Dialogus Interlude -- Why not a Kiev Consensus? Introducing the 'Punches Above its Weight' (PAW) Index.

Some of us argue that a country’s capacity to develop GDP per capita is significantly capped by transnational factors that operate outside of the reach of domestic governance institutions.  Like I wrote earlier, I believe that China’s dramatic economic growth can be more-or-less wholly explained by the common-sense removal of a set of highly dysfunctional economic and social policies, combined with China’s close economic and cultural proximity to the world’s most dramatically developing regional geography, that of East and Southeast Asia.  In other words, I would argue China’s domestic economic growth has been driven primarily by the dynamic growth of the larger regional economy of east and southeast Asia of which China is a part, and not by anything special that China has been doing domestically.   Even after some 20 years of searching, no-one has been able to attribute Chinese dramatic economic growth to the presence of any particular domestic institution.

This being the case, it seems misfounded to hold China up as a model simply because of its level or growth of GDP / cpaita.   This is likely to simply be a function of China's fortuitous location in transnational economic space. 

On the other hand, however, it does seem more likely that institutions, including legal institutions, might be able to impact other aspects of development – such as literacy, nutrition, economic stability and security, health, etc.  These non-economic aspect of development are relatively well captured by UNDP’s Human Development Index (HDI).   But as Optimo has noted, a country’s HDI is also significantly affected by its GDP level.  This suggest that in looking for an institutional ‘model’ for development, we need to look at a country’s HDI performance independent of GDI, since that is where that country’s domestic institutions – including legal institutions – are likely to be having impact. 

Along these lines, in looking for possible developmental models, I proposed we might start by looking at what I am calling the PAW ('Punches Above its Weight') Index.  The PAW index measures the difference between a country’s GDP per capita ranking and its HDI ranking – i.e., how much a country’s level of development punches above its GDP weight.  In this way, it looks to measure how well a country has been able to transcend the natural developmental boundaries set by its level of GDP.  The more a country has been able to transcend those boundaries, the more likely it is that we might find institutional models that deserve study.  (Consistent with this, PAW ranking do not seem to show the same kind of core-periphery geographical patterning that GDP and HDI rankings do.)

Seen in this light, China – aka the Beijing Consensus – does not appear to offer a promising site for a developmental 'model'.  China ranks 93rd in GDP per capita and 91st in HDI, giving it a PAW index of +2.  (Country rankings come from Wikipedia -- so sue me.)  Of the other BRICS countries, Russia has a PAW index of +1, but at a much higher overall level of development (58/57).  I had originally hoped that Brazil would give us a more promising model, but unfortunately, its PAW index is 0 (79/79), so there goes my earlier hope for a São Paulo Consensus.   India has a PAW index of -2 (133/135), and South Africa has a PAW index of -34 (84/118).

So, where should we look?  The best PAW index in the world belongs to Jordon of all places, which has a whopping +43 (120/77).  Perhaps just as surprising, Georgia is second with +40 (119/79).  Sri Lanka (112/73) is third with +39.  But I would still suspect that these are not promising locales for models, as they all feature relatively small economies and small population densities (and in the case of Sri Lanka, an island economy). 

Of the more typical countries,  that which suggests the most promising site for a developmental model would be the Ukraine, which ranks 107th in GDP / capita and 83rd in HDI, giving it a PAW index of +24.  Perhaps even more promisingly, the Ukraine does not feature the geographical attributes associated with superior economic performance:  unlike China, it is neither culturally nor geographically (transportationally) proximate to core regions of economic development; and it is relatively landlocked.  So there, it is indeed more likely to be institutions that are doing the heavy developmental lifting.  Therefore, instead of exploring for a Beijing Consensus (or even a São Paulo Consensus), what we really should be exploring is a Kiev Consensus. 

Some other interesting observations:

• Of the developed countries, that with the highest PAW is New Zealand at +23 (30/7).
• Many African countries have quite good PAW ratings (PAW indexes of +10 or more), perhaps reflecting the difficulties that GDP measures have in capturing the actual economic performance in that region.
• Although landlocked countries generally do poorly with regards to GDP (as shown in the work of Jeffrey Sachs and others), they seem to do surprising well with regards to PAW.  In addition to Georgia, high PAW landlocked (or at least relatively landlocked) countries include Armenia at +31 (118/87); Kyrgystan at +21 (146-125); Uzbekistan at +19 (135//116); and Nepal at +18 (167/145).  As noted above, given limited navigational and trade utility of the Black Sea, one might argue that even the Ukraine is a relatively landlocked country, at least functionally.
• Botswana, which was frequently hailed as a developmental paradigm in the early 2000s, has a PAW of -47 (62/109).
• On the other hand, some seemingly dysfunctional political systems exhibit surprising strong PAW performance, including Libya at +27 (82/55); Zimbabwe at +16 (182/156); and Burma at +11 (161/150).

Dialogus de Beijing Consensus -- Pessimo Clarification and Response to Optimo re: Ramo's Second Theorem

Pessimo:

Optimo was right to question my circularity argument.  That was not a strong thesis, and it detracted from my argument.  Optimo is also correct to note that the mere fact that mainland China has not actually conformed to the Beijing consensus does not by itself refute the power of that so-called 'consensus' as a developmental model (like I noted earlier, it probably would have been more effectively presented if it had been termed the 'Taipei Consensus').  However, I would assert that the fact that China has not conformed is significant in that it suggests that we actually have real evidence that the 'Consensus' actually works as a developmental model.

The principle focus of my critique is indeed with regards to the sustainability of the second theorem, and consistent with Optimo's observation, by sustainability I mean policy sustainability.  Simply put, I would argue that developing countries do not have the wealth necessary to sustain the kinds of regulatory technologies that Ramo advances in the first theorem.  And this makes the Beijing Consensus unsustainable as a developmental model.

And while I do indeed agree with Ramo's focus on quality of life rather than simply on GDP, I don't believe that that by itself a model makes.  As I will elaborate more later, to me a model is more than just an abstract goal, it is a guide to action.  I don't see anything in this second theorem that suggest a guide to action.  Chaos management, crisis management, and sociology at best simply address some of the problems of development, but they are ancillary to the ultimate project of development.  Ramo's second theorem is like Gertrude Stein's Oakland -- there is no 'there' there.

Finally, in response to Optimo's query to me:

China seems to be a great example of a country in which millions of people have been lifted out of poverty and have had their lives improved in the last decades. If nothing else, we could perhaps say that at the very least the country has effectively adopt strategies to reduce "the brutality of material poverty", to use Pessimo's expression. So, if we do not want to ask China to behave like a developed countries before becoming one, isn’t this enough to show that they have some sort of promising strategy in place? 

 Yes, China has lifted millions of people out of poverty.  But that by itself does not necessarily make it a 'great example'.'.  One could argue that China's developmental strategy, at least to date, has consisted simply of a gradualist removal of a set of failed command-and-control and isolationists policies that had drastically suppressed China's wealth generation for over a generation -- policies that we have already long known to be dysfunctional.  In other words, the real lesson of China's growth might ultimately be trivial -- command economies don't work and it is good to have your economy open to international trade.  There may be a good lesson in all this insofar as North Korea is concerned, but its not really of much relevance to the rest of the developing world.  

In other words, China's is simply the success of simple common sense, its is not that of some great advance in developmental thinking.  Along these lines, one might also note that despite its rapid development, China's level of development (measured either by GDP standards or HDI standards) is still only generally the same as that of Indonesia and the Philippines, and is significantly less than that of Vietnam or Brazil.  So here is my question to Optimo: Given that Brazil has even significantly less poverty per capita than China, shouldn't we be exploring instead for a São Paulo Consensus?  

N.B.  Actually, we will be -- in November.

Dialogus de Beijing Consensus -- Optimo on Ramo's idea of a 'Beijing Consensus' (Second theorem)

Now that Pessimo and I have engaged a far bit on the first theorem, it is time to do what I have been promising to do for two weeks: present some comments on the second theorem.

It is has been a while since Pessimo presented Ramo’s ideas, so here is a memory refresher:

The second Beijing Consensus theorem is that since chaos is impossible to control from the top you need a whole set of new tools. It looks beyond measures like per-capita GDP and focuses instead of quality-of-life, the only way to manage the massive contradictions of Chinese development. This second theorem demands a development model where sustainability and equality become first considerations, not luxuries. Because Chinese society is an unstable stew of hope, ambition, fear, misinformation and politics only this kind of chaos-theory can provide meaningful organization. China’s new approach to development stresses chaos management. This is one reason why academic disciplines like sociology and crisis management are the vogue of party think tanks at the moment.

Pessimo has criticized Ramo for presenting a circular argument regarding the first theorem (see here) and he criticizes Ramo for doing this again regarding the second theorem. Pessimo believes that Ramo is basically arguing that to develop you need to be developed. Or, as he writes: “the problem here is that sustainability and equality both required highly sophisticated regulatory systems whose costs are such that they generally cannot be supported by anything less than an advanced industrial economy.  These include not simply advanced technologies for regulating and responding to environmental degradation without interrupting the productive activity of the polluting industry, which China does not have, but highly evolved banking systems, auditing systems, and socially pervasive accounting practices to that can effectively collect and redistribute wealth through an efficient the taxation system, which China also does not have.”

I do not share Pessimo's reservations regarding this second theorem, for three reasons:

First, whether China has achieved the development objectives stated by the model does not strike me as particularly relevant. At the end of the day, what we are looking for is whether the model holds some internal coherence, is grounded on some form of credible knowledge (theoretical or empirical), and can be implemented. So, looking at China and saying it has not achieved the goals prescribed by the model is similar to dismissing the Washington Consensus by saying that the United States does not have the touted free market economy advocated by the model. The concrete experience of one country does not invalidate the model. Indeed, as Ramo himself acknowledge in the paper, China should not be considered an example:

“China's market dynamism has brought all sorts of problems. On the macro level these problems include pollution, social instability, corruption, mistrust of the government and unemployment. On a personal level, all but the youngest Chinese find themselves at least somewhat disoriented by the rapid change in their lives (...) In the last 25 years, China's economy has moved from one of the most equitable in the world in terms of income distribution to one of the most inequitable (p. 24)”

So, the question is not whether China is indeed successfully following this model or not. The question is whether the model can provide guidance for action for developing countries. 

Pessimo will argue that the model cannot possibly provide guidance to other countries because there is a circularity in the argument. Pessimo says: to achieve the goals set up by this model, a country needs to be developed already. Unlike Pessimo, I do not see a circularity problem here. The theorem only seems to require countries to focus on achieving these goals. Thus, I interpret the paragraph as an aspirational statement. It invites developing countries to focus on other goals, rather than focusing exclusively on economic growth. Whether and how these countries will succeed in achieving sustainability and equality is a different question entirely.

Second, Pessimo seems to read too much into the words sustainability and equality. I am not fully sure if they refer to environmental sustainability. They may be referring to policy sustainability, i.e. the capacity to maintain in place the policy decisions taken at a certain point in time. Similarly, Pessimo seems to assume that equality refers to income or wealth equality, when it may be an expression that refers to something entirely different, such as not intentionally producing significant winners and losers out of reforms.

I am not sure if this is what Ramo meant by the words sustainable and equitable, so this is entirely speculative on my part. But if we were to interpret his use of the these words in the way I propose, I think the dual track reforms implemented during the Chinese transition from a centralized economy to a market economy perfectly exemplify the concerns with sustainability (of the reform) and equality (in the gains that were produced by the transition). For a full explanation and analysis see here.

Third, Pessimo seems to zoom in on the idea of managing chaos, while ignoring the fact that Ramo is inviting countries to adopt a plurality of objectives. This seems like a healthy shift in development thinking (and seems especially refreshing if contrasted with the economically centered discourse of the Washington Consensus). 

Indeed, in his clarification to some of the comments I had offered earlier, Pessimo stated that: “there are other ways of conceptualizing ‘development’ -- such as Sen’s development as freedom, or improvements in general quality of life, or simply development as alleviation of the brutality of material poverty (my preference).  When conceptualized in this terms, I am much less a determinist – probably no more so than most people.” This seems to be in line with Ramo’s opening statement about focusing on quality of life instead of GDP. This takes us back to the discussion about the concept of development that should be embedded in a model for development, which is something that both Pessimo and I have commented on earlier and we seem to be somewhat in agreement regarding this point. Therefore, it take me by surprise that Pessimo has not simply embraced Ramo's invitation to focus on "quality of life", instead of GDP.

In sum, for the three reasons present above, I do no share Pessimo’s reservations regarding the second theorem.

 Let me finish with a question for Pessimo. China seems to be a great example of a country in which millions of people have been lifted out of poverty and have had their lives improved in the last decades. If nothing else, we could perhaps say that at the very least the country has effectively adopt strategies to reduce "the brutality of material poverty", to use Pessimo's expression. So, if we do not want to ask China to behave like a developed countries before becoming one, isn’t this enough to show that they have some sort of promising strategy in place?

Dialogus de Beijing Consensus -- Pessimo: One final thought about Ramo's first theorem

Pessimo:

So I'm watching the sunrise this morning, worrying about which gender I should choose (and knowing that whichever I choose, it will certainly be the wrong one), when it finally 'dawned' on me (get it?) what it is about Ramo's first 'theorem' that makes it so problematic for me.  To recap, that theorem says that:

"Rather than the “old-physics” argument that developing countries must start development with trailing-edge technology (copper wires), it insists that on the necessity of bleeding-edge innovation (fiber optic) to create change that moves faster than the problems change creates."

The problem with this, of course, is that the ability to deploy cutting-edge technology (like fiber optics) is a key indicia of development.  What Ramo ultimately seems to be saying is 'the key to development is to be developed.'  It's a circular argument.

I raise this point because I will argue that we are going to see exactly this kind of circular argument again when we look at the East Asian Model and New Development Economics.  And I'm beginning to wonder if such arguments might be a too common theme in the development agenda -- a theme that started off with 'the key to development is to act like you're developed' (see, e.g., Ramo, New Institutional Economics, the World Bank's Doing Business Reports), and when that didn't work, has since morphed into 'the key to development is to do whatever helps you to become developed.'  This latter tautology is often framed in metaphorical terms of 'experimentation'.  But as we shall see, at least in the case of China, this is a hollow metaphor:  As I shall argue a bit later, China has never engaged in anything that an meaningfully be called 'experimentation': its 'experimentation' is better analogized to a 'random walk'.   But a random-walk theory of development doesn't leave much for a developmental 'theory' to do.  Hence, the resort to circular arguments -- they are useful for making something that is not really a theory look like a theory.

* * *

Post script:  Following Optimo's response, I now realize that this is not nearly as strong or as global a critique as I thought it was.  Never mind.

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”.   

Dialogus de Beijing Consensus -- On Ramo's idea of a 'Beijing Consensus': Pessimo's clarification

Pessimo's clarification:

Optimo’s response to my pessimism regarding Ramo’ particular articulation of the Beijing Consensus deserves some clarifications of my position, and perhaps of the terms of our dialogue.  This include (1) the nature of ‘development’; (2) the nature of what I am calling ‘agglomeration’; and (3) the nature of my developmental ‘determinism’.

With regards to the first clarification.  My relatively deterministic stance toward the possibilities of institutionally-fed development only applies only to one particular conceptualization of development – this is the one that equates ‘development’ with increased relative geographical (national) capacity to produce and capture material wealth (e.g., with moving from what the World Bank calls a “low income’ to a ‘medium income’ country, or from a low- or medium -income country to a ‘high-income’ country).  This is the particular conceptualization that I (and many others) see as principally driving the law-and-development project (and the global ‘development’ agenda writ large).

But, of course, there are other ways of conceptualizing ‘development’ -- such as Sen’s development as freedom, or improvements in general quality of life, or simply development as alleviation of the brutality of material poverty (my preference).  When conceptualized in this terms, I am much less a determinist – probably no more so than most people.

Along these lines, I would hypothesize that the two particular examples of technology-driven development that Optimo cites to – mobile banking in Africa and Brazil’s rapid bus transit system – certainly contribute to ‘development’ in the sense of improved ‘freedom’ or 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.  To put it another way, I would suspect that mobile banking and rapid bus transit are important innovations with regards to progressive wealth redistribution, but not so much with regards to what we call economic growth.

Similarly (my second clarification), when I talk about agglomeration, I am talking only about a particular form of agglomeration – agglomeration that leads to product competitiveness (i.e., superior competitiveness in design rather than in price) and superior capture of material wealth -- what is often referred to collectively as 'moving up the value chain'.  This is the kind of agglomeration that works to promote 'development' as I have defined it above.  Of course, there are also other dimensions of agglomeration, but for the most part they do not contribute to an increase in a country's capacity to generate and retain material wealth.  Along these lines, China does indeed enjoy significant agglomeration effects in a number of productive technologies – for example in food adulteration and suppression of industrial wages.  But viewed from a purely developmental perspective, the problem with these particular technologies is that they do not contribute to development as I have defined it: their principal effect, like the technologies that Optimo lists in his or her response, lies in their contributions to wealth distribution (clear regressive in the case of labor exploitation; but perhaps somewhat progressive in the case of food adulteration (but which doesn't make it right, obviously)) rather than wealth generation and capture.

Finally, I would like to note that in discussing Taiwan, Optimo provokes a very interesting observation: Ramo’s Beijing Consensus would have been much more persuasive and compelling if he would have called it instead the Taipei Consensus (although this would not have contributed to with what I believe to be one of Ramo’s principal objectives in advancing this model: that of helping Kissinger & Associates curry favor and influence with mainland Chinese leadership).

This leads me to my third clarification, the nature of my developmental determinism.  I am not determinist with regards to a country’s level of development per se.  Certainly, countries can and do ‘develop’ in the sense of increasing their capacity to generate and retain material wealth relative to the rest of the world.  And Taiwan and South Korea are clear examples of this.  My determinism lies more limitedly in 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).  Without belaboring the basis for and parameters of this particular determinism, I would argue that the economic development of both Taiwan and South Korea is due simply by their close geographical and  cultural proximity to Japan, together with a perhaps even closer cultural proximity to the United States that emerged during and owing to the Cold War.  It was and is these various dimensions of proximity that catalyze the unique ability of their industrial parks to promote cutting-edge agglomeration.  But another way, I argue that is development that enables institutions (including Asian industrial parks), not the other way around.

Finally, I would like to point out that contrary to Optimo's presumption, I have yet to determine my gender.  This would suggest that I am a hermaphrodite.  And since I am also also a literary fiction, this makes me not simply a ordinary, every-day kind of hermaphrodite, but a speculative hermaphrodite, which I think would make a terrific character-class in World of Warcraft.

Dialogus de Beijing Consensus -- Optimo on Ramo's idea of a 'Beijing Consensus' (First theorem)

Question:  Does the so-called ‘Beijing Consensus’ present a meaningful ‘model’ or blueprint for development?

Optimo: It does, despite the alleged lack of success of the model in China.

In his last post, Pessimo presented, in a very clear fashion, the three theorems that characterize the so-called Beijing Consensus, as defined by Ramo. He then criticized these three theorems by raising two kinds of objections. One is that some of these theorems are wrong or have unrealistic assumptions. The other objection is that China, which was supposed to be an illustrative case for such theorems, has failed to successfully achieve any of the goals set up by the model.

The first type of criticism is far stronger than the second type. The Chinese failure in successfully following or implementing the model may illustrate problems in the model, but it says little about the overall potential of the model to provide meaningful guidance to other countries. Thus, most of my response will be focused on the first type of objection, the one that questions the basic assumptions of the model.

Let’s start with innovation (and given the length of my response I will leave the other two theorems for future posts).

Pessimo is skeptical of the possibility of creating “and sustaining capacity for leading edge innovation is virtually impossible in the developing world”. To support this idea he mentions that many attempts to create industrial parks modeled after “those that have promoted leading-edge innovation in Taiwan and South Korea have been unsuccessful”. If I understand this correctly, there seems to be an inherent contradiction in the argument here: if “innovation is virtually impossible in the developing world”, how can we explain that countries like Taiwan and South Korea managed to successfully create innovative industrial parks? Should they not be classified as developing countries? Assuming they were developing countries at the time these innovations took place, maybe we can start by toning down the criticism and assume that innovation is not “virtually impossible” but perhaps “less likely to happen” in the developing world?

The fact that some developing countries have failed at producing innovation alone is not a reason to disprove the model. The question that need to be answered is why these countries have failed. This is exactly the point in which my disagreement with Pessimo becomes very clear. To explain the failed attempts to set up “ledging-edge” or “bleeding-edge” innovation, Pessimo argues that a series of pre-determined economic factors that are directly associated with the geographical conditions of the country (the so called agglomeration effects) tend to favor developed nations as the locus for such innovation. This would require a country to “be lucky” enough to be in the right place at the right time in order to develop. I do not subscribe to this explanation, let alone to its deterministic tone.

Innovation requires a variety of factors to take place, but one of the most cited studies to explain the capacity of Taiwan and South Korea to produce innovation is the idea of “Embedded Autonomy”, developed by Peter Evans. The argument has two parts. One is that the state has an important role to play in promoting innovation. Thus, while innovation is not determined by geographic factors alone, it is also not determined by the individual assumptions of the rational actor model either. In other words, institutions matter. The second element is the assumption that a particular type of state is required to promote such innovation. According to Evans, the state’s capacity to produce innovation requires a combination of the “autonomy” prescribed by the Weberian bureaucratic model, while at the same time requiring the cooperation of private actors that can only be obtained if the state in “embedded” in society. This “embedded autonomy” is a “contradictory balance” that is hard to find. Moreover, Evans acknowledges that there is more than one way for a state to be embedded in society, as the contrasting examples of Taiwan and South Korea show. Nevertheless, some form of embedded autonomy is a requirement for innovation to take place.

The best example to support Evan’s thesis and challenge the idea of agglomeration effects is Brazil. As Evans shows, Brazil has not developed a fully functional developmental state like Korea and Taiwan. Instead, the country has mostly a dysfunctional bureaucracy, except for a few departments that are often described as “pockets of efficiency”. When a pocket of efficiency manages to have the required “embedded autonomy”, innovation becomes feasible. The automotive sector in the 1960s and 1970s is one example. In contrast, Brazil’s massive failure in producing innovation in information technology illustrates that a country may be able to innovate in some sectors by not in others, depending on the institutions governing each of these sectors.

Evans’ argument was recently by revised by him and by others. While the revisions do not reject the two basic premises of the argument (the importance of the state, and the need for embedded autonomy), Evans’own revisions indicate that the relevant social relations supporting embeddedness are now broader (i.e. it involves a larger set of actors). Others, in turn, have emphasized the importance of focusing on processes, rather than outcomes as exemplified by the most recent literature on industrial policy (e.g. see this piece by Rodrik). Brazil again offers an example of this type of arrangement with the innovations in the agricultural sector promoted by the Brazilian Corporation for Agricultural Research, EMBRAPA.

In addition to disagreeing with Pessimo’s argument that innovation is “almost impossible” in developing countries due to agglomeration effects, I also want to challenge his interpretation of the first theorem of Ramo’s articulation of the Beijing Consensus. Pessimo seems to assume that the innovation needs to take place in the developing world in order to promote development. I am not sure this is what Ramo meant. The question that Ramo asks is what kind of technology should these countries use to “start development”. His answer to this question is that “bleeding-edge innovation” (rather than trailing-edge technology) that can “create change that moves faster than the problems change creates” is more likely to promote development. Where the technology is coming from, however, is not clear -- not in the excerpt in Pessimo’s post, at least.

There is at least one example that may suggest that the technology can come from the developed world and still benefit developing countries. Mobile banking in African nations revolutionized financial transactions in the continent, allowing money transfers from one cellphone to another without the intermediation of a financial institution. This innovation builds upon a bleeding-edge technology (mobile telephony) created in developed countries to bring change to another industry: banking in developing nations.

My point here is that Pessimo’s argument that innovation can only happen in developed countries seems to assume that there is a linear process of innovation, and developing countries are playing catch-up. If we abandon this premise, we can see that there is not a leader and a follower, but there are instead multiple paths. Indeed, mobile banking in Africa is the case in point. This is a particularly important innovation in a region in which levels of literacy are low and the presence of financial institutions outside large urban centers is scarce. So, the innovation is not relevant to developed nations or even to middle-income countries, such as Brazil and Mexico. But it has been quite relevant in the African context.

Another important question is what kind of technological innovations can be classified as bleeding-edge. One response is to say that it needs to be bleeding-edge from a scientific standpoint. But I wonder if we should also include here the fact that adopting bleeding-edge innovation and making not so bleeding-edge modifications on it could generate relevant social changes. So, we do not need to talk about ultra revolutionary scientific ideas, akin to inventing the laser technology. Sometimes, some marginal modification in existing products can generate quite significant results. One example is the slightly modified system for public buses that has shown significant results. The so-called bus-rapid-transit (BRT) requires less investment than subways, and is able to transport a higher number of passengers than a regular bus system. The changes are the payment system outside the buses, dedicated lanes and a faster entry-exit system in the buses (which are at the same level of the boarding platform). As a result, it is a great option for developing countries. Indeed, the system has been widely adopted in Latin America and has already made inroads in China and India. This may not be a “bleeding-edge” or “ledging-edge” innovation from a scientific standpoint, but it has generated “bleeding-edge” innovations in public transportation systems. If we consider the impact it has had in the lives of millions of people, this could be considered the type of technological innovation that may promote development.

The last point I want to make is regarding the idea that technological innovation will promote development as long as it “moves faster than the problems change creates”. Pessimo questions what does that mean. I think it means that dynamic innovation is better than slow moving one (coming from outside or inside). As a particular technology becomes widespread and settled, it creates a series of self-reinforcing mechanisms that make it hard to move away from it, even if there is superior technology available. The cautionary tale of the QWERTY keyboard is probably the most cited example of this problem.

  

I think this is enough to start the conversation. My comments on the other two theorems will be coming next week.