Pop quiz: Is a “business-friendly” environment the same as an “entrepreneur-friendly” environment?
Answer to that is coming up. But my guess is that 9/10 entrepreneurs get the answer right (10/10?), and 9/10 economists get it wrong.
Now as for the topic of this post, “What if Development Economics Was Actually About Development?” You might rightly ask, “What is development economics about, if not development?” Read recent books co-authored by Dean Karlan and Esther Duflo, or this volume edited by Jessica Cohen and Bill Easterly, and you will find out. “Development economics” is about improving the effectiveness of development projects. It’s about enhancing the value we get from the ~$125 billion that flows each year from rich countries to poor countries to improve the lives of poor people. That’s “development economics.”
Development economics is mostly not about the technological and organizational transformations that are propelling the human community into an unprecedented era of increased prosperity. It is mostly not about structural changes in a $69 trillion global economy. It is mostly not about the global revolution in mobile telephony–the most ubiquitous and powerful technology people have ever created. It is mostly not about the creation and diffusion of vital standards–ISO, container shipping, TCP/IP–that have enabled global economic integration. It is mostly not about the astounding power of migration to improves lives and livelihoods. And it is mostly not about the initiative of entrepreneurs who bring imagination to opportunity to create new forms of business, products, and services that even they did not imagine could exist when they first started out.
Most of all, “development economics” is mostly not about development. That is because projects don’t develop. And they don’t create development. Here’s a definition (thank you Dictionary.com):
[dih-vel-uhp-muhnt] Show IPA
“Process of developing” means that there is change. A transition from one state of being to another. That is what development means. So social scientists who study development should be interested in how societies change.
Development, therefore, is a dynamic phenomenon. But the tools that define “development economics” are, overwhelmingly, static. In order for a project to be evaluated–for example with a “randomized controlled trial” (RCT)–the parameters of the project have to be strictly defined. (“Controlled” says it all). The project is a recipe. The assessment is method for determining if that recipe works in a particular place, and at a particular time.
In my last post I addressed the limitations to RCTs created by the “in a particular place” clause. (Ref. the challenge of “external validity”.) But the “at a particular time” clause is even more problematic.
The point is simple: If the phenomenon under consideration is actually important to the process of development, it will, by definition, be changing. Consider just the example of mobile telephony offered above. The numbers, options, and opportunities change on an almost monthly basis. Not just superficially, but fundamentally–at the level of options, learning, and even human preferences. (Ref. “non-stationarity of the underlying process” mentioned in my last post.) But the tools of “development economics” in its current form are inherently, even assertively, static. The viability of the RCT method, in particular, depends on applying precisely the same “treatment” to each target population. If the treatment is not the same, or if important elements are omitted from the “recipe” (they will be), then the assessment is invalid.
Is ingenious program evaluation a total waste of time? Of course not. It is a contribution…to people charged with managing projects anyway. But it is not the study of development.
I almost forgot: Is a “business-friendly” environment the same as an “entrepreneur-friendly” environment? … Hmm. Well here is a book that is actually about development that provides some answers. More on that in my next post ;)
UPDATE: Citing this paper by Casey, Glennerster, and Miguel as an example, Dean Karlan (@deankarlan) points out to me that RCTs can be used to evaluate “a process of change that includes the decision on whato do, who does it, etc.”