Do You Have to Choose Growth or Development?

NOTE: The Growth Economics Blog has moved sites. Click here to find this post at the new site.

A number of posts/comments have been floating around the last few days that deal with the goals or the World Bank. Lant Pritchett published a piece that asks whether rich countries are in fact good partners for poor countries looking to develop. Pritchett is worried that rich-country development agencies (including the World Bank) have altered their focus from promoting overall economic development, and “defined development down” to be only about alleviating the conditions for the extremely poor – those earning less than $1 per day.

Pritchett suggests that the reason for this is a “post-materialist” attitude within rich countries. More crudely, you could say that this is another example of rich countries attempting to impose their goals/values/hopes onto developing countries. We in rich countries in general – and most likely highly paid development agency workers specifically – have the luxury of saying that material economic growth is not that important. Pritchett argues that this is to ignore the goals/values/hopes of actual people in those developing countries, who very much would like some material economic growth, please.

I’m very much on Pritchett’s side on this, with a caveat I’ll get to later in the post. I wrote a post back when I started this blog on defining development economics. I contrasted “development economics” with the “economics of poverty”. Development economics, to me, is the study of what allows countries to shift from poor, agricultural, rural economies to rich, industrial, urban economies. It is “development economics” in a classic sense, but today you’d probably call it “growth economics” or “macroeconomic development”.

The economics of poverty is about the constraints facing poor people in un-developed economies, how they cope with those constraints organically, and what kind of interventions will alleviate these constraints. The problem is that what I call the economics of poverty is what everyone else calls “development economics” – field studies and surveys in poor countries, running randomized control trials of interventions, and the like.

Pritchett is arguing, in my mind, for the World Bank to return to thinking about growth economics, or about development in the classic sense. Looking for projects like ports, roads, energy generation, and the like. Scale-intensive activities that need someone to coordinate the investment, and investments that will not take place organically because they are essentially public goods. Things that might allow or push economies into sustained growth.

Pritchett’s article generated a response in defense of the World Bank’s focus on poverty alleviation. The main example I know of is here, by Emre Ozaltin. He argues that Pritchett has a “growth fetish”, and that we have evidence that this does not lead to development. That’s debatable, but Ozaltin is correct that this is not an either/or decision. One does not have forgo poverty alleviation to focus on growth, or vice versa.

But Ozaltin also overstates the case for focusing on poverty alleviation. He says, “The sum of the activities in which we are engaged are not incidental to the challenge of development. They are development. For example targeting, investing in health and education, and doing so in multisectoral and coordinated ways, are all critical to growth.”

No, they are not. We have no convincing evidence that improving on those dimensions leads to growth. Yes, we have hundreds of well-designed studies showing how specific interventions improve health or education outcomes, but that does not mean they lead to economic growth. Acting to alleviate poverty is a noble, useful, moral activity. But you do not get sustained growth as a freebie on top of it. What Pritchett is arguing (I think. I’m putting words in his mouth here.) is that the Bank has presumed that their poverty alleviation efforts will generate growth as a byproduct. They haven’t, and most likely won’t. Growth is a distinct dimension of development different from poverty alleviation.

Now, here is my caveat to supporting Pritchett’s position. Who cares if it is specifically the World Bank that provides that infrastructure investment supporting economic growth? If the aims and goals of the World Bank have changed to poverty alleviation, fine. Let that be their focus, and the business of promoting growth can be left in the hands of other entities.

This has essentially already happened, and it isn’t clear why one should try to stop it. Tim Taylor had a nice post on the World Bank. In it, he links to research showing that the World Bank is rapidly running out of countries that qualify for its help. Further, official development assistance (ODA) is being dwarfed by foreign direct investment, remittances, and sovereign bonds as a source of investment funds for developing countries. Development banks such as the Inter-American Development Bank, the African Development Bank, the Asian Development Bank, and the new bank proposed by China are all in the business of lending for large infrastructure projects. Let them.

I think Pritchett is wasting his time here, trying to turn the World Bank to a new (actually, old) heading. The Bank is a gargantuan organization, and has reached the point where self-perpetuation is as important as the actual mission. This isn’t to trash the World Bank, it’s no worse than any other large organization on this front. But if the nature of the interventions that the Bank wants to undertake has changed, so be it. Argue instead for increased funding to the existing development banks. Argue for the US to drop its opposition to the Chinese-led development bank. It may be useful or best to separate the poverty alleviation and growth-promotion, anyway. But you need both. Poverty alleviation alone is not a robust path to long-run sustained economic development.