02 December 2014

Is development policy futile? A good argument for yes

I tend to place myself in the category of a tempered skeptic when it comes to international development and aid. Both are quite different, I know, but I remain optimistic that there are things the world can do to help reduce suffering and improve the lives of the world's poorest people. With all of that said, enter Marc Bellemare with a smart blog post describing why he thinks development policy is futile. He makes a good case.

So in sum, even if you know with certainty what kind of policy intervention a city, region, or country needs to develop in the foreseeable future (and that is a big if considering that there is generally a trade-off between internal validity — credible estimates of causal effect — and external validity — how widely those estimates apply — and considering the complex environment in which development policy is implemented), on a long enough timeline, that policy intervention will no longer be the right thing to do.

This wouldn’t be so bad if development policy could be changed seamlessly, but in a world of finite resources, adopting new development policies usually means letting entire industries die off because other countries are much better at it than you are, and supporting them would be like keeping a terminally ill patient who is suffering on life support indefinitely. People in the industries that have to be let go of will typically fight tooth and nail to keep their subsidies, benefits, and what they have come to see as entitlements.

So what are development wonks to do? “Nothing” does not seem like an option, especially given that chronic economic underdevelopment is, at least in theory, the result of multiple market failures which have to be overcome simultaneously, and that coordination failures often prevent us from doing that. So the right solution might well be to build enough flexibility in development policy, and codify that flexibility into whatever law allocates subsidies and benefits to specific industries. The kind of flexibility I have in mind would mean that subsidies and benefits would be terminated by law when it becomes obvious that an industry has outlived its usefulness. But codifying that kind of flexibility into specific economic rules and regulations has to be industry-specific, and therefore extremely difficult. All of this points to the futility of development policy.

Definitely read the full thing. I am curious to hear from others what they think about Marc's ideas.