that the next few years wil test microfinance. Either it will be a wealt multiplier or it will fizzle. But even if the later occurs it may be better than straight donations.

    Historically most markets do not function well. This is why the partial development of capitalism is such a revolution. But even in industrial countries getting capital into poorer communities is not effectively handled. Attempting programs from the outside is worthwhile.

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