Why are poor countries poor and rich countries rich? How are wealth and poverty related to changes in health, life expectancy, education, population growth and politics? A new book on development by UNU-MERIT Prof. Adam Szirmai, published 15 June 2015 by Cambridge University Press, explores the dynamics of socio-economic development and stagnation in developing countries.
Here the author sets out the essential context.
Throughout the book there’s one key concept: productive capacity. I see this as the core issue in development, and step-by-step I try to examine the factors that influence productive capacity in the very long run. Now this would suggest that development is all about economic growth and that of course is not the case.
Development is a much broader concept: it has to do with health, education, freedom, reduction in poverty, and all the social changes that we associate with a broader idea of development. But in order to realise these other aspects of development I think it’s too often forgotten that we need to focus on productive capacity. [Productive capacities are defined by UNCTAD as “the productive resources, entrepreneurial capabilities and production linkages which together determine the capacity of a country to produce goods and services and enable it to grow and develop. For tradable goods and services, it is the capacity to produce in an internationally competitive manner that matters.”] That makes this book really different from other development books in the field, where you have this broad concept like the Millennium Development Goals, where everything is equally important. It’s not.
Without productive capacity, you don’t have the means to realise reductions in poverty, or improvements in health, or improvements in education, and so forth. So then you go into the various factors that build productive capacity, which in the short run are economic. They have to do with accumulating capital, with innovation, with technological change. But of course the question is: why are some countries more successful in doing this than others? Then you again have to broaden your scope to take into account institutional influences, class relationships, and historical patterns which differ from country to country and continent to continent.
What exactly is productive capacity?
I mean something very simple by productive capacity, which has to do with GDP per worker or GDP per capita; those two things which are closely related but not identical. It is the difference between a stone age hunter and gatherer who is collecting nuts or digging a hole with a stick in the ground, and a modern worker who is using a huge amount of technology, machinery, equipment, knowledge, to achieve a vast increase in production per worker, which ultimately is the foundation of welfare. The change from the hunter and gatherer to the modern worker, with state-of-the art technology, that is what I mean by increases in productive capacity.
Highlighting a hierarchy of factors
In the book I have developed a framework, which I call the ‘framework of proximate, intermediate and ultimate causality’ — which makes a kind of hierarchy. At the proximate level you measure the traditional economic factors such as capital, the amount of education per worker, the size of the labour force, unemployment, the change in the structure of the economy and changes in total factor productivity. Those are the things that are as standard analysed by growth economists.
Then at an intermediate level you have very major differences in policies followed in different parts of the world: in East Asia, in China, in Latin America, or Africa. But policies that are typically one of the intermediate factors are not designed on a drawing board, but are themselves constrained by more ultimate factors.
It’s not an accident that there are differences in policy between Latin America and East Asia. Policy formation is constrained by institutions and by the power of different pressure groups within society, so you do have to analyse the different development of class relations and external influences in Latin America and Asia to also understand the differences in policy that subsequently influence the proximate factors.
How does the 2015 edition differ from earlier versions?
There have been four editions of this book [two with Cambridge University Press] in various versions going back to the early 1990s. So, there’s a lot of change in the book itself. The most important thing is that we’re witnessing a sea change in the international order, where finally the dominance of Western countries is being challenged by new emerging economies, such as most importantly China and India and perhaps also Brazil.
We’re witnessing a sea change in the international order, where finally the dominance of Western countries is being challenged by new emerging economies, such as most importantly China and India and perhaps also Brazil.
You can see that the response of the developing world to the crisis of 2008 has been very different from that of the advanced economies. The advanced economies have responded badly due to the fact that the financial institutions that have served them so well for a long time have morphed into very inefficient institutions, which became an obstacle to growth, which created the crisis, and which also inhibited a good response to the crisis.
If you look at growth rates, you will see that the developing world – including Africa – has been growing much more rapidly, actually since 2000 but more importantly since 2008, and that developing countries have been far less affected by the crisis than the Western world.
So, it is too early to say something final about this, but I think we are witnessing a sea change in the international order, with new major players entering and you can see this for instance in the construction of a new world bank dominated by China, India and Russia which will be a competitor to Western-dominated institutions such as the World Bank.
Why take a broad, interdisciplinary approach to development?
I think it is important to take a broad approach for two reasons. At the end of the day, the changes that you are interested in regarding development are partly economic ones, but also social ones. We have reduction in poverty, which I think we can call an economic dimension of development, but we also have increased education and its contribution to a better life of people, increased choice, human rights, political stability, and all these things need to be studied by various disciplines: political science for development of political system, demography, sociology for developments in the everyday lives of people, so that’s one end. If you look at the end result, development is a broad concept which needs to be studied from more than one perspective.
When I go back to productive capacity, most of that is economics. That would be a more disciplinary approach. And the way I analyse economic growth and productive capacity, GDP per capita or GDP per worker, is not fundamentally different from what is done in economics. But if you then go back a step further and analyse why for instance savings rates in China are higher than in the US, or attitudes to education differ in Asia and Africa, then you have to go back to study elements of institutions, politics and culture.
What we see is that in the past 15 years, economics and the social sciences have actually grown towards each other. You now see in economics things that were unthinkable previously: that in the American Economic Review you’re publishing articles on the goal of institutions or pre-colonial centralisation on long-run development.
I think that in order to understand that process and especially – and I emphasise – especially from a longer perspective, when you’re not just thinking of the problems of today and one year ago, but about development from really a fundamental long-run perspective, then you need to again broaden your perspective to include a variety of disciplines, and whether this is interdisciplinary or multidisciplinary, I don’t really care!
Why rely so strongly on data and statistics?
We’re all so involved in development that it is a hugely emotional and political issue. We’re not neutral in this. When you look at the problems of poverty and you really let yourself see what is going on, these are so shocking that people get hugely involved, often in very ideological fashions.
We’re all so involved in development that it is a hugely emotional and political issue. We’re not neutral to this…The moment you take a long-term empirical perspective, you have a kind of an empirical basis along which to judge these questions.
This means that there are radical shifts all the time in development economics or development studies, where you get one idea after another: sustainability, small-scale development, informal sector, gender, Millennium Development Goals, inclusiveness — one thing after another. There’s a strong element of faddishness in this, and these things come and go, and then people tend to get disappointed with the current term and invent something new.
The moment you take a long-term empirical perspective, you have a kind of an empirical basis along which to judge these questions. So for instance we do see that there are progresses being made in both reducing poverty on a global scale, not so much in absolute numbers but in percentage terms. If you look at the calories that people take in, you see advances over a long period. If you look at life expectancy, we’ve gained 20 years of life in Western countries and I think 10 or 12 years in developing countries.
These longer trends help you to put current debates in perspective and also force you to say: ‘Is it really true what I’m saying? Is it supported by data or is it contradicted?’ Now of course data are not holy and all the data are, you could say, hypotheses; but putting the empirical evidence on paper and making it available on a website also allows you to have an empirical debate about what’s happening, which will reduce the ideological content and make — to use another faddish term — development studies more evidence-based.
This article originally appeared on the blog of the United Nations University Maastricht Economic and Social Research Institute on Innovation and Technology (UNU-MERIT).