10 Rules for an Understanding Economics Developement; R. Higgs

Robert Higgs 10 Rules for Understanding Economic Development DURING the past thirty years, con cern about economic development has reached unprecedented heights. Academic writers, periodical editors, foundation directors, and governmental officials have ex pended much time and effort in at tempting 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 Robert Higgs is Associate Professor at the University of Washington and Associate Director of the Center for Studies in Demography and Ecology. His writings include numerous articles as well as books on The Transformation of the American Economy, 1865-1914 and Competition and Coercion.

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 famil iar 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 na tions of the world (sometimes only the .noncommunist world) as either rich or poor, developed or develop ing, more developed or less de veloped. This dichotomization is both false and misleading: false be cause the nations do not fall into two neat camps; misleading because such a division encourages the 163 164 THE FREEMAN March search for explanations of poverty that, with more or less sophistica tion, blame it on the rich. In fact, by any measure one cares to use (e.g., income per capita, literacy rate, ex pectation 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 NA TIONS OF THE WORLD. How often does one read that HBrazil 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 some times 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 re spects, that all share the same con ditions, attitudes, and objectives. Nothing could be farther from the truth. Brazilians, like Indians, Thais, or any other people, are di verse in the extreme. They differ greatly in their conditions, at titudes, and objectives. To suppose that ffBrazil 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 coun tries are poor.

3. DO NOT ASSUME THAT THE POORER NATIONS ARE NOT DE VELOPING. Writers who set out to explain ffeconomic stagnation" or fflow level equilibrium traps" are addressing themselves to rare cir cumstances. By any accepted mea sure (e.g., income per capita, liter acy rate, expectation of life), most of the poorer nations are currently de"Underdeveloped countries may be poorer and weak er from an economic point of view than the developing ones, but the painful symp toms from which they suf fer are the same and the disease is the same, no matter whether it is called 'interventionism,' 'statism,' or 'collectivism.'" Gustavo R. Velasco 1978 TEN" RULES FOR UNDERSTANDING ECONOMIC DEVELOPMENT 165 vel oping. Moreover, their rates of development compare favorably with those experienced either his torically 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 eco nomic 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 re sistant to change is to accept a false description of current reality. Only a few backwaters remain to fit this long-accepted characterization. 4. DO NOT CONCEIVE OF DE VELOPMENT AS SOLELY ECONOMIC. Economic development revolves around the growth of eco nomic productivity, but such growth takes place as a result of changing human actions. Changes in eco nomic behavior cannot be viewed in isolation from other dimen sions of human action. People raise their productivity in order to gain comfort, wealth, status, power, or security, the principal impetus vary ing from one individual to another.

The incentives that encourage or discourage productivity-raising be havior emerge from the institu tional, cultural, and historical envi ronment within which the individuals act. Changes in this environ ment must precede wide involve ment in the search for higher pro"The value of American aid to underdeveloped coun tries, while scarcely negli gible, is basically limited, because (a) growth re quires more than capital, and (b) 'saving' must be done by the growing coun try itself." William R. Allen ductivity. 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 cor responding developments in the rest of society is grotesque.

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 con comitantly diminishes these desira ble things for other people. One man's innovation often implies another man's obsolescence. And as - 166 THE FREEMAN March individuals, few can escape the var ied, 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 bring ing 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 prog ress 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 de velopment is only one of them. As Peter Bauer has insightfully ob served: . . . conventional incomes could be increased by forcing people to work longer hours or to transfer to more lucra tive but also more arduous or for some other reason less-preferred occupations.

IFriedrich A. Hayek, The Constitution of Liberty (Chicago: The University of Chicago Press, 1960), p. 50. Housewives could be forced to go into paid employment. In fact countless peo ple in rich and poor countries could be compelled to increase their conventional incomes by forcing them to give up work ing 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 mea sured incomes. It is an approach which disregards people's own preferences in such matters as life expectation, posses sion of children, working habits, personal values and social mores, including per sonal preferences for leisure and con templation against higher conventional incomes; it also disregards considera tions 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 a vert the threat of starvation advice that is easy for me to give, but rather difficult to take for people deeply committed to the inviolabil ity of all animal life. A long and laudable list of human values (e.g., loyalty to family members in Latin America, devotion to a contempla tive style of life in Asia, adherence 2P. T. Bauer, Dissent on Development (Cam bridge, Mass.: Harvard University Press, 1976, rev. ed.), p. 200.

1978 TEN RULES FOR UNDERSTANDING ECONOMIC DEVELOPMENT 167 to tribal customs and traditions in Africa) has been held up by de velopment enthusiasts as ((barriers to progress." How narrow our vision; how insensitive our appreciation of the values of others. 8. DO NOT ASSUME THAT COM PREHENSIVE GOVERNMENTAL PROGRAMS ARE NECESSARY TO CREATE OR ACCELERATE DE· VELOPMENT. All the countries of Western Europe and their offshoots in the New World, as well as Japan, managed to develop without com prehensi ve 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 com"You can be sure that if each Asian worker were backed by $30,000 in capi tal, there would be no mass starvation and no 25 year limit on the average Iife span. Such is the mir acle of wealth. Only a few know how to create it. And the impartial and all-wise free market wi II distri bute it in a manner which cre ates harmony rather than conflict among men."

Harry Lee Smith prehensive governmental planning. Ultimately, the case for comprehen sive planning reduces to the simple fact that some (including the plan ners) wish to coerce others to do what will not be done voluntarily. If people want economic develop ment enough to bear its costs, they voluntarily take the actions that promote it. They migrate to loca tions of superior economic opportu nity, innovate on farms and in fac tories, 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, out weigh the corresponding;benefits. 9. DO NOT ASSUME THAT GOV ERNMENTS ARE IMPARTIAL AND BENEVOLENT AGENCIES TO PROMOTE THE PUBLIC INTER EST. Governmental officials are not, in general, disinterested humanita rians. More commonly, they are self-interested bureaucrats, politi cians, soldiers, and dictators. In any event, they are members of the soci ety they rule, and each brings to his office the preferences and loyalties characteristic of his own class, reli gion, region, and ideology. Even if the rulers sincerely wished to pro mote the (~public interest," however, they could not do so. The public has 168 THE FREEMAN "When a businessman is 9ranted a tax concess1on in any country, he would be well advised to prepare himself for the confiscatory taxation or nationalization that wi II soon follow."

P. Dean Russell many interests; indeed every indi vidual possesses a unique and mul tifarious 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 govern mental 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 uti lized in the evolution of a dynamic civilization, the difference between the knowledge that the wisest and that which the most ignorant indi vidual 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 st~tism would evaporate if one were to assume that the government will be run by people like Haldeman and Ehrlichman?"4 10. DO NOT FORGET HISTORY. If this rule were strictly followed, the others would be largely superfluous.

Yet development economics, a quin tessentially historical subject, has been practiced mainly by research ers with neither much knowledge of nor interest in history. Economic development, however, is a histori cal process. To neglect history is to neglect the facts of the matter. And an empirical study that neglects the relevant facts is an absurdity. @ 3Hayek, op. cit., p. 30. 4Scott Gordon, Review of Business Civiliza tion in Decline, by Robert L. Heilbroner, in Journal of Economic Literature 15 (March 1977): 103.