Why does development not work?

2008-06-07T15:09:00.000-07:00

It takes an economist to explain why economic development theory has failed the four fifths of the world's population. Economic growth development has been premised on a series of mistaken diagnoses - or more precisely - on mistaken assumptions made to advocate economical solutions. From the outset - from when the development mantra came to dominate relations between rich and poor - simplisitic explanations such as the 'investment gap' have driven unrealistic aid policies. Not enough money is saved in poor countries to finance needed investments in industrial development, this theory explained. External aid can overcome this lack, kickstart economies and increase GDP so that income savings can flow back ino the economy. This 'capital fundamentalism' was the first of a string of ever multiplying theories that have disappointed well-intentioned efforts. From expanding education to managing population growth, many panaceas have failed to halt the ever increasing economic gap between north and south.
Easterly does have a response. He does not claim to present another panacea, but simply reminds us to remember one of the first insights economic theory offered: people - and institutions - only respond to incentives that matter to them. For the long version of this analysis, the book by William Easterly, The elusive quest for growth: Economists' Adventures in the tropics, is a very readable introduction by the ex-World Bank economist and professor at New York University.

RBR - Recommended Books to Read

Why does development not work?