Naked Economics: Undressing the Dismal Science pdfdrive com

CHAPTER
13

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Development Economics:
The wealth and poverty of nations
L
et us briefly contemplate the life of Nashon Zimba, a twenty-five-year-old
man who lives with his wife and baby daughter in Malawi. There is no question
that Mr. Zimba is a hardworking man. He built his own home, as The Economist
describes:
He digs up mud, shapes it into cuboids and then dries it in the sun
to make bricks. He mixes his own cement, also from mud. He cuts
branches to make beams, and thatches the roof with sisal or grass. His
only industrial input is the metal blade on his axe. Working on his
own, while at the same time growing food for his family, Mr. Zimba
has erected a house that is dark, cramped, cold in the winter, steamy in
summer and has running water only when tropical storms come
through the roof.
1
For all that work, Mr. Zimba is a poor man. His cash income in 2000 was
roughly $40. He is hardly alone. Malawian GDP per capita was less than $200 at
the time that story was written. Even today, the nation’s entire annual economic
output is only about $12 billion—or about half the size of Vermont’s economy.
Lest anyone naively believe that there is something pleasantly simple about this
existence, it should be pointed out that 30 percent of young children in Malawi
are malnourished; more than two of every ten children will die before they reach
their fifth birthday.
According to the UN’s Food and Agriculture Organization, there are a billion
people in the world who don’t get enough to eat. The vast majority are in the
developing world; roughly half are in India and China. How is that possible? At
a time when we can split the atom, land on the moon, and decode the human
genome, why do 2 billion people live on less than $2 a day?
2
The short answer is that their economies have failed them. At bottom, creating
wealth is a process of taking inputs, including human talent, and producing
things of value. Poor economies are not organized to do that. In his excellent
book on economic development, The Elusive Quest for Growth, World Bank
economist William Easterly describes a street scene in Lahore, Pakistan:
People throng the markets in the old city, where the lanes are so

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narrow that the crowds swallow the car. People buying, people selling,
people eating, people cooking. Every street, every lane crammed with
shops, each shop crammed with people. This is a private economy
with a lot of dynamism.
3
It is also, he notes, a country that is largely illiterate, ill housed, and ill fed. The
Pakistani government has built nuclear weapons but is unable to conduct an
immunization program against measles. “Wonderful people,” writes Mr.
Easterly. “Terrible government.” And it is a terrible government that has become
increasingly dangerous for the rest of the world. We can (probably) safely ignore
Malawi. Not Pakistan.
Every country has resources, if only the wits and hard work of the people who
inhabit it. Most countries, including some of the poorest nations on earth, have
far more resources than that. Let me get the bad news out of the way:
Economists do not have a recipe for making poor countries rich. True, there have
been some fabulous success stories, such as the original Asian “tigers”—Hong
Kong, Singapore, South Korea, and Taiwan—which saw their economies grow
more than 8 percent a year for nearly three decades. China and India have had a
terrific decade, much to the benefit of hundreds of millions of people. But we do
not have a proven formula for growth that can be rolled out in country after
country like some kind of development franchise. Just think about China and
India: One is the world’s largest democracy; the other is not democratic at all.
On the other hand, we do have a good understanding of what makes rich
countries rich. If we can catalog the kinds of policies that functional economies
have in common, then we can turn our attention to Nobel laureate Douglass
North’s common-sense query “Why don’t poor countries simply adopt policies
that make for plenty?”
4
The following is a sample of the kinds of policies and, in some cases, lucky
geographical endowments that development economists have come to believe
make the difference between the wealth and poverty of nations.