Tuesday, December 27, 2011

Development in India: The element of time

One of the main differences between those who advocate for more government intervention and less is the time scale involved. Those who tend to favor a bit more free market in their society tend to be thinking on a time scale of a generation or two while those who favor a bit more government tend to be thinking on a time scale of either 1 year or 100 years (depending on if they're an environmentalist or not). "Yes, that program will increase the growth rate, but people are starving today," say the one. "Yes, but lowering the growth rate means more people will starve in the future," say the other. Time plays many different roles:

Blattman commenting on Bayly's comparative history of development in India and Africa:
"India, once seen as passing through its “most dangerous decades” or hobbled by a "Hindu" rate of growth, is now seen as a thriving knowledge economy. Africa, six years ago, was designated the ‘hopeless continent’. But enhancing capacities and instilling the sense of aspiration takes time." ...
It reminds me, there is a line you will hear in introductory development classes or texts, that in the year nineteen such and such Mali and South Korea had the same per capita income, but today South Korea is rich and Mali is not.
To which you should in future respond: THAT IS ABSURD.
Ancient Mali had a state, scholars, entrepreneurs, and global trade. But despite being one the the most developed states south of the Sahara, history, geography and the slave trade conspired to make its systems far less developed than the Koreans’. So if the two places looked very similar in 1950, it is because we are measuring the wrong things.
Tabarrok comments on "Lark's" attack of neo-liberalism as applied to India:
"One estimate suggests that for every job Walmart (the largest global retail chain) creates in India, it would displace 17 to 18 local small traders and their employees. In a country like India, this is of major significance, since around 44 million people are now involved in retail trade (26 million in urban areas) and they are overwhelmingly in small shops or self-employed."
Of course this is no refutation, fewer jobs are precisely the point. What India needs is fewer jobs; fewer jobs in retail, fewer jobs in apparel and, most of all, fewer jobs in farming. India cannot become even a middle income country if most of its workers, for example, are farmers. To improve its standard of living, India must use fewer people to produce more agricultural output.
Fewer workers in farming (or retail) means more workers producing more goods in other industries.  The same basic lesson holds throughout an economy, it is the declining sectors that allow other sectors to advance. Instantaneously? Immediately? With higher wages for every worker? No. Transitions always involve some pain; creation always involves some destruction; growth always involves change. The alternative, however, is stagnation. ... today’s losses and gains are fleeting, the permanent winners are the workers and consumers of the future who will know only the benefits of productivity. (emph. added)
How willing are we to accept that pain? If we don't compensate the losers somehow, we lose the Pareto argument. There may be a utilitarian argument in the background somewhere, but that is where careful analysis comes in. If we are going to weight current and future generations' welfare, just how far in the future do we care and what weight do they receive?

Dilbert does Development
Focusing on 25 areas simultaneously
This large article argues that capitalism is even replacing the caste system. Untouchables become a lot more touchable once they have earned some money.
[Said] Chandra Bhan Prasad, a Dalit activist and researcher who has championed capitalism among the untouchables. “Because of the new market economy, material markers are replacing social markers. Dalits can buy rank in the market economy. India is moving from a caste-based to a class-based society, where if you have all the goodies in life and your bank account is booming, you are acceptable.”
1 - But again, this depends on what your opportunities are and how long we are willing to wait.
2 - Yes, people are left out. People were being left out before with no chance to escape. Now they have an opportunity out - not all, and not today, but it is a path that did not exist before. Maybe class warfare is better than some alternatives.  analysis of government survey data by economists at the University of British Columbia found that the wage gap between other castes and Dalits has decreased to 21 percent, down from 36 percent in 1983, less than the gap between white male and black male workers in the United States. The education gap has been halved."

Among the caveats is this one from Angus, who argues that development may be even more like medicine than Rodrik has pushed. We see a correlation in medicine (healthier people have higher HDL cholesterol and lower LDL) and produce enough evidence to believe it is causation (HDL is "good" cholesterol) and then come up with plans to increase HDL and lower LDL ... only to find out it doesn't work that way.
Experts observe that successful countries exhibit qualities A, B & C. Developing countries are advised, subsidized, threatened to emulate the successful countries on these attributes. But the patients do not improve!
Here again time comes in, but it is a time of experimentation, in markets, in governments, in society.

Meanwhile from the lighter side: Ryan Gosling development posters, a double entendre crossing.

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