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Context is king

October 14, 2011

Development economists find it hard, when visiting developing countries, not to dispense their favourite wisdom. But i’m more and more convinced of the need to tailor analysis to country context. In a 2009 paper Dani Rodrik writes that:

…development economists should stop acting as categorical advocates (or detractors) for specific approaches to development. They should instead be diagnosticians, helping decision makers choose the right model (and remedy) for their specific realities, among many contending models (and remedies).

All countries are different, and one size doesn’t fit all. The kind of ideas that are appropriate in one nation might be completely different to that of another. Rodrik’s growth diagnostics approach uses a decision tree that proposes different solutions depending on circumstances — hopefully leading to a better overall economic outcomes. It also helps avoid the problem of the paternalistic international development ‘expert’ instructing local policymakers as to the right course of action, when in fact the foreigner’s abstract, theoretical knowledge might be less useful than the local’s country-level, tacit wisdom.

If there’s a shortcoming of Rodrik’s approach it’s that it doesn’t really allow for a wide variety of approaches and it ignores politics. At the top of the tree is “low levels of private investment and entrepreneurship”, which is said to be a result of either low return to economic activity or high cost of finance. This is a fairly narrow range of options. And a technocratic approach often isn’t enough. Capable governments can make their economies grow; incapable or corrupt ones can’t. Proposals that look technically sensible are often completely irrelevant unless the government is willing or able to carry them out.

The underlying theory of knowledge used by economists also matters. Most economists think that they are social physicists discovering universal and timeless truths that apply everywhere. Indeed Rodrik has said he is a neoclassical —  unlike most he believes that there are ‘many recipes‘. But critical realists like Tony Lawson say that mainstream economics is wrong to deduce laws based on theory. Social reality is variegated and nuanced, and people behave very differently according to time and place. We should use induction, using evidence, as much as deduction based on scientific theory. Laws should only be provisional.

Social science is supposed to propose hypotheses that are either supported or disproved by practical research. It doesn’t always work like this. Economics is full of supposed ‘findings’ that it clings to for many decades despite the available evidence: a schoolmaster continuing to teach old-fashioned texts when his bright pupils have long been reading the new stuff.

It’s hard to admit that you’re just a facilitator, not least when you’ve spent the best part of a decade at Harvard being told that you’re the vanguard of a science of society. Another reason for the absence of openness to alternative approaches is that economics is partly a purveyor of power: the ideas that emanate from the Western academy are often those which best serve Western interests. But there are signs that things are changing; not least the rapid take-up of Rodrik’s diagnostics approach. If development economics could become a bit more bespoke, admitting that there are lots of ways of doing development, then it’d much better serve the people it’s supposed to.

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