The Danger of Models of Development (or, how culture really matters)

How portable are models of economic development? When people talk of the Washington Consensus or the Beijing Consensus, they are indicating a set of economic approaches toward development that include deep cultural connections. America’s approach of privatization and deregulation has brought immense prosperity to the country over the past century (even if we may have moved the edge too far in the past few years). Likewise, China’s approach to state-centered economic growth is merely an extension of an extremely long history of bureaucratic development.

One of the economic theories that have been put forward to address this is varieties of capitalism - an approach that seeks to consider countries in terms of holistic systems of production - one in which individuals interact in a system of institutions that all work together in synergy. Thus, the United States has strong patent rights, strong rule of law, entrepreneurship, libertarianism, deregulation, etc. - the change of one of which would be incompatible with the others.

The theory has many problems (namely, reverse causality), but it highlights a true danger in economic development: economies grow organically, and it is nearly impossible to graft on a new industry or approach and expect it to be successful. One only has to look at the demise of Silicon Valley clones around the world to see how difficult copying a set of economic institutions can be.

Daniel Altman (who I seem to beat up a little too much), wrote another article for Foreign Policy in which he discusses the increasing levels of human capital development in Africa. His statistics are quite interesting, but one thing I thought was interesting was the on-going comparisons to South Korea.

For example, in overall human development as judged by the United Nations Development Program (UNDP), Madagascar now sits where the Republic of Korea did in 1980, on the cusp of its export boom. And a closer look at the data reveals many more examples of progress.

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As Korea showed starting half a century ago, vast natural resources are not a prerequisite for rapid growth. With better education and health come higher productivity, rising wages, and greater buying power. To plan for this growth, companies will need to use a long time horizon. One way to do it is by laddering the marketing of their products in parallel with increases in living standards.

We must be cautious about trying to mimic the success of one country in other parts of the world. While South Korea’s success could quite possibly be transplanted to other areas in Asia, it seems hard to believe that its approach will work well in a region as diverse and different as Africa. It is the cookie-cutter approach that I believe has most harmed development in the past, and it is the individualization of development plans that offer the most hope for a better future for humans across the world.