Owen Barder argues that development should be seen as a property of the economic and social system itself. Barder agrees with Sen that development is more than just an increase in income. He elaborates on how development should be seen as something that defines exercising choices, capabilities, freedoms, and creating positive circumstances. Barder also extends Sen’s definition by stating that development itself doesn’t define the improvements of well being of people or well being of firms.
Barder compared the economic growth of South Korea and Ghana between 1960 and 2010 and showed that South Korea’s income per person skyrocketed from the 60s to 2010 while Ghana’s income per person stays relatively the same. Although he admits that average income per person is not a complete measure of well being, Barder asked: Why has this immense growth happened in South Korea but not Ghana? Barder then uses this question to frame a topic for the rest of his presentation: What is the missing ingredient in why some nations can or cannot break out of poverty?
The toaster project relates to the hypothesis that development is better thought of a characteristic of the economic, social, and political system, not simply the sum of the well being of the people in it. Thomas Thwaites recognized that although toasters were so cheap and mass produced, they were very complex to build. With over 400 parts and a lot of materials hard to acquire, a toaster seemed impossible to build on your own. Thwaites, however, attempted to build his own toaster, going to places like oil rigs to try and collect the right materials to use. After this laborious process, Thwaits finally made a toaster after what seemed like forever, but when he plugged it into an outlet, it burst into flames within seconds because he had no rubber insulators. This makes the audience wonder how toaster companies are able to sell a product so complex for so cheap. This experiment highlights the idea that development is not solely an increase in output by an individual firm, but an emergence of a system of economic, financial, legal, social, and political institutions. This system combined with products and technologies is able to provide citizens with “happy, easy” lives.
After World War 2, economists started to lean on the Harrod Domar growth model. This model said that to make a unit of output, it is required to combine a certain amount of capital and labor. This also demonstrated that output has a direct relationship with capital and labor. Although this led to the discovery that many developing countries were struggling because of their lack of capital, the model still had a hard time explaining the reality of some instances, and couldn’t explain how South Korea grew so fast compared to Ghana in the previous example. Walter Rostow published The Stages of Economic Growth in 1960. In this book, he modeled a loop that all self-sustaining countries are able to go through. It starts with savings which are then invested which leads to capital, then growth, then income, which is put back into savings. He discovered that if many struggling nations are provided foreign aid, they would be able to enter this cycle and become self-sustaining. He argued that once you worked out how much additional investment a country needs through aid, you can then use aid to fund big infrastructure projects which lead to development. This helped address the weakness of the Harrod-Domar model, as it was able to connect it with reality. For example, the World Bank still uses Solow’s model.
Robert Solow made a model, which is really just a form of accounting, that breaks growth down into increases of labor, capital, and some unexplained bucket. This combination of neoclassical growth theory and exogenous technical change with labor, capital, and some other unexplained component defined growth. The main question is what is this unexplained component. It is not as simple as technology and knowledge, as there is no cost for sharing knowledge and technology is not sharply diminishing in any nations.
The Ajaokuta Steel works is a Nigerian steel production site which the US invested billions of dollars into. Output and growth was expected based on the previous economic theories, but Ajokuta hasn’t added to Nigeria’s national income due to poor management and endemic corruption. The problem was decided to be not policies, but institutions. Although this problem was identified, there is still no answer as to which institutions are most important for the growth of underdeveloped countries. Daron Acemoglu and James Robinson address government and politics in Why Nations Fail. In this book, the authors explore why some nations succeed in breaking out of poverty and why some don’t. They found that the mainstream development process today is built off of the incorrect assumption that poor countries struggle with development because their rules have mistaken views about how to run their country by tolerating corruption. They state that weak institutions are an internally generated result of the country’s politics, like in Nigeria. Although an incredibly insightful writing, the authors still bring up a missing ingredient in growth and fail to answer what said ingredient could be.
In this podcast, Barder gives the audience a tour of the development process over the past 50 years. He brings up four points: 1.This is the fastest progress in history in terms of development, 2.There is still no explanation for the difference for comparing countries’ growths, 3.There is still no answer for the missing ingredient(s) in growth, and 4. The missing “thing” is not something outside of the system, it is an endogenous characteristic of the system itself.
Creative destruction, like survival of the fittest, is incredibly prevalent when it comes to evolving and adapting firms and institutions. Take Nokia, for example. Nokia’s share price could be described as dominant in the early 2000s, but as a wave for the desire of smartphones emerged, Nokia’s share prices drastically dropped over the next decade. This was because Nokia refused to adapt their business into producing smartphones, so many saw their products as obsolete. Coevolution is prevalent in people, products, industries, and institutions. Coevolutions is the idea that all of the things listed interact with one another and evolve together. For example, the technological surge of online shopping capabilities led to the huge growth of Amazon.
Complex adaptive systems have five main parts. Firstly, these systems are all difficult or impossible to predict in detail (eg. the butterfly effect). Secondly, you can make broad predictions about the system as a whole. For example, it would be incredibly hard to predict the exact weather in London on July 16th next year, but you could roughly describe what the weather will be like in London in July next year. Complex adaptive systems also have emergent properties; there are patterns of the system not specifically linked to any individual agent within it, like how brain cells interact with each other. The fourth feature is that these systems tend towards greater complexity. Lastly, the systems do not tend towards an equilibrium due to variables such as coevolution and time lags.
Haile Sellaise was the last emperor of feudal Ethiopia. Kapuscinski’s book The Emperor shows how all decisions came from the emperor and how all questions came from the top down. It explores the internal logic of regimes, like the Ethiopian example, by extracting economic value from the population and suppressing any efforts to move towards a more inclusive political society. The book also brings up how emperors can stay in power by suppressing coevolution and adaptation, using controlling revenues such as oil as an example.
Barder recommended resisting engineering as a policy implication because of one main reason: it is very difficult to engineer solutions in a complex adaptive system. Considering levels of specific improvements, evolutionary processes often outperform design. Also, the nonlinear dynamics means that it is generally impossible to predict the result of any particular change. Furthermore, barder stresses the importance of harnessing evolutionary processes rather than replacing them. Finally, Barder shows that resisting engineering also leads to avoiding iso-morphic mimicry. Iso-morphic mimicry is an organization that looks like it should work, but doesn’t because it doesn’t connect to or change with its environment. A good example of this is a harmless animal evolving to look like a dangerous animal.
What Barder means by resisting fatalism is that we do not have to accept the outcome the process of evolution gives us. Although types of evolution like biological evolution is largely mechanical and is guided by survival of the fittest, we should be smart enough to accelerate and shape evolution. Norman Borlaug is a great example of resisting fatalism. Borlaug was the man responsible for the green revolution. He intervened in the evolutionary process so he could develop high-yield, disease resistant wheat varieties. This strike of innovation is estimated to have saved more than a billion people around the world from starvation.
One of Barder’s seven policy implications is promoting innovation. Barder recognizes that innovation is a key part of the adaptive process. Innovation is a public good, and by providing people with safety nets, people are more likely to take risks and get more creative. Encouraging protecting property rights, entrepreneurship, fighting corruption, and more will lead to a more innovative population. Embracing creative destruction was another policy implication in Barder’s list. There is no use in having innovation without selection. It is important for the development system to incorporate feedback loops that promote adaptations suitable for the environment. A good example of this is the music industry.
Nicholas Georgescu-Roegen was an economist. Regarding economic systems and evolution, he believed that all natural resources are irreversibly degraded when they are used in economic activity. This supports Brader’s idea of development about making small changes, seeing what happens, then adjusting based on the results.