The Elusive Quest for Growth

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The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics
ISBN
978-0-262-05065-4

The Elusive Quest For Growth: Economists’ Adventures and Misadventures in the Tropics is a 2001 book by World Bank development economist William Easterly. Upon its release, the book received acclaim from such figures as Bruce Bartlett, Robert Solow, and Paul Romer, and has since become widely cited in the Economic Development literature.

Easterly’s primary thesis is that the numerous efforts to remedy extreme poverty in the Third World have failed because they have neglected that individuals, businesses, governments, and donors respond to incentives. Thus, he argues, the failure of economic development in poor tropical nations is not the failure of economics, but the failure to apply economic principles to practical policy work. Inspired by the moral imperative to improve the lives of the poor, his recommendation is not to abandon the quest, but to improve the institutions of governments and international actors to create incentives that promote growth.[1]

Panaceas that failed

The first section of the book is dedicated to the various Post-WWII efforts to promote economic growth among impoverished tropical nations. Early efforts to promote

intergovernmental organizations
, to fill the “finance gap” between domestic savings and required investment. Easterly, however, demonstrates that most aid did not go into investment in the years 1965-1995, and finds no statistical association between investment and growth. As Robert Solow discovered in the late 1950s, it is not just investment in machines but investment in ever-improving machinery—technological progress—that improves worker productivity in the long-run.

Easterly also discusses the failed efforts of states to use education, family planning, and debt forgiveness as means to grow out of poverty. He notes that there is little incentive for a student in a poor country to value and invest in her own education if there is no future return for that investment. In more corrupt countries the very skilled opt to apply themselves to lobbying the government and other activities that redistribute income rather than activities that create new value. For education to provide a return on the investment, the society must have well-functioning institutions and markets that foster a demand for skilled individuals.

Easterly also highlights the problematic nature of

Earned Income Tax Credit).[2]

People respond to incentives

The second section of the book outlines how the poor often do see incentives to invest in their futures. Bad luck, poverty traps, and corrupt governments plague individual efforts to overcome poverty. Easterly argues that "getting incentives right is not itself another new panacea for development. It is a principle that has to be implemented bit by bit, stripping away the encrusted layers of vested interests with the wrong incentives, giving entry to new people with the right incentives."[3]

Easterly writes that it is very difficult for poor individuals to break free from the

brain drain
. According to Easterly, governments can help overcome poverty traps by subsidizing investment in new knowledge, reducing taxes on capital goods and technology, and actively seeking private investment.

According to Easterly, "the prime suspect for mucking up incentives is government."

property rights lower the return on private investment and create poor incentives for growth. However, good government can promote broad and deep growth when it holds itself accountable and "energetically takes up the task of investing in collective goods like health, education, and the rule of law." Transparent institutions that promote these and other economic freedoms ultimately foster a productive society.[5]

Critical response

Reviews of The Elusive Quest for Growth appeared in the Journal of Economic Literature,[6] The Economist, Journal of International Affairs, Review of Radical Political Economics, and Development Policy Review. The Economist called it a "refreshing, iconoclastic book" which would leave its readers "chastened, instructed and entertained."[7] One critique emphasized that while incentives are tautologically critical to development, economists are far from agreement on how major policies, such as liberalizing capital flows and liberalizing labor markets, affect incentives.[8]

In the years following publication of Elusive Quest for Growth, Easterly became embroiled in a public debate with rival development economist Jeffrey Sachs over the role of foreign aid.[9] According to Abhijit Banerjee and Esther Duflo, Easterly has become one of the most influential anti-aid public figures, following the publication of two books, The Elusive Quest for Growth and The White Man's Burden." [10]

References

  1. ^ Easterly, William, The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics, MIT Press, Cambridge, 2001, p.xiii
  2. ^ Easterly, The Elusive Quest for Growth, p.21-140
  3. ^ Easterly, The Elusive Quest for Growth, p.143
  4. ^ Easterly, The Elusive Quest for Growth, p.217
  5. ^ Easterly, The Elusive Quest for Growth, p.289
  6. doi:10.1257/002205102760273823
    .
  7. ^ "Growth and Aid: Abiding and Abetting". The Economist. March 28, 2002. Retrieved March 5, 2012.
  8. ^ Koechlin, Tim, "Fighting Global Poverty, Three Ways," Review of Radical Political Economics, Volume 39 (2007): p. 381
  9. ^ Easterly, William (March 13, 2005). "A Modest Proposal". The Washington Post. Retrieved March 5, 2012.
  10. ^ Banerjee, Abhijit, and Esther Duflo, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, Public Affairs, New York, 2011, p.3
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