No More Santa Claus
December 15, 2010
Jonathan B. Wight
Do you remember what it felt like when you learned that there was no Santa Claus? Or when you began to suspect that pro wrestling was rigged? Loss of innocence can be both joyful as well as painful.
Recently I asked my economic development student to reflect on moments of “loss of innocence.” Going in, many students held the delightfully-naïve Santa Claus model of economic development: a rich and benevolent uncle from the north has capital and technology and can bestow presents in the form of gifts, loans, or investments that will magically transform a poor relative into a middle class citizen.
Or, there is the equally naïve notion that economists in Washington or Cambridge can derive blackboard policies that will work as well in Bangladesh as in Bulgaria. Dani Rodrik convincingly demolishes that quaint notion, because development is always context-dependent.
Here are a few other “loss-of-innocence” moments:
1. International aid (whether monetary or donation of goods) does not necessarily increase economic well-being in a poor country. A person's definition of well-being depends a lot on his/her culture.
2. Economic development is not a mechanical process amenable to stable abstract models. Development is an organic process, much more like biology, in which novelty-by-combination is the norm. Hence, while biologists and economists may be able to explain past evolutionary transformations, we certainly cannot predict future ones.
3. Not all reform policies should be implemented at the same time. Sequencing matters, because economic development is deeply disruptive.
4. Economic evolution is not necessarily efficient, but it is always adaptive to the needs of those who have the power to bring change. For a perceptive discussion, see Raghuram G. Rajan and Luigi Zingales, Saving Capitalism from the Capitalists (Princeton 2004).
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