Development

Let's Be More Productive

Mark D. White

In The New York Times over the weekend, Tim Jackson contributed a piece titled "Let's Be Less Productive." In it, he decries the modern obsession with productivity gains, while recognizing the role it has played in increasing standards of living. He cites necessarily stagnant productivity in the arts, services, and craft industries, which William Baumol noted years ago, terming it the "cost disease" (because wages would have to remain competitive while productivity stayed the same), but cautions against increasing productivity throughout the economy because of other detrimental effects--specifically on jobs, if higher productivity is not accompanied by growth.

I have no problem with tempering the push for higher productivity, especially in areas in which it can hardly be expected. Productivity is a means to an end and therefore it is only valuable insofar as it actually serves that end. But I think there is an end which can benefit from higher productivity that Jackson doesn't see: a less work-centered conception of meaningful life. Instead, he sees higher productivity as a threat to full employment:

Ever-increasing productivity means that if our economies don’t continue to expand, we risk putting people out of work. If more is possible each passing year with each working hour, then either output has to increase or else there is less work to go around. Like it or not, we find ourselves hooked on growth.

On a certain level he's right; if we produce the same amount of output more efficiently, that means less resources will be required, including labor. For people who want to work, who need to work, this is of great concern, which makes this an important matter to discuss during these dire economic times.

But more generally, we should consider if work is a means to an end or an end in itself. It's the former for most everybody, of course, but the latter for only some. It's a cultural stereotype that Americans live to work while Europeans work to live, but it is based on a kernel of truth. Some people find their life's meaning primarily in work, but others find it more in other aspects of life, such as service, art, family, or love. Higher productivity may result in fewer jobs, yes, but insomuch as some people find a job a burden--and have other means to support themselves, such as a spouse or a partner--they can enjoy other aspects of life if they have other means of support, due to higher productivity.

There are other benefits to this aspect of higher productivity. It would relieve the modern necessity of the two-earner family, either allowing a two-parent family to live on one earner's income, or a single-parent family to live more comfortably on one income. And higher productivity can also--if you're so inclined--finance a stronger welfare state, to support those who want to work but can't find a job, and have no partner or other financial support. Even without growth, higher productivity enables a state to fund social welfare programs. (Just look at Sweden, where a fairly unrestrictive regulatory environment for business has led to productivty gains and growth to support their extensive welfare state.)

There is plenty of room to bemoan the single-minded focus on productivity espoused by many in business and government, and at the same time to recognize that the loss of jobs it creates (in the absence of corresponding growth) has some broader societal benefits, including lessening our reliance on our jobs and careers to give meaning to our lives and relaxing the economic burden on families. Work to live, indeed!


Chesapeake Revisited

Jonathan B. Wight

Chesapeake (1978) is the wonderful epic novel by James Michener. I picked it up thirty years ago and read a few chapters, then life intervened. I recently rediscovered it and have been reveling in it since. It is my favorite genre—historical fiction—packed with geography, history, culture, psychology, ornithology, politics, and loads of economics.

The story is set on an island on the Eastern shore of Maryland where successive families from the 1600s onwards live out the struggle of America's colony, the revolution, the Civil War, and so on.

The economics of tobacco and the Atlantic slave trade are large parts of the at times harrowing but brilliant narrative. There are exciting naval battles between pirates, commercial shippers, and the British navy. The realism of the depiction draws you in, and just as Adam Smith predicted, literature provides an important vehicle for the enlargement of our moral imaginations.

Some of the most interesting passages describe a slave-plantation owner's attempt to defend slavery, while nearby Quakers interpret the word of God differently and at the risk of their lives help smuggle slaves north.

Michener clearly sides with the modern view—that slavery is abhorrent—yet he doesn't belittle his characters who speak for the opposing view. Rather, he takes us inside their minds and ideologies.

It is easier to imagine that people who do bad things must be bad people, rather than addressing the possibility that good people can live inside bad institutions. Adam Smith's view of history allows for exactly this kind of phenomena. The invisible hand is not a polemic that says good outcomes will always arise from laissez faire, since bad institutions abound in history. Good outcomes arise from people expanding their moral imaginations and pushing to change bad institutions.


Paul Ryan confronts Jeffrey Sachs

Jonathan B. Wight

Mark White alerted me to Paul Ryan's review of Jeffrey Sachs new book, The Price of Civilization: Reawakening American Virtue and Prosperity in a recent Wall Street Journal. I haven't read the book but several points in the review did strike me. Ryan notes that:

In "The Price of Civilization," Mr. Sachs is asking the right questions. What is a life well lived? What should our government's role be in building a more virtuous society? What policies should it pursue to promote fulfilling lives for its citizens? If such questions direct us to the moral wisdom of our cultural traditions, they can indeed help to balance the excesses of capitalism and so help us to extend its benefits to all.

Unfortunately for Ryan, Sachs promotes big government, high taxes, and a Benthamite view of utilitarian paternalistic ethics—instead of promoting the intrinsic rights promulgated by the nation's founders.

Oliver Wendall Holmes likely gives Sachs the title of his book. According to one historical view, Holmes rebuked a secretary's query of "Don't you hate to pay taxes?" with "No, young fellow, I like paying taxes, with them I buy civilization." "Taxes are the price of civilization" is a common rejoinder to those who complain about the growing intrusion of government in our lives.

Ryan summarizes the essence of Sach's pessimistic view:

It is through this prism of decline that we may better understand Mr. Sachs's calls for an overbearing government to take more earnings from you and make more decisions for you, as well as his instructions for hard-working Americans to restrain their ambitions and accept their current place in life. He seeks nothing less than to replace the vision of the Founders—the ideals of individual liberty that have enabled America to achieve the unrivaled social, material and spiritual flourishing of the past two and a quarter centuries—with one that relies almost solely on the wisdom and beneficence of an intrusive, unlimited government.

Jeffrey Sachs has contributed substantially to our understanding of the suffering in Africa. He has not yet found a solution to poverty that celebrates the complex mechanisms of discovery that are beyond the wisdom of any self-styled "wise" planner.


Willpower and poverty

Mark D. White

Just read a very interesting article from The New Republic by Jamie Holmes titled "Why Can't More Poor People Escape Poverty?", detailing new work on the intersection of psychological studies of ego depletion and self-management--the work by Roy Baumeister, Kathleen Vohs, and others that I've cited widely in my own work on willpower--and economists working on development and poverty.

The basic insight in that deprivation imposes greater cognitive costs on the poor since the relative scarcity of resources leads to higher negative consequences of choice (even in decision-making contexts that seem trivial to the wealthy) and therefore greater decision-making costs (with respect to trade-offs as well as self-control problems), which in turn makes the ascent out of poverty all the more difficult. Some reasonable policy suggestions are offered at the end, which (thankfully) do not veer into Nudge territory, but which mostly involve increasing options for leveraging willpower.

A very worthwhile read, and a fascinating application of the psychological work on willpower to a pressing economic problem.


Culture Matters: The Real Obstacles to Latin American Development

Jonathan B. Wight

The argument that economic development is captive to culture is well-known, made famous by Max Weber in The Protestant Ethic and the Spirit of Capitalism (1904) and in modern times by Lawrence E. Harrison in Underdevelopment Is a State of Mind: The Latin American Case (1985) and also by Lawrence E. Harrison and Samuel P. Huntington in Culture Matters: How Values Shape Human Progress (2001).

These arguments have been debated and often ridiculed by other economists, who argue that people merely respond to incentives, and that institutions create incentives.  Can people choose some of their cultural institutions?  Native language, for example, is instinctively absorbed at such an early age that there is nothing conscious or chosen about it. 

Oscar Arias, the two-time former President of Costa Rica and winner of the Nobel Peace Prize in 1987, now enters the fray in the Jan/Feb issue of Foreign Affairs 90 (1)(2011) with an article, “Culture Matters: The Real Obstacles to Latin American Development.”

The fault, dear citizens, is ourselves according to Arias.  Using the first person, he addresses the key issues that he feels hold back Latin development: (a) a conservative mindset that protects the status quo of power and wealth; (b) a fundamental lack of trust in others; and (c) a fragile commitment to democracy.

For those who may not know, Arias’ Costa Rica has achieved an admirable record of democracy for reasons that may have more to do with culture than enlightenment musings (see Harrison’s first book above).  Arias argues:

No development project can prosper in a place where suspicion reigns, the success of others is viewed with misgiving, and creativity and drive are met with wariness. (p. 4)

Latins are primarily wary of their own governments that represent entrenched interests.  People flagrantly abuse the laws, with no repercussions.  Arias cites The World Values Survey, which finds that only 16 percent of those people surveyed in Latin America say that “most people can be trusted” – and this number is just three percent in Brazil.  The impact on entrepreneurship is predictable but tragic.  Consequently, Arias notes:

Latin Americans doubt the true intentions of all those who cross their paths, from politicians to friends.

For economic development to succeed, Latin Americans must be able to trust their states to act reasonably and predictably. They must be able to anticipate the legal consequences of their actions. And they must be able to trust that others, too, will act in accordance with the rules of the game. (p. 5)


Book review: Inequality, Development, and Growth (Routledge, 2011)

Irene van Staveren

Idg Review of Inequality, Development, and Growth, edited by Günseli Berik, Yana van der Meulen Rogers, and Stephanie Seguino. London: Routledge, 2011, 361 pp. ISBN13: 978-0-415-59944-3 (hbk), ISBN13: 978-0-415-60994-4 (pbk).

This volume is a flagship for feminist macroeconomics and was first published as a special issue of the journal Feminist Economics in 2009. Its major contribution to the study of inequality and growth is that it follows a two-sided approach to the relationship between these two phenomena. The book examines not only the effect of macroeconomic policies and economic growth on inequalities but also as the effects of inequality on growth. The volume presents a wide diversity of theories, methods, country studies and levels of integration by an equally wide diversity of authors, male and female, and from the developed as well as the developing world.

Continue reading "Book review: Inequality, Development, and Growth (Routledge, 2011)" »


Conference: The Impact of Hinduism on the Economy and Business Management

Mark D. White

Upcoming at Fordham University...

Conference on the Impact of Hinduism on the Economy and Business Management

“HINDUTVA PRINCIPLE OF ECONOMIC DEVELOPMENT”
Subramanian Swamy
President Janata Party, former Harvard Economics Faculty,
IIT Delhi, Minister of Commerce, Finance, Law, and Justice

“HINDU SOCIAL CORPORATE FORM AND SRENI DHARMA: CURE FOR GREED”
Srinivasan Kalyanaraman
Chennai, India, Former Senior Executive, Asian Development Bank

“INDIA’S ENTREPRENEURSHIP-CASTE AS SOCIAL CAPITAL”
R. Vaidyanathan
Indian Institute of Technology, Bangalore

Mr. John Tognino, Chair, Fordham University Board of Trustees, will inaugurate the conference.

Sponsored by the Economics Department, International Political Economy & Dev’t (IPED), Graduate School of Arts and Sciences (GSAS), Fordham University; Vijaydev Mistry Foundation, and Twaalfhoven Family Foundation.

Reception follows the conference. To reserve your seat, register for free at http://www.fordham.edu/religionbusiness.

For more information, please contact:

Dr. Hrishikesh D. Vinod
Economics Dept
Fordham University, Bronx,NY
Tel. 718-817-4065
vinod@fordham.edu


William Easterly on two new books about global poverty and aid

Mark D. White

In today's The Wall Street Journal, William Easterly, author of The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good and a tireless critic of traditional apporaches to global aid (see his Aid Watch blog), has a review of two recent books in the area: Dean Karlan and Jacob Appel's More Than Good Intentions: How a New Economics Is Helping to Solve Global Poverty and Abhijit V. Banerjee and Esther Duffo's Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty.

He praises both books for their "on their ground" mentality:

More Than Good Intentions and Poor Economics are marked by their deep appreciation of the precariousness that colors the lives of poor people as they tiptoe along the margin of survival. But I would give an edge to Mr. Banerjee and Ms. Duflo in this area—the sheer detail and warm sympathy on display reflects a true appreciation of the challenges their subjects face. Messrs. Karlan and Appel are at their best in addressing the subtleties of behavior and testing them in the psychology laboratory and in the field. They have produced a remarkably readable and credible analysis of the intertwining of irrationality and poverty.

This echoes Jonathan's work with his co-authors in Accepting the Invisible Hand, in which they discuss the need for context- and culture-specific considerations when designing aid programs. Easterly continues in this same spirit:

Unfortunately, the books also indulge another sort of irrationality: the demand for big, general statements even if you're discussing limited, context-specific matters. The authors criticize over-promising and generalizing in the aid business, but they too often do their own exaggerating when it comes to what their methods can deliver. Both books end with overselling, "five key lessons" (Banerjee and Duflo) or "seven ideas that work" (Karlan and Appel), ignoring their own previous cautions about sensitivity to context and the limits to each intervention. Other economists criticize overselling as a common fault of those who do these small experiments.

Along the way, Easterly also makes a similar point to one I often make regarding libertarian paternalism and "nudges": behavior judged irrational by an outside observer may well have completely reasonable explanations for the decision-maker himself or herself. He provides this example from one of the books:

In More Than Good Intentions, for instance, we meet Vijaya, a flower seller in Chennai, India, who makes daily payments on multiple loans she has taken out to pay for rent, school fees, flowers from wholesalers and other expenses. She pays several points in daily interest, and she has almost nothing left at the end of every day after making her loan payments. But in an interview she just indifferently says her money is in "rotation"—and makes no effort to save, even in tiny increments, so that she might pay off her debts and keep some of her profits.

However, from later in the review, Easterly commends the authors for investigating this further:

In addition to testing out ideas, such field work also has the benefit of letting researchers chat informally with poor people—conversation that can be thoroughly illuminating. What looks like irrationality may just be the failure of outsiders to fully appreciate the problem. The flower seller Vijaya reveals that she doesn't want to take money home: "Whatever I bring home, my husband drinks it up." Paying the moneylender (or maybe accepting microcredit!) is preferable to helping a spouse stay soused.

A tragic situation, to be sure, but not one that implies irrationality on Vijaya's part. Would that behavioral economists and libertarian paternalists might take the same time to consider the multifaceted and complex motivations and interests of people whom they would happily nudge in whatever directions they judge as rational.


Amartya Sen on India and China (in New York Review of Books)

Mark D. White

In the new issue of The New York Review of Books (May 12, 2011), Amartya Sen has an article titled "Quality of Life: India vs. China" about the meaning (or lack thereof) of the comparison between GDP growth rates in India and China:

The steadily rising rate of economic growth in India has recently been around 8 percent per year (it is expected to be 9 percent this year), and there is much speculation about whether and when India may catch up with and surpass China’s over 10 percent growth rate. Despite the evident excitement that this subject seems to cause in India and abroad, it is surely rather silly to be obsessed about India’s overtaking China in the rate of growth of GNP, while not comparing India with China in other respects, like education, basic health, or life expectancy. Economic growth can, of course, be enormously helpful in advancing living standards and in battling poverty. But there is little cause for taking the growth of GNP to be an end in itself, rather than seeing it as an important means for achieving things we value.

It could, however, be asked why this distinction should make much difference, since economic growth does enhance our ability to improve living standards. The central point to appreciate here is that while economic growth is important for enhancing living conditions, its reach and impact depend greatly on what we do with the increased income. The relation between economic growth and the advancement of living standards depends on many factors, including economic and social inequality and, no less importantly, on what the government does with the public revenue that is generated by economic growth.

Unfortunately, the article is not free online (though the $6.00 charge does not seem unreasonable).


EEA 2011 Sessions: Alternative Perspectives of a Good Society

Mark D. White

Another pair of sessions at next weekend's Eastern Economic Association meetings are definitely worth highlighting, both organized by Steve Pressman and derived from John Marangos' "Alternative Perspectives of a Good Society" project, from which a volume is in preparation for the Perspectives in Social Economics series through Palgrave:

Saturday, February 26 3:45 p.m.

ALTERNATIVE PERSPECTIVES OF A GOOD SOCIETY - PART 1

Session Organizer and Chair: Steven Pressman, Monmouth University

Not Just Fun & Games: Re-conceptualizing the Role of Young People in Economic Development (K. Maeve Powliek, Skidmore College)

The Ideology of Sustainability in Indonesia, Australia and the U.S. (Janet Spitz, The College of St. Rose)

Does the Field of Comparative Economic Systems Care About the Good Society? (Lynn Duggan, Indiana University, Bloomington; Barbara Hopkins, Wright State University)

Discussants: Michael Murray, Central College; Danièle Meulders, Université de Bruxelles; Sile
O’Dorchai, Université de Bruxelles

-----

Sunday, February 27 8:00 a.m.

ALTERNATIVE PERSPECTIVES OF A GOOD SOCIETY-PART 2

Session Organizer and Chair: Steven Pressman, Monmouth University

Freedom for Whom? The Double-Sided Nature of Economic Freedom and Societal Consequences (Michael Murray, Central College)

Divided We Stand, United We Fall—The Implications of Measuring Poverty Based on Individual
Rather than Household Income (Danièle Meulders and Sile O’Dorchai, Université Libre de Bruxelles)

Obesity, Evolutionary Psychology and the Good Society (Steven Pressman, Monmouth University)

Discussants: Lynn Duggan, Indiana University, Bloomington; Barbara Hopkins, Wright State
University; Janet Spitz, The College of St. Rose