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Economic Development Internationalist of the Week PAD6836 Lecture 8 University of North Florida Master of Public Administration program PAD 6836 Comparative public administration Economic development Internationalist of the week photo credit Manmohan Singh * Among other things, in our discussions of corruption we’ve noted that there is a difficult cycle to break out of in terms of governance: poor countries cannot afford to pay salaries that attract competent people into public service, and as a result of the corruption and inefficiency that results, citizens have little inclination to pay the taxes needed to attract and keep good people in public administration. George’s more or less random thoughts on development Progress! The general idea of economic development is to increase the productivity of society so that it produces more goods and services. Everyone wants it. Especially among left-wing critics, development (even ‘progress’) is often criticized as being materialistic, and/or a Western pathology acting as a siren’s song to lure traditional societies out of their Ruritanian idyls (I’m not sure if ‘idyl’ works with Ruritanian, but it sounds good – click for a discussion of Ruritania). This is probably not the case, for at least two reasons: 1. There isn’t much evidence to support this, among actually existing human societies (an exception). 2. Critics seem unable to understand that at lower levels of development, ‘more stuff’ means housing that protects one from the elements and vermin, health care, more efficient tools, etc. Preconditions. Causes of economic growth (drawing from Parkin 2005, with many modifications) Free markets – understood as relatively free, given what is possible in an imperfect world. Good governance. This is the item that is especially important in a Master of Public Administration program: good governance. If the goods get to the port but are held up by Page 1 of 13 PAD6836 Lecture 8 costly administrative delays, or the manufacturer has to bribe officials to get something cleared through customs, production suffers. This is necessary for a range of things, like: Property rights -- this is especially relevant in terms of investment, as will be elaborated on below. Monetary exchange. Barter is not an effective way to trade. Human capital. There is a reason why Japan and Germany recovered so quickly from the devastation of World War II. Saving and investment in new capital. I’ll list this separately, as it comes from both the market (factories, equipment, buildings, technology, etc.), and from government (roads, ports, rail lines, schools, etc. See the ‘Road to hell’ article from The Economist this week’s readings). Compatible culture. In addition to encouraging (or at least not discouraging) entrepreneurship, this also might include a broader understanding of other, more cultural than governmental characteristics of the labour force: discipline (turning up for work distribution (mobility, for example) Discovery (or application) of new technologies -- understood broadly Social technology: better social organization. Especially prominent here would be good government! Whiz bang gadget-type stuff: better mousetraps that improve productivity and/or find markets. The discovery v. application distinction is critical, too. Application: many countries have launched themselves into sustained growth (for a decade or two) through adopting existing technologies, relying on cheap labour to launch this ‘take-off’. Discovery: at some point, simply adopting existing technology will not be enough. Instead, new technologies need to be developed locally (example). This has especially been the case with China, for instance, as wages have risen, and some manufacturing has shifted to lower wage countries, like Vietnam, Cambodia, and India (source). Pre-req plateau: another dimension that is hard to untangle is what I’m terming ‘plateauing’. The logic here is that a country’s level of good government, human capital, infrastructure, and such ‘caps’ the level to which the country can grow, even with cheap labour. Congo and Somalia, for instance, have to have among the cheapest wages in the world, but neither of them are growing, as government is an absolute hindrance, infrastructure all but non-existent (a Congolese example), and human capital development woeful. So while (푐ℎ푒푎푝 푙푎푏표푢푟) + (푚푒푑표푐푟푒 푛푓푟푎푠푡푟푢푐푡푢푟푒) + (푙표푤 푠푘푙푙푒푑 푙푎푏표푟) + (푓푎푟 푔표푣푒푟푛푚푒푛푡) = 푔푟표푤푡ℎ ...there are limits to how much growth a society can achieve with those limitations (and so competitive disadvantages) in human capital, infrastructure, and government. Page 2 of 13 PAD6836 Lecture 8 The Australian auto industry One illustration of the complexity of economic development is reflected in the collapse of the Australian auto industry. To give my answer, up front, to the question posed in the title of the Dowling article: consumers killed the Australian auto industry. As I put it in our first lecture: Jobs do not get shipped overseas. Just to get this on the table: no ship has ever left a US port with jobs in it. Indeed, rather than being driven by corporate masters, globalization is driven by freely made purchasing decisions of US (and other) consumers at their local Wal Mart. For my entire life products have been labeled with country of origin, so every consumer has been able to make her/his own free decision whether to choose to purchase $10 an hour labour from an American textile worker in North Carolina, or 50 cent an hour labour from a Honduran textile worker in San Pedro Sula. More and more, we are deciding not to employ our fellow Americans to make our shirts, and are choosing the Hondurans instead. More recently, Chinese labour has become all the rage, it seems everyone has to have it. This is a critical point: jobs do not get shipped overseas by US corporations. Rather, what happens is that Americans and other global consumers no longer buy American products, American employers no longer have anything to do for the workers who make these products, and so the workers get fired. If the employer seeks to stay in that line of work, s/he moves to where s/he can obtain the sort of labour US and global consumers are willing to purchase: Honduras, China, Bangladesh, etc. The same applies to communities: no one is out to get us, China is not out-negotiating us, we just have to compete on price and/or quality. There was also probably more than a little government/industry collaboration that helped spur the demise of the Australian auto industry. When I lived there in the 1980s to early 90s, the country had five (count ‘em: five) domestic auto manufacturers, in a country with 1/15th the population of the US (which had three auto makers at the time). India India is the 'I' in the awkward 'BRIC' acronym that is meant to identify the four major emerging economies, and so we will look briefly at the recent economic reforms and economic performance of India, just by way of comparative contrast with (mostly to show that Brazil has not been unique) for insights into the process of development that has contributed to the progress these two societies have made toward entering the group of 'advanced industrial societies'. This political-economic link is especially evident in a recent book by Alfred Monteiro. He refers to reforms that are heavily economic in nature, in that human experience has shown that, as a recent World Bank publication put it: "An effective state is vital for the provision of the goods and services -- and the rules and institutions -- that allow markets to flourish and people to lead healthier, happier lives. Without it, sustainable development, both economic and social, is impossible." -- World Development Report 1997, p. 1 Keep in mind that the World Bank is widely (and unfairly) derided by lefties as some sort of tool of the capitalist class, and is generally skeptical of government. So for an organization like this to Page 3 of 13 PAD6836 Lecture 8 assert the importance of government is especially telling. As for the 'without it' proviso at the end of the statement above: "Nothing is more damaging to successful development than incompetent, irresponsible and corrupt government..." -- John Kenneth Galbraith (1994), A Journey Through Economic Time. Keep in mind, too, that Galbraith is widely (and unfairly) derided by conservatives as some sort of communist, and is generally supportive of government. So for someone like him to assert the potentially debilitating nature of government is especially telling. India and economic reform The Indian story is much like that of Brazil, except that its history is much different: Long history. Rather than a 'settler society', Indian history goes back millennia. Especially under Ashoka, an Emperor who ruled most of what is India over 2200 years ago, India brought in what were probably the most progressive policies of any society to that date. Like Brazil, though, it developed a culture characterized by rigid hierarchy (the famous 'caste' system), formalism, and a strong state role. India's government has generally been more effective than Brazil's, about as regulatory as Brazil's, and just as dishonest. On culture and development, it was long argued that there was a 'Hindu rate of growth'. What especially debunked this belief that economic growth was prevented by something inherent in India's dominant Hindu culture, was the observation that Hindus who had left India almost invariably outperformed folks in the countries to which they moved, even when the Hindu's arrived as penniless farm labourers. Elite advantage. India’s political and government bureaucratic elite favoured this status quo. The bureaucratic elite, of course, benefitted from these prominent, well paid jobs, while political elites both used government jobs to reward supporters, and many also tended to share a leaning toward socialism. o This was very common among the immediate post-independence elites around the world, perhaps because of the link between capitalism and colonialism.
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