Thomas Timberg

William Easterly’s The Tyranny of Experts, a critique of top-down attempts at economic development, starts with the shocking story of an Ethiopian farming community expelled from ancestral lands needed by a foreign agribusiness firm. The army carried out the eviction at the behest of authoritarian elites running the country and the multinational corporation with whom the elites cooperated, all with the support of the World Bank’s International Finance Corporation.[1] The undemocratic nature of the Ethiopian state and its lack of respect for the property rights of the poor undermined efforts to spur the economy, Easterly says.

Development Does Not Follow from

Authoritarianism…

Through this anecdote and numerous others, Easterly counters the strong hypothesis that authoritarian regimes are necessary for economic development. An increasing number of commentators credit Chinese authoritarianism for enabling development, just as past apologists credited Soviet, Nazi and Italian Fascist regimes for the development over which they presided. Even though growth may have been rapid under authoritarian regimes, many factors other than the regimes may have been at work.

Central planning, Easterly says, is flawed because our understanding of economic and social processes, especially in developing countries, is limited statistics are bad and each country has a unique set of problems requiring detailed local knowledge. Precisely because of these idiosyncrasies, he is willing to entertain the idea that different countries might need a tailored approach to development that might entail some central planning.

Yet, unlike Dani Rodrik, he does not think that protectionist interference with international trade is likely to work in almost any circumstance. What Easterly advocates is free trade and free markets, and he argues that the World Bank is too soft on dirigiste governments.

Development Arises from Free People

Development, according to Easterly, happens as the result of numerous initiatives by individuals and groups. A government may facilitate or hamper those initiatives, but typically does not cause them. Then why wouldn’t Easterly support the World Bank and the International Monetary Fund if, as many critics claim, these institutions further the neo-liberal free market consensus, He faults them for promoting the power of the states with which they work rather than the individuals who live in them.

By focusing on individuals, Easterly hopes to reconceive economic development away from a focus on states and governments. He argues that liberal majoritarian democracy with a strong rule of law to protect minority and individual rights is essential to economic development as well as a good society. He reinforces his argument with an extended anecdote, recounting how people from a range of ethnic groups made their fortunes over the last two centurieson one street in lower Manhattan.

If Easterly sounds Hayekian, that’s because he is. He contrasts the approaches to development and economic growth of Friedrich Hayek (1899?1992) and Gunnar Myrdal (1898?1987), both of whom received the Nobel prize in economics in 1974. Easterly identifies Myrdal with evils: central planning, strong authoritarian states, and racist, imperialist elites who once controlled things. Meanwhile, the saintly Hayek believed in facilitating individual and cooperative initiatives from below to solve problems.

As an accurate history of ideas, however, Easterly’s account is exaggerated. Myrdal was certainly committed to democracy, even in developmental contexts, and firmly opposed to empires. Democratic or otherwise, he was highly pessimistic in retrospect excessively so about the prospects for international economic development. Hayek had no problem with transitional  authoritarianism, as in Pinochet’s Chile, with which he was associated. Hayek, an Austrian aristocrat teaching in London, and Myrdal, a Social Democrat who attempted to rally his fellow Swedes against Hitler, were united and defined by their anti-Nazism.

Easterly also expresses outrage that those trying to defend European empires during and after the Second World War had the same recourse to economic experts as did their opponents. Surprise shouldn’t be part of that outrage. Present-day historians emphasize that this defense was Keynes’s major concern at Bretton Woods.

Development Proceeds in an Imperfect World

Easterly takes particular aim at China when attacking authoritarian regimes. Yet as a practical matter, it is difficult for any sizable company, institution, state, or multilateral institution to completely avoid sovereign government, however abusive.

Witness the complex relations many have established with North Korea. One might prefer regime change, but it may not be on offer. So one is left with the difficult task of how to balance the desire to weaken and overthrow a government with the desire to help its people and pursue other normal interests, commercial and otherwise.

Foreign aid donors might limit themselves to permitting only food and medicine to be purchased; they can route their assistance through autonomous NGOs or provide it only in kind. There are no easy answers on how to relate to bad governments, but they are made up of people and there are sometimes productive ways to work with them.

Since this review appears on the website of an economic consulting firm, Nathan Associates, you might think most of us disagree with Easterly on his major points. We do not. We agree that free markets, democracy, and the rule of law are good for development and good for people. We understand the limits of our knowledge of economic development and the wide and idiosyncratic nature of the problems it poses in different countries.

We do frequently work with governments and donors, typically providing support on the subjects we do know something about how to evaluate the economic and financial prospects of infrastructure and to make it sustainable commercially, how to conform to the requirements of the international trade and financial systems and make those systems work to a country’s advantage. We are rarely in a position to push people to do something they do not want to; and more typically end up supporting them in doing what they want to do.

Thomas Timberg, a senior economist at Nathan Associates since 1985, is an authority\r\non small business promotion and financial development. He advises governments and institutions on taxation, antitrust matters, investment opportunities, deregulation, budgeting, and industrial development in addition to banking and finance.

[1] The Ethiopian government, like several others in Africa, has a development strategy involving leasing or giving underused lands to foreign agribusiness firms. This strategy is intended to increase land productivity and increase jobs. The negative is that the rights of those now using the lands are often ignored. Everybody now agrees injustice was done. The owners received compensation from the World Bank and the corporation, which withdrew from this project, although many critics said the amount was too little. The IFC and even governments now have rules to protect landowners, but these rules do not always work.