Bill Easterly and why we don't know how to solve poverty
Last night's presentation by development economist William Easterly demonstrated very well the ignorance of most economists when it comes to understanding the connections between poverty and growth. Economists need to dwell less on abstract data at the national level and focus more on the real structural imbalances in our global economy if they wish to impact poverty.
Kerwin Datu
NYU economist Bill Easterly spoke to a full house of economics and development students at the London School of Economics last night, under the title "we don't know how to solve global poverty, and that's a good thing."
He laboured to explain that he had composed this title very carefully, and would structure his talk in two parts accordingly. The first part explained how a generation of economists had conducted exhaustive regression analysis to identify the causes of economic growth, only to conclude that no-one had any idea.
The second part argued that if we have no idea technically, the only way to move forward is with moral integrity and commitment to democratic values, especially the self-determination of poor countries to choose how wealthy countries aid them.
The story I heard, however, was that "we don't know how to solve global poverty, because we don't bother to understand it."
What I mean is that Easterly never explained the assumption that solving poverty meant causing economic growth. After citing his title, he spent the next half hour talking about the elusive factors for growth, almost never mentioning the word 'poverty' again.
At first glance, he shouldn't need to. Surely if a country is poor, then its economy needs to grow?
That might be, but dividing the world into rich and poor countries as most economists do is a terrible way to understand global poverty, and a very indirect way to leverage growth for the benefit of poor populations.
This is not so much a criticism of Easterly as of the economists he cites, since it is their obsession with growth factors that forms the setting for his discussion. I imagine he may agree with my analysis, just as I agree with his conclusions (see below).
If politicians are demanding policies, then economists produce 'solutions', and the development industry has churned through a lot of these since the 1940s — modernisation, import substitution, structural adjustment, 'good governance' and democratisation to name a few.
But if we want to really solve a problem we have to understand it first, however impatient our politicians. The fundamental question for economic scholars is not how can we solve poverty? but rather what is poverty? what creates it?
Because if we release ourselves from seeing poverty through the lens of national indicators, we see that 'rich' and 'poor' countries both comprise rich and poor populations, but in different proportion, and with different degrees of severity. There is extraordinary wealth in many Indian cities; there is (far less extraordinary) poverty in many British cities.
Growth is misleading because national economic growth so often occurs alongside the persistence of extreme poverty, as China, India and Brazil demonstrate. The 'jobless growth' of the US also exemplifies a world in which growth is often independent of poverty reduction.
There is a lot to be learned about the nature of poverty if we are ready to see it as part of the structure of our economies. The same structural equilibria that create wealth at the top create poverty at the bottom.
There are many structural imbalances that we maintain in our economies, globally and nationally, to protect wealth, and which serve to prolong poverty as a direct consequence. One audience member mentioned a few of these - the protection of European farming, of US cotton, the politicking of foreign aid.
To break down these imbalances means setting aside some short-term self interest, and implementing development and trade policy with true commitment to democratic values at the international level. This means restraining from imposing 'democracy', but ceding real power to poor populations to determine their own futures and to influence international policy.
Despite Easterly's overbearing rhetoric, which seemed more appropriate to US colleges than the reserved audience of LSE, I agree wholeheartedly with his belief that moral values must drive the development process instead of realpolitik.
I agree also with the image of the papier-mâché bridge that he borrowed from Lant Pritchett. Much recent US foreign policy has attempted to install the trappings of democracy throughout the developing world without instilling its values. This is like building a bridge out of papier-mâché - it takes the form of a bridge without fulfilling its function.
While I agree with Easterly that there is no silver bullet for development, I think economists can have a little more faith in their profession, and resort less to rhetoric than to the substance of their own findings. Economists have much to teach us about why poverty persists and how to solve it if they focus on the real economies around them instead of the statistical abstractions of national indicators.
