Latin America and the Ideology of Development

Yet, it is hard to think of a book so relevant to the debate on how to defeat poverty and backwardness in our nations.

Easterly’s work could provide many Latin American scholars, policymakers and politicians with a penetrating survey of the ideas behind so many failed development policies tried in our region for at least five decades. To be sure, he makes his case against what he calls “the ideology of development” with a quick-witted and frequently humorous writing that reads with congenial ease in Spanish.

This sympathy for Easterly’s work stems, I think, from the mere fact that, for 50 years or more, Latin Americans have been prey to all sorts of frustrating ideas and contraptions aimed at attaining development.

Indeed, the regions of the world where development ideology has been more influential, namely Africa and Latin America, have fared the worst. In his long career as a World Bank expert, Easterly, who now teaches at New York University, noticed what he rightly deems a sad law: “the poorer the country, the poorer the economic analysis applied to it.”

Not far from where I live in Caracas stands a low-rise office building that, despite its lusterless appearance, has become over the years a foremost neighborhood’s landmark.

It houses the famed Centro de Estudios del Desarrollo (CENDES, Spanish acronym for Center for Development Studies), a Social Sciences top-level research institution founded in 1961 by the Universidad Central de Venezuela (Central University of Venezuela.)

Surfing its website, you can judge its academic standards, the scope of its research teams and the quality of its publications. What you cannot gauge by surfing its website is the tremendous influence CENDES has exerted over decades in disseminating the tenets of various inborn ideologies of development throughout Latin America.

It was here where “neocolonial dependence theory”, the brainchild of former Brazilian president Fernando Henrique Cardoso (Rio de Janeiro, 1931), took shape during the early 70s and became the most authoritative doctrine to explain Latin American underdevelopment. Professor Cardoso was elected president in 1994, then reelected in 1998. He left office in 2002. To be fair, there is a handful of things about Latin American economics that Mr. Cardoso, in his own admission, does not hold to be true any more. I find this quite telling about Mr. Cardoso’s intellectual integrity. Nevertheless, Cardoso’s early work is still abundantly quoted by his fellow scholars and many government officials all over the continent.

Dozens of Latin American economic planning experts came out of this small yet prepossessing building during the ’60s and ’70s. One of them counts among his major achievements having occupied top-level economic planning government posts, first in Cuba and then in Allende’s Chile! Venezuela’s incumbent planning minister, professor Jorge Giordani, is a distinguished scholar and foremost member of CENDES’s ever since its foundation. An unyielding advocate of one of Latin American developmentalism’s currently most prestigious theories, Mr. Giordani currently entreats for a formula known as “endogenous growth.”

For years, men and women have graduated from CENDES and gone back to their countries armed with the worst ideas imaginable to end poverty, those entailing state direction by the states least able to direct.

In an article recently published by Easterly, he presents us with an explanation of why, after the demise of the Soviet Union, the ideologic specter of Developmentalism haunts so many Third World leaders… and peoples. I think it worth quoting at length:

The power of Developmentalism is disheartening [Easterly writes] because the failure of all the previous ideologies might have laid the groundwork for the opposite of ideology—the freedom of individuals and societies to choose their destinies. Yet, since the fall of communism, the West has managed to snatch defeat from the jaws of victory, and with disastrous results. Development ideology is sparking a dangerous counterreaction. The “one correct answer” came to mean “free markets”, and, for the poor world, it was defined as doing whatever the IMF and the World Bank tell you to do. But the reaction in Africa, Central Asia, Latin America, the Middle East and Russia has been to fight against free markets. So, one of the best economic ideas of our time, the genius of free markets, was presented in one of the worst possible ways, with unelected outsiders imposing rigid doctrines on the xenophobic unwilling.1

Though this utterly iconoclastic book deals mainly with tragic flaws committed by foreign aid agencies in many poor countries, it also reads as an in-depth treatment of the determinants of economic growth. Easterly’s book draws thoroughly on many studies done or commissioned by the World Bank. A former World Bank official himself, Easterly is primarily interested in what kind of policies have really alleviated poverty. In his quest, he reviews the policies that foreign-aid agencies have put into effect since post-World Ward II Third World decolonization era until present days.

Archetypal models explaining economic growth, from Harrod-Domar’s to Robert Solow’s, are surveyed in depth and their practical results, if any, are mordantly commented in a nontechnical, quite amusing literary style.

In the prologue to The Elusive Quest for Growth, Easterly reminds us that, however paradoxical it may seem, in their practical policy work economists too often cling to formulas that violate the very basic principle of economics. What is this basic principle?

As a wise elder once told me [Easterly answers], “People do what they get paid to do; what they don’t get paid to do, they don’t do”. A wonderful book by Steven Landsburg, The Armchair Economist, distills the principle more concisely: “People respond to incentives; all the rest is commentary.”

Over the past decades, a significant mass of evidence has been accumulated by countless researchers indicating that conventional wisdom on the determinants of growth in poor countries is either wrong or lacks sufficient statistical support. Among Easterly’s unsettling findings is the fact that foreign aid does not necessarily go hand in hand with an increase of investment just as high investment ratios do not necessarily lead to higher growth.

According to Easterly, many commonly accepted assertions on the role of education, population control or debt relief in stimulating economic growth lack empirical support. The examples and case stories he brings forward to support his views are drawn from his lifetime experience in many disparate countries of the planet and are all too familiar to any Latin American reader like me.

The key lesson for anyone trying to understand what has made growth possible in places unthinkable to developmentalism pundits is that people respond to incentives they recognize as such. By “people” I mean what Easterly means: private individuals, government officials, even aid donors. Whenever those incentives promote growth-inducing behavior, growth is very likely to occur.

Reviewing a prior work by Easterly (The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done so Much Ill and So Little Good, Penguin Press, 2006), Nobel Prize winner Amartya Sen quotes Easterly’s very illuminating division between “planners” and “searchers” when it comes to help poor countries overcome their plights.

In foreign aid [Sen writes], planners announce good intentions but don’t motivate anyone to carry them out; Searchers find things that work and get some reward. Planners raise expectations but take no responsibility for meeting them; Searchers accept responsibility for their actions. Planners determine what to supply; Searchers find out what is in demand. Planners apply global blueprints; Searchers adapt to local conditions. Planners at the top lack knowledge of the bottom; Searchers find out what the reality is at the bottom. Planners never hear whether the planned got what it needed; Searchers find out whether the customer is satisfied.2

All the rest, I would say, is commentary.