[Cause Exploration Prizes] Economic Growth and State Capacity

This essay was submitted to Open Philanthropy’s Cause Exploration Prizes contest.

If you’re seeing this in summer 2022, we’ll be posting many submissions in a short period. If you want to stop seeing them so often, apply a filter for the appropriate tag!

By Jeffrey Mason^[1]

Introduction

Global health and development (also termed “global poverty”) has been a priority cause area within effective altruism since the movement began. And among self-identified effective altruists, global poverty remains the highest priority cause area, as well as the most well-funded cause area.^[2] Open Philanthropy plays an outsized role^[3] in the channeling of donations to global poverty, both through donations recommended by GiveWell as well as through its own programs, such as those focused on South Asian air quality or global aid policy.^[4] Through these efforts by Open Philanthropy and the many other funding and implementation organizations associated with effective altruism, the wellbeing of millions throughout the Global South has been substantially improved, in addition to the many hundreds of thousands (or perhaps also millions) of lives saved. The cost-effectiveness for achieving this level of impact has been well-documented and it is crucial that these efforts continue.

However, this progress raises an important question: what is being done to target the economic and institutional conditions which make these interventions necessary? This is of course a complex question. Why Ghana experiences a much lower rate of malaria incidence^[5] than all its neighbors, for example, cannot likely be attributed to any single factor. When considering the importance, tractability, and neglectedness (ITN) framework which guides much individual and institutional EA thinking, it is unsurprising that this complexity produces hesitancy among effective altruists to focus on big, broad topics like economic growth and state capacity^[6] when far more direct and measurable options exist, like targeted interventions to reduce the incidence of malaria or to provide poor individuals with cash. Boosting economic growth and improving state capacity are not simple tasks—tractability-based objections to focusing on growth and capacity building are reasonable.

Bearing in mind possible objections about tractability (among others), effective altruists should not so readily dismiss economic growth and state capacity as cause areas. Effective altruists who support both alleviating poverty and the longtermist perspective must be willing to do something to help those in poverty now and in the future (and are perhaps morally obligated to do so, as readers might take away from Cowen’s Stubborn Attachments (2018)).^[7] At present, the vast majority of effective altruist efforts in the global poverty area do little with regard to alleviating future poverty, beyond marginal improvements (consider the likely effects a cash transfer in Kenya today might have on the recipient’s descendants after several generations). Economic growth and building state capacity, which should be seen as complementary and not competing priorities, provide the best answers for contemporary and longtermist poverty alleviation. Funding opportunities in these areas are worth bearing greater risk and uncertainty compared to current global poverty efforts.

Global Poverty

The dramatic decline of the number of people living in extreme poverty since the latter half of the 20^th century is widely known, yet the vast majority of this decline was concentrated in Asia, particularly in China.^[8] While the relative share of the population living in extreme poverty has declined in Africa^[9], the absolute number of people living in extreme poverty has remained almost constant at around 400 million, with people in sub-Saharan Africa comprising an overwhelming majority of the world’s poorest people.^[10] Looking beyond extreme poverty, there are still over three billion people living on $5 per day (annual income of $1825) or less globally^[11], comprising the entirety of low-income and the bottom half of lower-middle income countries.^[12] Almost all of the countries to which the Against Malaria Foundation distributes nets, for example, fall within these categorizations.^[13]

This suggests that economic growth, on its present course for much of the Global South (especially sub-Saharan Africa), is insufficient for large-scale, rapid progress to be made regarding global health (in addition to other socioeconomic concerns of interest). Net development assistance and aid flows to India (persistently low growth) and China (persistently high growth) are an indicative example of how sustained economic growth eliminates the need for long-term development assistance. In 1990, India received $1.4 billion in net development assistance and official aid, while China received $2.03 billion. In 2011, China became a net development assistance exporter for the first time with net outflows of $603 million, while India’s net aid receipts ballooned to $3.27 billion.^[14] In 1990, GDP per capita was virtually the same, with India at $367 and China at $318. Over the next 20 years, China’s growth explosion left it four times wealthier than India, with an income gap that has only continued to expand over the past decade.^[15]

In this simple example, not only did the Chinese people become economically better off than their counterparts in India, but the Chinese state also gained the resources and knowledge to better provide the services and public goods at a level which the Indian state is not presently capable of, even with development assistance and aid. In conjunction with higher and more stable economic growth, states must develop the ability and generate the resources to effectively address public health and other challenges. Highly effective charities performing proven, highly specific interventions are an excellent short-term bandage for laggard growth and capacity but cannot be a viable long-term solution to poverty.

Economic Growth, State Capacity, and Funding Opportunities

To date, Hillebrandt and Halstead’s Effective Altruism Forum post, “Growth and the case against randomista development,” remains the most comprehensive case in favor of pursuing economic growth rather than randomized control trial-style interventions in the effective altruism community.^[16] In this essay, Hillebrandt and Halstead provide evidence that wealthier societies are systematically healthier and happier, with almost no extreme poverty remaining. Much of this work, as well as most arguments in favor of growth over RCTs, can be tied to the work of Lant Pritchett.

Pritchett and Lewis (2022) make a uniquely strong empirical claim which is relevant for this discussion: that growth is both necessary and sufficient to alleviate poverty.^[17] They argue that (1) measures of human material wellbeing are very tightly correlated with GDP per capita; (2) that the relationship between access to basic necessities and GDP per capita is strongly non-linear, with basic needs being met rather quickly as income rises; (3) no countries with a high GDP per capita experience poor access to basic necessities, and (4) no countries with a low GDP per capita experience high access to basic necessities. To some readers, this may seem obvious to the point of being tautologically true. However, given the substantial skepticism about economic growth which has become commonplace in the development community (see in Pritchett and Lewis or in Esther Duflo’s Conversations with Tyler appearance for examples^[18]), an exploration of the evidence presented by Pritchett and Lewis is worth a thorough evaluation by would-be funders open to being convinced to support growth-enhancing efforts.

Comments on the Hillebrandt and Halstead essay by brunoparga, cole_haus, Alexander_Berger, Sindy, BrownHairedEevee, and several others raise thoughtful points of critique and discussion, to which the authors provide equally thoughtful responses. These discussions are worth reading as a valuable addendum to the main body of the essay. These discussions in particular highlight the importance, as well as the potential difficulty, of identifying funding opportunities which could plausibly impact growth, including the need to focus on local conditions. Similarly, these comments start an important discussion about growth and longtermism.

cole_haus writes: “In fact, many of the greatest successes of development (China, Singapore, etc.) defied the economic orthodoxy in the details. Rather, they implemented policies that were tailored to and required deep understanding of local conditions.” This is not an argument against funding growth projects per se but does speak to the complexity of identifying the right opportunities. Where effective altruist funders may have an opportunity to impart substantial impact is not in enforcing a sort of general policy orthodoxy (i.e., the “Washington Consensus”) in the style of a major international institution, but in identifying localized opportunities which could reasonably have an impact on growth and capacity. This could range from identifying and supporting influential pro-growth think tanks (something discussed in Hillebrandt and Halstead’s analysis of Pritchett’s work), to providing funding to organizations which embed experienced practitioners in agencies and ministries (consider as an example the Ethiopia Urban Expansion Initiative which leveraged $700,000 in technical support and training into $35 million in World Bank infrastructure funding in Ethiopian cities^[19]), to supporting efforts aimed at creating unique enabling environments^[20] for growth, capacity building, and policy experimentation, like charter cities.^[21]

I can speak somewhat personally to this local approach regarding the experience of my organization, the Charter Cities Institute (CCI), in Zambia. Starting in approximately 2017 or 2018 (this is a best guess—also note that CCI was a brand new, one- or two-person organization at the time) the founder of CCI became acquainted with a new city developer in Zambia, providing the first link between charter cities and Zambia. In 2020, an initial memorandum of understanding (MOU) was signed between CCI and the Zambia Development Agency to help reform the country’s special economic zone regime.^[22] The Covid-19 pandemic put this relationship on ice for some time, unfortunately. However, in late 2021, CCI launched a Zambia office, led by a new Africa Lead with extensive relationships in the Zambian policy community. Subsequently, CCI-Zambia has become a member of multiple government working groups, we have signed a series of MOUs with relevant ministries, and legislative and administrative moves towards the revamping of Zambia’s weak special economic zone law towards a far more rigorous charter city-like law are likely to come within the next year.^[23] It is also worth noting that for organizations like CCI, positive work in one setting can lead to subsequent opportunities, as CCI is currently exploring in several other countries, including Malawi, Nigeria, and others.

I don’t know exact CCI’s exact costs on this specific initiative, but a few hundred thousand dollars in salary (no employee has been working full-time exclusively on Zambia), occasional travel expenses, and some minor office overhead in Lusaka in exchange for a massive overhaul of a special economic zone law to improve economic competitiveness and the redevelopment of at least one special economic zone to be more mixed-use and city-like is at face value a very cost-effective growth program for a landlocked country historically dependent on the price of copper. This point is not intended as an advertisement for CCI, but as a firsthand account of how movement towards substantial policy change can happen quickly, and at limited cost.

Any efforts in this localized approach to growth would likely require a thorough investigation by Open Philanthropy, especially as there are not always obvious quantifiable metrics to make judgements about funding opportunities. A level of trust and a willingness to accept a higher degree of risk than with traditional poverty interventions is necessary, but the welfare benefits associated with even a relatively small increase in growth (for instance, boosting annual growth from 4% to 5%) is far from trivial. However, Open Philanthropy is well-suited to perform such rigorous analysis and even a relatively small series of well-calculated bets on very localized efforts could produce significant policy reform, capacity improvements, and growth enhancements. EAs that care about reducing poverty from a longtermist point of view, almost definitionally, must be willing to accept a higher degree of risk and uncertainty with regard to funding opportunities.

An addendum to the above discussion about economic growth and state capacity is necessary. I’ve used capacity and growth jointly throughout this essay, but most of the discussion to date about this area within effective altruism has focused solely on economic growth. EAs should consider viewing state capacity (also referred to as state capability) in two ways: (1) as a key accompaniment to economic growth, but also (2) as a more targeted mechanism to boost economic growth.

Much has been written in recent years about the importance of state capacity for development, perhaps most notably Andrews, Pritchett, and Woolcock’s Building State Capability: Evidence, Analysis, Action (2017)^[24] and Johnson and Koyama (2017)^[25]. In short, states which cannot collect taxes, enforce the rule of law, and provide public goods do not generally experience sustained economic growth. The degree to which any high-income country previously had or currently has these abilities varies, but there are no such countries that have never been able to effectively generate revenue, enforce the rule of law and public order, and to provide public goods. This finding bears a clear similarity to Pritchett and Lewis’ claims about growth being both necessary and sufficient to alleviate poverty. Although these considerations are all likely correlated, there is empirical evidence that even within relatively dysfunctional states, so-called “pockets of effectiveness” can and do exist.

McDonnell’s Patchwork Leviathan (2020) provides various examples of highly effective elements of otherwise poorly performing states, including in contemporary Ghana and Nigeria.^[26] The effective concentration of quality human resources can produce highly effective bureaucracies—bureaucracies which can be targeted towards boosting economic growth. Schein’s organizational analysis of Singapore’s highly successful Economic Development Board, Strategic Pragmatism (1996), is another rich resource highlighting how capable bureaucracies can be created and maintained in the service of creating growth.^[27] Although I am personally unsure of how to best identify specific funding opportunities within the state capacity building arena, the previously referenced Ethiopia Urban Expansion Initiative conducted by the Marron Institute at New York University offers a strong example of how capacity building can be achieved in a very cost-effective, and replicable, way.

Conclusion

In summation, any effective altruist who considers the evidence is likely to agree that economic growth is the best tool for eliminating poverty. They’re also likely to agree that state capacity is an important element of economic growth. However, when considering the ITN framework and the availability of effective opportunities to target growth and capacity, many effective altruists sour. This essay has tried to argue that (1) growth is even more important than many effective altruists might think; (2) opportunities to boost growth and improve capacity are more plentiful than is immediately obvious; (3) that those opportunities can be more cost-effective than is immediately obvious, and that (4) longtermist effective altruists who believe alleviating poverty is important must have a moral obligation to pursue interventions which target the reduction of future poverty, the most powerful of which are economic growth and state capacity building.

^
Research Manager, Charter Cities Institute. Email: jeffrey@cci.city.
^
Nathan Young. 2022. “EA and Global Poverty. Let’s Gather Evidence.” Effective Altruism Forum.
^
Effective Altruism Data. “Donations Overview.”
^
Open Philanthropy. “Our Global Health and Wellbeing and Longtermism Grantmaking Portfolios.”
^
Our World in Data. “Malaria incidence, 2020.”
^
To avoid confusion, I’ll use Johnson and Koyama’s (2017) definition of state capacity: “State capacity describes the ability of a state to collect taxes, enforce law and order, and provide public goods.” Noel D. Johnson and Mark Koyama. 2017. “States and economic growth: Capacity and constraints.” Explorations in Economic History vol. 64, 1-20.
^
Tyler Cowen. 2018. Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals. Stripe Press.
^
Our World in Data. “Projected number of people in extreme poverty, by region, 2015 to 2030.”
^
Our World in Data. “Projected share of the population in extreme poverty.”
^
Our World in Data. “Projected number of people in extreme poverty, by region, 2015 to 2030.”
^
The World Bank. Poverty and Inequality Platform.
^
The World Bank. “World Bank Country and Lending Groups.”
^
Against Malaria Foundation. “Net distributions – World.”
^
The World Bank. “Net official development assistance and official aid received (current US$).”
^
The World Bank. “GDP per capita (current US$) – India, China.”
^
Hauke Hillebrandt and John G. Halstead. 2020. “Growth and the case against randomista development.” Effective Altruism Forum.
^
Lant Pritchett and Addison Lewis. 2022. “Economic growth is enough and only economic growth is enough.” Working paper.
^
Conversations with Tyler. 2019. “Esther Duflo on Management, Growth, and Research in Action.”
^
Marron Institute of Urban Management. 2022. “Ethiopia Urban Expansion Initiative.”
^
Paul Collier, Edward Glaeser, Anthony Venables, Astrid R. N. Haas, and Shahrukh Wani. 2020. “Designed to succeed: Building authorizing environments for fast-growing cities.” International Growth Centre
^
Disclaimer: I am an employee of the Charter Cities Institute and have previously written on charter cities and effective altruism (https://chartercitiesinstitute.org/research/case-for-charter-cities-effective-altruism/) with an updated paper planned for release in Q3/Q4 2022.
^
Mark Lutter. 2020. “The Charter Cities Institute Signs MOU with the Zambia Development Agency.” Charter Cities Institute.
^
Carl Peterson. 2021. “CCI Team Develops Partnerships and Projects in Zambia.” Charter Cities Institute.
^
Matt Andrews, Lant Pritchett, and Michael Woolcock. 2017. Building State Capability: Evidence, Analysis, Action. Oxford University Press.
^
Johnson and Koyama. 2017. Also see: Noel D. Johnson and Mark Koyama. 2019. Persecution and Toleration
The Long Road to Religious Freedom. Cambridge University Press.
^
Erin Metz McDonnell. 2020. Patchwork Leviathan: Pockets of Bureaucratic Effectiveness in Developing States. Princeton University Press.
^
Edgar H. Schein. 1996. Strategic Pragmatism: The Culture of Singapore’s Economic Development Board. MIT Press.