Do You Have to Choose Growth or Development? Part Deux

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

In my last post I talked about Lant Pritchett’s recent article which questioned the focus of the World Bank on only the extreme poor. He wondered whether the Bank was the right partner for developing countries hoping to grow to middle- or high-income living standards. I agreed with Pritchett that poverty alleviation efforts are not capable of generating what we might consider transformative growth, meaning significant convergence towards rich countries.

I got a lot of very thoughtful responses to that post (and one or two unhinged ones). One response came from Emre Ozaltin, who had written an earlier reply to Pritchett. Emre pointed out on Twitter some research showing that health improvements had accounted for 11% of growth in a set of developing countries, suggesting that this means poverty alleviation efforts do lead to growth.

Twitter just isn’t sufficient to make a coherent reply, so here we go. Even if health interventions really were responsible for 11% of growth in developing countries, that is not the same thing as saying that health interventions can create fundamental economic development.

Comparative Growth
Consider the figure, which shows the time path of GDP per capita in the U.S., South Korea, and Tanzania from 1950 to 2010. In 1960, South Korea and Tanzania are roughly equivalent in living standards. They are both far poorer than the U.S., by a factor of about 10 to 1. In the subsequent decades, though, South Korea and Tanzania have entirely different experiences. South Korea has transformative growth, and the U.S. is ahead of South Korea now by a factor of 1.5 to 1. In contrast, Tanzania doesn’t experience much overall growth at all, and the U.S. is ahead by a factor of 42 to 1.

When I talk about and study economic development, I mean the study of what caused South Korea to make that dramatic leap to rich-country status. What will promote that transformation in poor countries? There is no evidence that health or education interventions could be the answer to that question.

When Emre is talking about health generating growth, he is talking about the contribution of health to that mild growth seen in the last twenty years or so in Tanzania. Yes, there was growth. Yes, health interventions were (maybe) responsible for 11% of that growth. But that growth has not been sufficient to do anything to transform Tanzania into the next South Korea.

It doesn’t mean that these efforts were a waste, or should be stopped. There is no binary choice between poverty alleviation and promoting transformative growth. I believe firmly that from a humanitarian perspective, we should act to alleviate the conditions of poverty in these countries as much as possible. At the same time, we should also be doing what we can to promote the transformation of these economies, so that they take off in the way South Korea did.

I think Pritchett is worried that the Bank is ignoring transformative growth in favor of focusing only on poverty alleviation. And I agree with him in general that one should not abandon promoting transformative growth. But I don’t know that we should worry specifically if the World Bank changes its focus.

From the World Bank perspective, if they do want to focus on poverty alleviation, mazel tov. But do not claim that this is because it is a more robust way to generate fundamental economic development, or because you have somehow “seen the light”. You are making a distinct choice to focus on the humanitarian aspect of development, and ignore the promotion of transformative growth.

Advertisements

10 thoughts on “Do You Have to Choose Growth or Development? Part Deux

    • Don’t know yet, but I think that it is possible, yes. Why not? SK was just as poor but figured it out, why not Tanzania?

      • Not that low. In U.S. it’s 86 (if U.K.=100). In much of Africa, apples-to-apples looks yield 82. Creating a successful economy requires much more than mere intelligence. Just look at the Philippines. Nobody has argued Indonesia’s any smarter (on average). Yet, Indonesia surpasses the Philippines in RGDP per capita (PPP). The economic potential of the tropical African countries is not well-known. Botswana is an outlier based on diamond exports. South Africa has poor economic institutions. The Caribbean countries are too small to yield a good comparison. Maybe Dominican Republic? It has a strong light manufacturing export base.

  1. I dont quite understand why this stance by the WB is such a mystery.

    Setting aside the practical (and likely most important) reason that you cannot develop loan programs whose output is to “transform the economy”, there is another problem from the POV of the developing countries themselves.

    All instances of transforming economies occur with the domestic political institutions leading. The only exceptions to this are the aftermath of war (the great one). There is no way dev. countries would follow policies that would create huge reallocation of resources of power within the country led by unaccountable political forces outside the country.

    • Good point. The WB may just be realizing that it cannot – from the outside – impose the conditions of transformative growth, and so is wisely abandoning that as a goal.

      On the other hand, the WB used to be willing to make the kinds of investments that did not cause, but assisted in transformative growth – ports, major transportation structures, etc.. They seem to want to get out of that business, which is what I think Pritchettt is lamenting.

      • oh, he was talking about infrastructure. i’m sorry. i thought he/they was waxing philosophical.

  2. The World Bank is no longer a development bank it is a humanitarian bank. Nothing wrong with being humanitarian but by being a truly development bank then the humanitarian problem would have been lessened more quickly than by being a humanitarian bank.

    • I like that terminology “Humanitarian bank”. And you’re right, nothing wrong with that at all. But it does not obviate the need for a development bank.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s