Just a few days back, I read a fascinating review of a recently published book on development in the Financial Times. I immediately ordered it and thanks to Amazon, was delivered the following afternoon. As I started reading, I could not put it down. It took about three hours to finish its 326 pages.
Pakistan’s top military, political, and business leaders must read it. It is not a guide to making a fortune in cryptocurrencies, penny stocks, or corner plots but it offers perspectives that can change Pakistan’s fortunes.
A few years ago, I read some papers by Dr Atif Mian on Pakistan’s economy. I found one opinion piece, that Mian wrote for DAWN in August 2018, to be rather, well, shallow in thinking. I responded to his prescriptions for fixing Pakistan’s financial woes in an opinion piece in September 2018. However, he had become internationally famous by then. So probably nobody read or cared what I wrote. I also read House of Debt, which he co-authored with Amir Sufi. The book was widely acclaimed but not without some criticism. In an opinion piece published by the Financial Times, Lawrence Summers, a former US Treasury Secretary who also served as president of Harvard University, wrote a few lines about Atif Mian’s book that seemed to confirm some of my views. While Summers had praise for the book, he wrote, “It seems to me that Mian and Sufi are naive on policy and contribute much less to the debate on this than they suppose.” And further: “Mian and Sufi’s error is a common one among academic economists, many of whom are unwilling to try to understand policy choices that arise from considerations outside simple models,” Summers added.
The point of writing this long paragraph about Atif Mian is that my intellectual journey in search of someone who could provide thought leadership in the context of Pakistan’s failure to break its debilitating boom and bust cycles motivated me to keep reading, researching and writing. I often found the conventional wisdom of many economists (including some in the IMF, who I knew, or a few others who served in different Pakistani governments) to be lacking in either depth or intellectual honesty.
The book emphasises that the idea of a development bargain is not simply a restatement of ‘good institutions matter.’ They do, but according to the book, several of the success stories did not necessarily have strong institutions at the time of take-off
The big question that I always had in mind was: Why do some countries remain poor while others stumble on a path to growth and development? This has been the subject of much academic study and many popular books. Jeffrey Sachs’ The End of Poverty emphasises the role of aid to deliver a “big push,” while Why Nations Fail by Daron Acemoglu and James Robinson sees a country’s institutions as a critical determinant of success or failure. Stefan Dercon, a Belgian-British economist at Oxford University and an international development practitioner, is the latest to try to crack the mystery. The result is an important book, Gambling on Development, both scholarly and grounded in experience. It may come as close as any to answering this critical question, according to the Financial Times. Professor Christopher Blattman of the University of Chicago described Gambling on Development as the most important book on international development in a decade.
Steven Dercon has been called one of the greatest living development economists. He is a Professor of Economic Policy at Oxford University. Combining an academic career with long experience in international development policy, he is a former DFID (UK government’s Department for International Development) chief economist and a policy advisor to the UK foreign secretary.
In the last thirty years, the developing world has undergone tremendous changes. Overall, poverty has fallen, people live longer and healthier lives, and economies have been transformed. And yet many countries have simply missed the boat. Why have some countries prospered, while others have failed?
Stefan Dercon argues that the answer lies not in a specific set of policies, but rather in a key ‘development bargain’, whereby a country’s elites shift from protecting their own positions to gambling on a growth-based future. Despite the imperfections of such bargains, China is among the most striking success stories., along with Indonesia and more unlikely places, such as Ghana, Bangladesh, and tentatively, Ethiopia.
Why is there persistent divergence in development outcomes around the world? According to Leonard Wantchekon, a professor of political economy at Princeton University, the focus has been on policies, but Dercon’s book proposes we focus on implicit contracts or bargains among political and entrepreneurial elites.
Dercon believes that while so much attention is paid to the specific blueprints for development, the successful countries appear to have pursued a relatively diverse set of economic and other policies because there is no one, cost-free path to development.
The book’s message is sobering, almost boring: there is no silver bullet for development. But any success must rest on the foundation of a bargain among elites, who commit to development and are willing to learn.
Dercon argues that successful growth and development requires the presence of a development bargain – that is, an underlying commitment to growth by members of a country’s elites (the people within the fabric of society, the economy, and politics who make decisions or can dis-proportionally influence them).
Three conditions need to be satisfied:
- Durable political and economic deals among the elite, to start with on peace and stability. Long horizons are required for growth and development. Conflict and instability shorten horizons in political and economic decision-making. Short-termism is a killer. In Pakistan’s context, few would disagree that the military establishment has been the most destabilising factor.
- A mature and sensible state. Success requires finding a balance between what the state should do and what it can do.
- Ability to learn from mistakes and correct course. There is no recipe for finding the right way of igniting and sustaining growth: it is a gamble.
The book emphasises that the idea of a development bargain is not simply a restatement of ‘good institutions matter.’ They do, but according to the book, several of the success stories did not necessarily have strong institutions at the time of take-off and cites Bangladesh as an example. Even China hardly had strong institutions to deliver the kind of take-off it achieved post-1979. However, the Communist Party implemented a system to hold officials to account to deliver outcomes that initially focused on agriculture and food security. In India’s case, by the late 1990s, the country had achieved a broad cross-party and economic leadership commitment to gradual liberalisation of the economy. In Ghana’s case, there was a repeated commitment to the peaceful transfer of power through elections for stability’s sake, learning from the disruption to growth and development in preceding decades.
While the book’s author points to Bangladesh’s achievements in attaining a higher female literacy rate and lower fertility rate, he does not appear to be optimistic about Pakistan. He notes that current IMF conditions, linked to raising taxes, abolishing energy subsidies, and privatisation, are remarkably similar to those in the previous programmes and declares, “Pakistan’s record suggests that this is hardly a country on track for stable growth and transformation.”
Can our political and economic leaders prove him wrong? Only the time in its maturity will tell.