Category: Development

Economic policies matter. All else being equal, lousy economic policies create lousy economies.

Individually people all over the world have approximately the same natural endowments. What makes a difference is the nurture provided by the environment. And that environment is exogenous to an individual but endogenous to the entire collection of individuals which is called the society or the economy.

The assembly-line is an advance in technology which once invented was available to whoever wanted to use it. Its adoptin, however, is dependent upon the institutions and consequently the economic policies of the economy. The US has been lucky to be endowed with vast natural resources, a very motivated labor force, and enlightened leaders who created the institutions that create wealth (and to some extent distribute that wealth.) It is not possible for India to duplicate the trajectory that the US took because times and technology have changed. India cannot enslave about 100 million people, for example, to work on its cotton fields. The present day alternative is sweat shops. India could have had the option of going that route if its economic policies were not so inimical to foreign direct investment. The ethics of sweatshop are complex but the economics are fairly well-understood.

India could have leap-frogged the manufacturing stage and gone straight from the agricultural stage to the information/service stage. The snag was that we neglected universal primary education and therefore hobbled ourselves. Even now it is not too late provided that instead of the inefficient subsidies that bleed the public purse, we start concentrating on educating the hundreds of millions. Fortunately the technology is available to do so inexpensively. Whether the economic policies of the government allows this miracle to happen or not depends on the telecommunications policies.

I am afraid that the indications are that the government’s objective in the telecommunications sector is short-term revenue maximization instead of public welfare maximization. On the one hand it talks loudly about the need for affordable telephones for all, and on the other hand it imposes unsustainably heavy burdens of license fees, revenue sharing and taxes on entrants to the sector. This suppresses the investment and consequent expansion of the sector.

Economics concerns itself with one fundamental problem, that of allocating scarce resources efficiently and optimally.
Continue reading “The Fundamental Problem of Development (Part 1)”

While reading a paper ‘Sustainable Development’ by David Korten in which he surveys a bunch of publications around 1991-92, I came across his critique of the Brundtland Commission report. What he wrote there reminded me of Schumacher’s comment in ‘Small is Beautiful’ [1973].

“The neglect, indeed the rejection, of wisdom has gone so far that most of our intellectuals have not even the faintest idea what the term could mean. As a result, they always tend to try and cure a disease by intensifying its causes.”

Korten writes:

“The (Brundtland Commission) report’s key recommendation – a call for world’s economic growth to rise to a level five to 10 times the current output and for accelerated growth in the industrial countries to stimulate demand for the products of poor countries – fundamentally contradicted its own analysis that growth and overconsumption are the root causes of the problem.”

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Yesterday I noted one question posed at the Policy Makers’ Workshop:

Can ICTs be useful for rural and remote areas of developing countries, especially the poverty-stricken regions?

We need to examine that question for a moment. At one level of analysis, it is hard to not answer that question in the affirmative. At another level, it is a meaningless question. Merely because it is syntactically correct does not imply that it has any content. Consider the question:

Can magnetic levitation superfast monorail transportation systems be useful for rural and remote areas of developing countries, especially the poverty-stricken regions?

Clearly, yes. Not just magnetic levitation superfast monorail transportation systems, but an almost unending variety of things would be useful for the development of poverty-stricken remote areas. Not merely for those areas, all of those unending variety of things would be useful for the development of not so remote and not so poverty-stricken areas of any developing country. Thus that question is actually content-free.
Continue reading “The Question: ICT for Development?”

From a recent speech by the World Bank President, Mr. Wolfensohn, one learns a number of facts about the world. For instance, 80% of the global GDP is owned by about 1 billion people (or 1/6th of the world’s population.) About 1 billion live on less than $1 a day.

The rich are not only fewer in number, but their numbers are projected to increase much slower than the increase in the number of poor. In the next 25 years, the rich nations would add only 50 million people more; thirty times that number, or 1.5 billion, would be added to the population of the world’s poor nations. That would only go to increase the poverty figures. Especially in sub-Saharan Africa, the absolute number of poor will actually grow. They are not going to meet the Millennium Development Goals for sure.

Development assistance from the the rich nations to the poor is an impressive $56 billion a year. That figure is no longer impressive when you learn that agricultural subsidies that rich farmers receive worldwide is $300 billion. That subsidy is at least a major factor in the impoverishment of the farmers in developing countries. In a globalized world, there is a strong link between agricultural subsidies in rich nations and the farmer suicides that are periodically reported in some developing nations.

Whatever be the dismal state of affairs, what is more disturbing is the trend. Development assistance fell from 0.5% of GDP of rich nations in the early 1960s to a mere 0.22% today. Compared to $56 billion of assistance, the world spends $600 billion on ‘defense’. Weapons’ spending dwarfs development spending worldwide.

It is important to recognize that one of the leading factors of the persistent and ubiquitous misery globally is the ‘defense’ expenditure of nations both rich and poor. All the futzing around with bridging the so called digital divide is pointless unless we also simultaneoulsy deal with the fact that we are awash in an ocean of weapons.