Development through Economic Growth — a report commissioned by Open Philanthropy

[Open Philanthropy]

Link post

Open Philanthropy commissioned a report from Stefan Dercon on economic growth as the main driver of poverty reduction. In the report, Dercon highlights a set of overlooked policies that can help boost economic growth in developing countries, as well as key reasons why these policies aren’t always pursued.

You can read the full report here.

[Larks]

Thanks for sharing. I found it very interesting, and I thought the focus on elite incentives and creating pro-growth coalitions is very promising. Having said that, I am less convinced by some of the specific policies being highlighted.

One theme I noticed running through many of the proposed policies is strengthening the power of the state. I think in some cases this can make a lot of sense—maybe El Salvador’s crackdown on the gangs is good at reducing violence—but I would have thought it was worthwhile to consider the downsides to this strategy. Governments have been responsible for many pro-growth policies, but they have also been directly responsible for many of the largest disasters in history—incremental taxes do not necessarily go towards “fund growth-enabling activities”.

This particularly came to mind with the discussion of financial flows and civil asset forfeiture, which while not explicitly endorsing is generally quite positive:

There is another route for affected countries to recover stolen assets. In many jurisdictions, civil forfeiture and analogous processes allow assets themselves to be prosecuted and returned if you can prove they were stolen or obtained with the proceeds of crime. This allows a wronged party (in this case, a government that is the victim of corruption or graft that generates the IFF) to press a claim against the proceeds of crimes rather than the criminals per se. This is a lower bar for evidence and successful prosecution than criminal proceedings — but a successful prosecution of stolen assets can then result in money being repatriated.

I am not an expert in the subject matter, but the ‘civil forfeiture’ being discussed here sounds very similar to the doctrine of ‘civil asset forfeiture’ in the US, which as far as I’m aware is widely regarded as an illiberal, arbitrary and capricious regime that unjustly deprives innocent people of their money (see for example the IFJ or the ACLU). The “lower bar for evidence” you highlight positively has the negative effect that many people who are not criminals end up losing their money, and face a lengthy and costly process they may struggle to navigate to get it returned.

The situation seems if anything likely to be worse in the third world than in a generally well-governed country like the US. My impression is that in many places diasporas can be valuable forces for positive change against ill-governed countries, providing a link to the outside world and a source of expertise and wealth when a regime opens up. Giving regimes more tools to crack down on people who flee seems potentially quite dangerous.

I could see a utilitarian argument that, even though states can be brutal and unfair at times, you cannot make an omelette without breaking some eggs and on average we are better off under the the Leviathan. But I have trouble reconciling this attitude with the stance taken towards scholarship contracts with return obligations as a means to combat brain drain:

Classic scholarship programmes cannot reverse this; even they impose “rules” that students need to return: the global labour market for highly skilled labour is highly flexible, and it would be unfair to deny opportunities for individual progress.

These scholarships are voluntary contracts, to go abroad to study in return for some number of years of service upon return. Given that people choose to accept the offer, and seem to benefit from the programs (there is no secret ‘gotcha’), the idea of repayment through work does not seem inherently unfair, no more than it is unfair to expect repayment for a loan—and cash repayment is sometimes offered as an alternative anyway. Certainly I struggle to see how these contracts could be so unfair as to render them verboten while civil asset forfeiture, widely regarded in the US as one of the worst and most unfair abuses of US policing, can be recommended without qualification.

[Nathan Young]

Here is the abstract:

Starting from the premise that growth is essential for some of the poorest countries, this note suggests some less obvious investments complementary to the usual approaches that encourage capital transfers and technical assistance in specific areas (e.g., by private foundations or the World Bank). It uses a framing that places a key reason for lagging growth in the agency of those with power and influence — the elite — and the coalition among them — their elite-bargain — that is not conducive to growth. Proposals are articulated that try to increase the upside of growth and reduce downside risks from a commitment to growth, that make power coalitions that go against growth harder, and that foster the formation and sustainment of growth coalitions.