Friday, August 29, 2014

Dialogus de Beijing Consensus -- Optimo on Pessimo's idea of development, innovation and his own gender

Shortly after my post last week, Pessimo posted a series of clarifications on this blog that demand a reply before I turn to his remarks on the other two theorems of Ramo.

First, on the concept of development, Pessimo clarifies that he is deterministic only regarding a country’s “capacity to produce and capture material wealth”. In other words he is skeptical of a country’s capacity to move from what the World Bank would classify as low-income to middle-income. But he is not so deterministic about the possibility of a country promoting general improvements in life quality, or simply by alleviating the brutality of material poverty. 

This clarification seems to be very much in line with some of the new poverty indicators in the development field. An example is the Multidimensional Poverty Index (MPI) developed by the Oxford Poverty and Human Development Initiative (OPHI) with the UNDP Human Development Report Office. As I describe in my book with Michael Trebilcock:

“The MPI examines a range of deprivations by using ten indicators at the household level (such as child mortality, years of schooling, and access to water, sanitation and electricity) to measure the same three critical dimensions of poverty as the HDI: education, health and living standard. This multidimensional approach to poverty reveals not only how many people are poor but also the nature and intensity of their poverty, which is relevant for policy design. The percentage of people living in poverty according to the MPI is higher than the percentage of people living on less than US$2 a day in 43 countries and lower than those living on less than US$1.25 a day in 25 countries. For example, in Ethiopia, 90 per cent of the population are MPI poor compared to 39 per cent classified as living in extreme poverty; 10 on the other hand, in Tanzania, 89 per cent of people live in extreme income poverty but only 65 per cent are MPI poor. This index captures access to key services such as sanitation and water in a more direct fashion, so the picture of deprivation seems to be a more accurate one: in some countries, services are available for free, while in others they are out of reach even for working people with an income. Additionally, for the same reasons, the MPI can reveal the persistence of acute poverty in countries with strong economic growth, such as India.”

I fully agree with Pessimo that reducing the concept of development to economic growth, especially as measured by GDP per capita is simplistic and may not fully capture the reality of poverty in many countries. What the MPI shows is that even the concept of living on less than a dollar a day, which is current definition of poverty, may be too simplistic. This is not to say, however, that economic growth or wealth should be completely dismissed from the concept of development. To explain why not, I would like to share with you an excerpt of my forthcoming book with Michael Trebilcock, entitled "Advanced Introduction to Law and Development":

“GDP per capita reflects a particular concept of development, centered around economic wealth, and it is also associated with policies designed to promote economic growth. There has been much resistance to such conception of development and growth policies, as we discuss in the next section. Even if one embrace such criticisms, however, economic growth should still be regarded as relevant in a development context, if the data is accurate. To illustrate this point, it is useful to differentiate economic growth from two related concepts: poverty and inequality. 

To understand the relationship between economic growth and poverty, take the case of the Democratic Republic of Congo (DRC), with a GDP per capita of US$272 in 2012.  This is one of the poorest countries in the world, despite its enormous mineral wealth. Similarly to other countries, such as the United States and Brazil, in the Congo income is not equally distributed: some people are extremely rich (e.g. the former long time ruler, now deceased, Mobutu), whereas 46.5% of the population lives in poverty.  However, even if internal incomes were somehow equally distributed, the average per capita income would still be US$272. This means that each citizen would live on less than a dollar a day, despite the fact that the country would no longer face inequality problems. This extreme example shows that increasing GDP per capita by promoting economic growth can be an important instrument in eliminating poverty and therefore promoting economic development. Asian countries, especially China, offer illustrative examples of how economic growth can help reduce poverty. It is estimated that more than 500 million people were lifted out of poverty in China in the last three decades, due to high rates of economic growth.

This raises an important policy question: could we eliminate poverty by simply giving poor people money coming from other countries? Many b believe that this type of external redistributive program (known as Official Development Assistance, or Foreign Aid) can help solve the problem of poverty in developing countries. However, as we will discuss in greater detail in chapter 14, there are reasons to be skeptical. One reason is that the amount of aid currently allocated to developing countries is not remotely sufficient to eliminate poverty. For instance, the total amount of Aid sent to developing countries in a year is normally a little above US$ 100 billion. This is the annual expenditure budget of one single Canadian province, Ontario. Today there are around 1 billion people in the world living in absolute poverty, while there are around 13 million people living in Ontario. Thus, it is hard to think aid will solve the problem unless the amount of these transfers was dramatically increased.

The concept of poverty should not be confused with inequality. A country can have high rates of inequality while maintaining low levels of poverty. An illustrative example is the United States. There are cases, however, in which the inequality exists alongside (and may be one of the causes) of extreme poverty. For instance, Brazil has a high rate of inequality.  This means that the GDP per capita indicated earlier is far from representing how the income is distributed among the population. Indeed 6.1 % of the Brazilian population lives in extreme poverty,  with the richest 20% of the population holding around 60% of Brazil’s income compared to only 3% held by the poorest 20%.

While economic growth can help increase GDP per capita, as illustrated by the example of DRC, it may not help reduce poverty, as exemplified historically by the Brazilian case. That country had spectacular rates of economic growth in the 1960s and 1970s (averaging 7.33 percent). However, this economic growth was not distributed to the lower echelons of the population, being largely concentrated in the upper classes. This means that GDP per capita increased during this period, but both inequality and absolute poverty increased as well. Therefore, one may say that there was growth without development. China has recently started to see a rise in economic inequality, which may raise similar concerns.”(footnotes omitted)

A good example of the idea that development should include economic growth but should not be reduced to it, is the concept of development as freedom, as defined by Amartya Sen. Sen does not dismiss the importance of wealth in improving “one’s capacity to live the life they have a reason to value” (i.e. one’s freedom). Instead, according to Sen, freedom cannot be reduced to wealth, and money should not be considered an end in itself. However, wealth is still relevant to alleviate poverty directly or indirectly, as more money allows people (or the states) to do more things than they would otherwise be able to do. This is the reason why the United Nations’ Human Development Index (which is based on Sen’s concept of Development as Freedom) includes income along with health and education in the variables considered to measure a country’s development level. A country can have better health and education than countries at the same income level. However, the correlation between higher levels of income and better indicators in health and education is still valid for most countries. 

Second, Pessimo suggests that the two examples of innovation that I provided in my post (bus rapid transit and mobile banking) may “improved quality of life or the reduction in the more brutal aspects of material impoverishment, but they do not necessarily lead to a country’s increased capacity to generate and retain greater material wealth relative to the rest of the world.” Again, as my first point suggests, I think it is very hard to separate these two concepts. It seems almost intuitive to assume that BRTs and mobile banking have made the lives of people in Latin America, Asia and Africa much easier. At the same time, there has been studies showing that these innovations have also increase efficiency, increased job opportunities and contribute to economic growth (see here for the economic and other benefits of BRT in India, here for economic and other benefits of BRTs in China and here for the economic and other benefits of mobile banking in Africa). I think these examples are a good illustration of my point above, i.e. other dimensions of development are relevant but they are often intrinsically connected with economic growth, turning growth an important element in the development process.

Third, Pessimo raises the issue of whether we can intentionally promote development. And he claims that he is skeptic of “our capacities to promote development through strategic (re)design of institutions of governance (including the legal institutions that are the subject of law and development”. This is a very interesting point and I will address it in my post on the analysis of the second and third theorem of Ramo.

Last but not least, Pessimo raises the question about his sex (or gender), quickly jumping from the conclusion that he is a hermaphrodite, given that his sex (or gender) is undefined. It should not take us by surprise that someone who is so deterministic about a country’s development prospects would be equally deterministic about defining his (or her) sex or gender. So, I would invite Pessimo to take a look at Judith Butler’s book entitled Gender Trouble: Feminism and the Subversion of Identity. In this book, Butler argues that sex, gender and sexuality are culturally constructed. One of the implications of her argument is that we can take ownership over the existing “regulative discourse” that imposes these categories and intentionally deconstruct and redefine them. I certainly believe we have a lot of agency in the development context, as I will elaborate further in my next post. Butler, in turn, shows that we should also know that we have agency in defining our sex or gender. Thus, while maintaining his or her skepticism about our agency in development (even if for the sake of continuing the debate), I think Pessimo should take advantage of Butler’s work and exercise his or her agency to freely choose “which kind of sex (or gender) Pessimo has a reason to value”.   


  1. "I've always wanted to read Judith Butler, but could never find an English translation . . . "

    But with all due respects to the good professor Butler, I think it would be rather obvious that Pessimo would never chose to be of a gender that included Pessimo as an one of its kind.

    One should choose one's gender based on available fashion options.

  2. Now to get a bit serious.

    1. I really like the Multidimensional Poverty Index. Interestingly, it better tracks my own anecdotal impressions gained from traveling to various developing countries. GDP / capita should China as being around the same as Malaysia. Comparing my experiences living in Beijing to my trips in Kuala Lumpur suggests that China is not yet in Malaysia's league. It is, as the MDPI suggests, much closer to Indonesia.

    2. The materials you cite regarding the economic benefits of BRTs and mobile banking do not show any correlation between these institutions and improvements in a nation's capacity to generated and capture material wealth. To be sure, they do bring extremely important benefits, like saving lives and increasing employment in the case of India's BRT. But important as these are, they do not necessarily contribute to 'development' as I have defined that notion.

    3. I'm quite skeptical of World Bank reports. It always seem to be breathlessly presenting some great new solution to problems of underdevelopment, while at the same time famously possessing a dismal track record of actually addressing problems of underdevelopment.