It is not enough to say “_________ explains why Malthus was wrong,” and to fill in the blank with such words as “technological change” or “discovery” or “the Enlightenment” or “science” or “the industrial revolution.” To answer the question, we have to understand what those words mean. As I’ll argue, there is no way to understand those words without understanding the more fundamental words “nonrival” and “excludable.”
…The second question, about missed opportunities, asks what that other variable might be. Once again, it is not enough to say that “many poor countries fail to take advantage of rapid catch-up growth because they ____________” and then fill in the blank with such words as “have bad institutions” or “are corrupt” or “lack social capital” or “are held back by culture.”
Pointer from Mark Thoma. I plead guilty to the second.
Wait, didn’t Greg Clark answer these questions with his book “A Farewell to Alms” (and the follow-up, “A Son Also Rises”?) The answers are “smart Englishmen” — and “not enough smart Englishmen” (or to not be cheeky, “not enough smart people.”)
Technically the chain of answers to every question of differences in human development will end up at something like “because group B got the short end of the stick during a post-Big-Bang quantum fluctuation”, but that doesn’t mean intermediate answers aren’t often much more useful.
The intermediate answers just have to be both true and actionable. “Technological capability could always grow at a faster rate than population growth” would be a definitive answer to Malthus, for example, if it wasn’t untrue and we discovered that some policy X (or laissez faire) would ensure that growth rate. “Bad institutions” could be a useful answer to economically failing countries, if they were really a sufficient explanatory factor and there was an achievable way to replace them with good institutions. Even “not enough smart people”, while not directly useful, might only be one level of explanation and one generation away from whatever educational/nutritional/medical/genetic intervention actually *could* work.
I am glad you highlighted these two passages. I just recently read them and was scratching my head to get his meaning. I certainly agree just saying science or enlightenment won’t answer the first question without further defining the terms. And I guess I agree that you can’t grasp human prosperity without groking the concept of the positive sum nature of ideas and solutions. Is this his point?
As for the second sentence, it seems pretty effective to identify the role of social capital or institutions. Granted, we need to go into more detail, but if we can explain how the lack of trust, a lack of secure property rights, a “not invented here” mindset, or corrupt officials is interfering in cooperative problem solving necessary to lift living standards out of the mud, then we are explaining a heck of a lot. These are all empirical issues which are in theory quantifiable and open to experimentation, change and comparison. In every case the framework of growth clarifies why these could be harmful, reveals they are indeed associated with slower lead or catch up growth and that solving these issues is part of the breakthrough.
A tentative albeit debatable recipe for economic progress has emerged over the past 250 years or so. I don’t get what he is criticizing here.
” if we can explain how the lack of trust, a lack of secure property rights, a “not invented here” mindset, or corrupt officials is interfering in cooperative problem solving necessary to lift living standards out of the mud, then we are explaining a heck of a lot. ”
I don’t think you can say has China been particularly good at solving any of these problems.
It might be better to just admit trying to “explain” such things is a conceit.
I don’t think you can say has China been particularly good at solving any of these problems.
On the contrary, I think you most definitely can.
The Central Committee made an intentional decision to make the economy more market based and enforce that through the local committees both by edict and by allowing local party operatives to cut themselves into the profit of state owned enterprises.
While there may be corruption, there is most definitely an increase of social trust and an increase of de facto property rights, especially in dealing with foreign commerce.
It might be better to just admit trying to “explain” such things is a conceit.
I think explaining what failed economies lack is productive and accurate. Explaining how to fix each of them is probably wrong.
China’s ruling party has a relationship to the world economy, and a relationship to its citizens. You are conflating the two.
If you just looking at the relationship to the citizens, which I think is appropriate for this discussion, then there is no way to rationally ague that China has followed this model of success at all. If China qualifies here, this is far to pliable a concept to be of any use to anyone.
I think hundreds of millions of newly minted middle class Chinese who expect to go home and find that it’s their home and expect to go to work and find that it’s still their employers’ work would disagree.
Why is it too pliable? Two out of forty times (Vietnam and China) a communist government has become market oriented. That’s not a recipe you would apply to fix failed economies wherever you might find them. But you can’t deny that property rights are respected and social trust is commonplace — and the citizenry is consequently far better off — in modern coastal China.
Actually I think I can somewhat knowledgeably recite how China has or has not had these and various other factors for various eras for the last two thousand years. I have been gathering hundreds of pages of notes on this very topic all year.
If you have a model of economic and social progress (I do have such a model), it is possible to compare individual states against such a model and provide recommendations on how they can move closer to the model if they so choose.
Right now China is playing a good catch-up growth game. North Korea, not so much.
Yes the issue is complex and involves a mixture of markets, science, technology, political institutions, other institutions and cultural mindsets. In addition these factors strongly interact. Democracy in a culture absent an enlightenment, open access mindset is a completely different beast. In addition the game for catch up (drafting on leaders) is not the same as the game for initially blazing the trail.
The second sentence seems surprising coming from Romer. What are charter cities if not in-sourcing good institutions?
Put another way. If charter cities is just importing better technocrats into environments they don’t understand then that makes even less sense in light of his second sentence, not to mention making the idea way less intriguing.
My theory on the poor and middle income traps is that technological trends have pushed the comparative advantage of most people everywhere away from performing activities that make things that can be traded across borders. That leaves them stuck mostly selling local services to each other, which, for people in less developed countries, is no way to get rich.
Meanwhile, a permanent problem with democracies everywhere is the tendency of short time horizon politicians to pay off political coalitions with promises of generous, long-term entitlement benefits. A lot of those promises were based on certain assumptions about population and economic growth, that almost everywhere look to have been foolishly over-optimistic. Look at Greece and Brazil right now.
One question to ask is why does all this migration stuff seem to be ‘happening now’ – that is – having gradually grown in intensity and magnitude over the past few decades until it now seems to be the top issue and current event, over and over?
The usual narratives are the horsemen-of-apocalypse sudden-catastrophe stuff: disease, war, famine. However, and as bad as they can be, by any objective metric, these things are much less severe than they used to be.
But my guess is that the all the arbitrage opportunities of globalization with regards to trade and the free-ish movement of capital and operations-siting have now been exploited to the point of diminishing returns, except one. The one big arbitrage opportunity left in the ‘Great Factor Price Equalization’ is the movement of labor from low-income to high-income countries to perform ‘local interaction services’, and it only persists because of policy.
And since most human labor is increasingly moving to performing local-interaction services, the only obvious way for a rich-country employer to lower costs, or for a poor-country employee to improve his standard of living, is to bring the poor worker to the rich country.
The aggregate value of this arbitrage grows with both population, the extent of the transition in the composition of the labor force, and the collapse of the Social-Democratic-Entitlement model in many poorer countries, and so the pressure builds and builds. The recent migration crisis in Europe is just the tip of the iceberg.
Let’s say the answer would be specialization. That might make a high hurdle (or deep trap) for small countries to risk a transition from a mixed service economy to focusing capital on a few competitive exports. So, larger countries like China (and their ability to mandate capital accumulation may help) are the ones who can clear the hurdle/trap to the other side of global participation.
They’re already specialized, just not on making exportable products. That’s just the problem – competitively making those things is not their specialty.
Maybe in the long term they make it their specialty, but in the short term people in poor countries will focus on the most valuable thing they can do right now.
The trouble is that it’s entirely possible that the most valuable thing they can do is nothing that any richer country wants, because they can’t do it any better or cheaper than it’s already being done somewhere else. The whole economy stagnates at the present, low standard of living, with only major natural resources and agricultural commodities being traded abroad.
Lower local labor costs become decreasingly important as a lure as the optimal capital-to-labor ratio continues to climb for mass produced physical objects, i.e. through automation innovations.
If it weren’t for a multi-dimensionally inhospitable local political environment in many developed countries, I’d expect to see highly-automated manufacturing facilities start to move back home to engage in domestic production.
I understand what is meant by “technological change” or “discovery” or “the Enlightenment” or “science” or “the industrial revolution”, how those concepts fit within arguments about large trends and contingent challenges.
The phrases “nonrival” and “excludable” are unnecessary to that understanding and probably just re-wordings of common-sense provisos.
Yeah, in reading Romer, I almost get the impression that economists finally got the common sense things we long since understood. The idea that someone inventing the idea of fire, or the wheel or the Internet is potentially good for mankind is (or should be) obvious to non economists. The strange thing is most economists didn’t see this all along. Paradigms.