The Real Story

If you're interested in education, Pakistan, entrepreneurship, or just the experience of being an engaged, compassionate human being, do yourself a favor and listen to Seema Aziz describe how she built one of the most successful textile companies in Pakistan ...

[direct link to MP3]

... at the same time that she built an organization that today educates one out of every 200 of Pakistan's children:



[direct link to MP3]

When you're done, check out Beacon House and The Citizen's Foundation and learn more about their work, and their founders.

This is the real story.

Chaos in the Streets

In my last post (motivated by an exchange with @keithkall on the topic of complexity theory), I noted that the observations of actual changemakers held real insights that we students of change do well to heed. Here's an example that wonderfully illustrates the notion of extreme sensitivity to initial conditions in complex systems:

The critical hour of contact between the pushing crowd and the soldiers who bar their way has its critical minute. That is when the gray barrier has not given way, still holds together shoulder to shoulder, but already wavers, and the officer, gathering his last strength of will, gives the command: "Fire!" The cry of the crowd, the yell of terror and threat, drowns the command, but not wholly. The rifles waver. The crowd pushes. Then the officer points the barrel of his revolver at the most suspicious soldier. 

From the decisive minute now stands the decisive second. The death of the boldest soldier, to whom the others have involuntarily looked for guidance, a shot into the crowd by a corporal from the dead man's rifle, and the barrier closes, the guns go off themselves, scattering the crowd into the alleys and backyards. But how many times since 1905 it has happened otherwise! At the critical moment, when the officer is ready to pull the trigger, a shot from the crowd--which has its Kayurovs and Chugurins--forestalls him. This decides not only the fate of the street skirmish, but perhaps the whole day, the whole insurrection.

The author is Leon Trotsky, certainly one of the 20th century's great changemakers (and one who, coincidentally, also bears a striking resemblance to @bill_easterly) writing in his book The History of the Russian Revolution.

Now, what is the point of this reference to chaos in the streets, beyond its connection to deterministic chaos and the dynamics of complex systems? Two points, actually:

1) The actions of changemakers don't always turn out so well in the long run. (USSR? No.) Indeed, as Paul Polak  (a.k.a. @outofpoverty, founder of IDE, an organization whose treadle pumps have dramatically increased the productivity and incomes of over 17 million smallholder farmers worldwide) has recently and insightfully written, "institutions" are nothing but "radical ideas cast in concrete." Furthermore, "The failure of development is closely tied to the ossification of big institutional structures." (Read the post. It's great. He's a guy to pay attention to.)

2) Emergence in real (as opposed to theorized) human societies does not arise as a consequence of some pseudo-mystical force called "spontaneous order." It arises out of the choices and decisions made by actual human beings on a daily basis. Many of those decisions are routine; most occur within the context of existing institutions (a.k.a. radical ideas set in concrete). But, every once in a while, an individual or group of people organizes to challenge powerful incumbents. (#sidbouzid) The process may look chaotic from the outside. But it has its own internal logic, planning, agency, decisive minutes, and decisive seconds.

Development in human societies is nothing but the process by which novelty is created, reinforced, and then challenged. People with initiative and vision make that process happen. The study of development without reference to, and understanding of, the people who make development happen is ultimately the study of nothing.

Kalling All Development Economists: Cut the Crap

Keith Kall (@keithkall) gets to the heart of the matter with this comment re. my last post about complexity:

...Very interesting post. I was left with the thought that a lot of this rhetoric and hyperbole could be easily be dashed, if those who write about entrepreneurship would walk out on the limb and engage in an entrepreneurial venture in order to balance some experience with success and failure with their beloved theory; rather than simply nest in the comfort of observation, supposition and mathematical formulas. But then, again, that's not how economists seem to do things....

About a decade ago--having at long-last completed my doctoral dissertation involving an application of complexity theory to the economics of production and innovation--I came to pretty much exactly the same conclusion that Keith does here: since change in human societies is, indeed, increasingly fast-paced and unpredictable, maybe the best way to find out what's going on is to ask those people who spend all day making change happen themselves.

This conclusion motivated me to join forces with GrameemPhone founder Iqbal Quadir to start Innovations journal (@innovationsjrnl) an academic publication whose core mission is to feature the insights of such changemakers, a.k.a. entrepreneurs. As we wrote in the editors' introduction to the inaugural issue:

Existing institutions and incentive structures may or may not be adequate to address [21st century global] challenges. If the past is any guide, continued progress in addressing public challenges will require continued innovations—the efforts of individuals, groups, and communities who creatively employ new organizational forms, and in many cases new technology, to effect discontinuous change. This journal is about such innovations and the changes that they bring about. It is less about what needs to be done, and more about what people are doing...

Academic journals addressing public challenges typically are structured to address the general characteristics of problems rather than particulars of solutions... Important insights with potentially broad application are often lost simply for lack of a common space where they can be found. By focusing on the particulars of practice, Innovations is intended to complement existing journals, providing a common space that cuts across academic disciplines, bridges theory and practice, and links human action with global impact.

In its first five years of publication Innovations has featured the insights of a remarkable group of entrepreneurs, including Mo Ibrahim (CelTel & Mo Ibrahim Foundation), Fazle Abed (BRAC), Nick Hughes & Susie Lonie (M-PESA), Rory Stear & Kristine Pearson (Freeplay Energy), Matt Flannery  (1 & 2, Kiva.org), Kathryn Hall-Trujillo (Birthing Project), Catherine F. Lainé (AIDG), Martin Fisher (KickStart),  R. D. Thulasiraj (Aravind Eye Hospitals), Karen Tse (International Bridges to Justice), and Ibrahim Abouleish (SEKEM).

Given all this, I appreciate Keith's redirection to what I consider to be the core practical implication that emerges from serious consideration of complexity and development economics (ref. also my previous posts re. Bill Easterly--1, 2, 3, 4,  5, and 6--as well as the inimitable Jeff Sachs): development economists should cut the crap, stop fixating on things that don't matter, and start paying more serious attention to the practical insights of entrepreneurs.

Complexity: It's Not as Simple as Bill Easterly Thinks It Is (It's Simpler)

Folks over at @aidwatch have been getting into writing about complex systems these days. I'm not sure I know what they're talking about. And I don't think they do either.

Here's Bill Easterly writing today in the Guardian's Poverty Matters blog:

A popular topic in the aid blogosphere this week was not about Haiti or Ivory Coast or south Sudan but about complex systems, i.e. systems that cannot be reduced to a simple mathematical or statistical model, where actions often have unintended effects. [Link included as in the post]

Now, admittedly, this is just one sentence. But still, it would be difficult to come up with a more poorly informed summary of the nature of "complex systems" than the one Easterly offers here. 

Why? The reason is that the core insight of the study of complexity--be it deterministic chaos, cellular automata (e.g. John Conway's marvelous "game of life") or agent-based modeling in general, to cite just a few of the many variants that loosely define this domain of study--is this: systems that are not just reduced to, but actually defined by, simple mathematical models, have the potential to generate extremely...well, complex behaviors. The classic example is the logistic map, an extremely simple function whose dynamics are highly complex:

Anyhow, the key point is that such complex systems, while entirely deterministic (that is, lacking any random element) generate behaviors that are indistinguishable from those of stochastic systems (systems driven by a random component). (When mapped in "state space" they also yield beautiful fractals...but that's another story.) Before the study of deterministic chaos (and with it "extreme sensitivity to initial conditions" a.k.a. the "butterfly effect"), determinism and randomness were understood to be opposites. So understanding that there were significants domains in which they were indistinguishable from one another was a pretty big deal.

The caricature of "complexity theory" that Easterly offers is in line with a body of work by Austrian economists that has sought, with greater and lesser desperation, to connect Friedrich Hayek's famous notion of "spontaneous order" in economics systems to that of "emergence" and "self-organization" in complex systems. This was a failed undertaking from the outset, nearly twenty years ago now. It is also one that I have some confidence Hayek himself would have judiciously avoided. The reason is that the problem that concerned Hayek (and von Mises before him) was not the emergence of  complexity in the absence of randomness, but rather the impossibility of calculation in the presence of randomness (and its siblings--noise, and informational decay). 

An illustration: In the "The Impossibility of Socialist Calculation," Hayek assails the now-forgotten Oskar Lange for making following assertion in an attempt at critiquing von Mises: "The administrators of the socialist economy will have exactly the same knowledge, or lack of knowledge, of the production functions as the capitalist entrepreneurs have." This is what Lange said; Hayek characterizes the claim, with his characteristic light touch, as "a blatant untruth, an assertion so absurd that it is difficult to understand how an intelligent person could ever honestly make it."

Now, let's pause to consider. If the essence of the problem faced by administrators of socialist economies was deterministic chaos as described above (the essence of unpredictability in complex systems) then Lange's statement would not be absurd. It would actually be correct: under circumstances of deterministic chaos there is no way the entrepreneur could have better information than the planner. But that's not Hayek's objection. He does not believe that Lange has failed to grasp the essence of extreme sensitivity to initial conditions. Indeed, his point is not fundamentally about dynamics at all. What Hayek is really talking about is the heterogeneity and localization of information. In other words, Lange is wrong because the entrepreneur has unique and specific information to which the planner does not have access:

The individual entrepreneur will not possess or require knowledge of general production functions, but he will currently learn from experience how at any given time variations in the qualities or the relative quantities of the different factors of production he uses will affect his output. This information relevant for and possessed by each entrepreneur will be very different from that possessed by others. To speak of the aggregate of such information dispersed among hundreds of different individuals as being available to the planning authority is pure fiction.

Given this, what do you think Hayek would say about a model of economic dynamics in which every economic actor not only possessed the same ability to observe local conditions, but followed the exact same deterministic rules? That is the essence of a complex system! But it is the opposite of a model built upon the heterogeneity of economic actors, and the impossibility of reducing their choices to simple models in the aggregate. In other words, a complex system is the opposite of "a system that cannot be reduced to a simple mathematical or statistical model, where actions often have unintended effects" (ref. above).

Now, since ours is a country in which liberty prevails, I suppose it's OK to employ the term "complex systems" to refer to things that are its opposite. Why not? It's all just silly science stuff anyway. So, henceforth, I am sure that Easterly will allow the same license to others who chose to reinvent technical terms--say "effectiveness," "confidence," "evidence"--in ways that similarly suit their fancy. Sound good?

Pakistan: Creating a Place for the Future

UPDATE (5/9/2011): Entrepreneurship and markets study now available on the Planning Commission's website.

Over the weekend I worked with Lance Kramer (@kramerlance) of Meridian Hill Pictures to put together a video for the Growth Strategy Conference hosted today by the Government of Pakistan's Planning Commission:

The point of the video is to introduce a study that I recently completed with Elmira Bayrasli (@endeavoringe) and Sara Shroff (@samsaradc), at the request of the Planning Commission. However, the core principles reinforce points that Nadeem Ul Haque (@nadeemhaque), Deputy Chairman of the Planning Commission, has been making for some time now, including in this 2007 paper on "Entrepreneurship in Pakistan" and in this Spring 2010 talk at TEDx Lahore :

Here's how our report begins: 

For six decades, Pakistan has faced, and overcome, conflict and calamity. Despite many obstacles, the country’s economy has grown steadily. At critical junctures, successive governments have adopted strategies suited to the circumstances of the day, and the nation has developed steadily due to these particular well-conceived initiatives. Yet, as a consequence of the reactive nature of policy formulation and implementation, the institutions of government are conditioned to think in terms of projects rather than strategies to support growth. 

Today Pakistan confronts a new round of immediate challenges and urgent demands. Yet, it is precisely at this moment of apparent crisis—in the aftermath of a devastating flood and with security concerns continuing to dominate the national agenda—that the need to change the discourse about the country’s development has become most apparent. Reactive tactics and dependence on external aid are not helping Pakistan to develop or to realize its potential. Sustained and sustainable development cannot come from a collection of projects, no matter how well intended. A New Development Approach is needed: Building markets. Building opportunity. Building cities. Building governance. Including youth.

To realize Pakistan’s 21st-century potential, the nation’s political and business leaders must not only meet the demands of the present, but also—and perhaps more importantly—create a place for the future...

More to follow on this as the Planning Commission's process moves forward.

The Smartest People in the Room

I'm a person of simple pleasures. For instance, I count any day a success when I have the opportunity to use the word "eviscerate." Take Thursday. That was the day when I wrote this blog post about Presidential Study Directive 7 (PSD-7). In additional to employing the word "eviscerate," the post expresses considerable enthusiasm for the direction of the global development rethink currently going on at the White House.

Yesterday NYU development luminary Bill Easterly had the kindness to not only take notice of the post but also to point out to me that I managed to misrepresent a blog post by Aid Watch staffer Laura Freschi as one by the Maestro himself. (Arrghh. Guilty! Though, in my defense, how was I to know that anyone under the age of 50 could so persuasively convey the jaded air of a veteran development insider? Easterly trains his people well!)

It turns out that Easterly is considerably less sanguine than I am about the potentially transformative potential of PSD-7:

Professor Auerswald (sorry for my teasing you in this post), you do seem to have a theory of social change in which promises about government intentions to someday change priorities are a major force. My experience of many years of observing such statements is that they are more like New Year’s resolutions that are repeated every year.

My rebuttal to this? My counter-attack? None whatsoever. Easterly is right. My last post is probably mostly wishful thinking. What is the likelihood that awareness of the exigencies and opportunities of the moment will be enough displace entrenched bureaucracies and transform decades-old habits of thinking? What is the likelihood that an esoteric administrative exercise like PSD-7 will turn out to have made a difference in the lives of actual human beings? Even people like me who were actually born in Washington DC (yes, some of us exist) recognize the obstacles that stand in the way of such outcomes.

As Easterly is, I believe, aware from any one of my six previous posts calling into question the coherence--indeed the very existence--of his own theory of social change (1, 2, 3, 4, 5, and 6), I do not in fact hold the view that the United States government (USG) is likely to be a "major force" in global development. If anything, I would say that the causality is reversed: the point of my post, and a core point of this blog, is that global development will almost certainly be the major force affecting the United States in the next quarter century, whether the USG plans effectively for this eventuality or not.

So what was it about Freschi's post that motivated me to drop deadlines on that particular day and go on the offensive? It's pretty simple: I find it more than a bit depressing when The Smartest People in the Room refuse to leave the room in which they are the Smartest People. For instance, from Easterly:

I vaguely remember that I was invited to a meeting with a US government big shot on development whose name I’ve forgotten, to take place in Washington. I failed to do my patriotic duty, using the lame excuse that the meeting was two days before Christmas, and I unreasonably treat the days around Christmas as belonging to Family Zone.

After a lifetime working on development, might not Easterly have made it a priority to influence the most sweeping review of priorities in global development undertaken by his country's government in a decade, if not longer? After all, the government of the United States may not be much to Bill Easterly, but it's got more resources at its disposal than he does. No way to find an alternate time? Schedule a call? Write an email? Post a direct Tweet? Undertake a pinkie lift?

No. None of the above. Just not worth the time.

(Note: Bureaucrat appears to have been working two days before Christmas. Not everyone has the benefit, as Easterly and I do, of living by the academic calendar.)

In any process that involves difficult decisions with uncertain outcomes, those seeking solutions should welcome, even celebrate, the views of astute critics (in this case, Easterly). But when critics hold themselves apart from engagement in anything that might resemble positive action, one is sorely tempted to make sausage of their studied detachment.

Step 1: Eviscerate...

What it Means to "Elevate Development"

The White House process aimed at redefining U.S. development policy for the 21st century (known internally as Presidential Study Directive 7, or PSD-7) is coming to a close. Earlier this year some colleagues and I had the opportunity to offer input to Gayle Smith in the National Security Council, who was tasked with leading PSD-7, which we did.

On Monday Foreign Policy blogger Josh Rogin leaked a copy of the document that is coming out of PSD-7. Item one on the proposed new agenda for global development policy, as advanced in this draft, is this:

Moving forward, the United States will foster the next generation of emerging markets by enhancing our focus on broad based-growth and democratic governance.

To begin with, consider here what is not listed first on the nation's development agenda: "Poverty alleviation." "Nation-building." "Global threats." "Counter-terrorism." And other code words allegedly relating to "development" that are based alternately about fear & condescension.

Notice further that in this sentence "broad-based growth" is listed before "democratic governance." What does that mean? It means that the people who wrote this draft get it: expanded economic opportunity precedes democratic change. Both together lead to increased prosperity. That is development. (Elaboration here.)

Now as a counter-point, Bill Easterly [actually, Aid Watch staffer Laura Freschi, see below] offered his comments today. He focused on administrative structure:

The most significant change in the draft is the creation of interagency committee reporting to the President to run US development policy.

He wants to know what it means to “elevate development” as a “key pillar of US foreign policy.”

Here's my attempt at an answer to that question. "Development" today refers to the process by which the majority of the world's population is joining the global economy. It is a process whose momentum is going to overtake and obliterate puny debates about "aid" (pro and con) and eviscerate stale discussions about donor coordination and accountability.

"Elevating development" means taking (at least some!) decision-making away from those alleged development experts who pay no attention to entrepreneurship and global business (the actual drivers of development) and instead continue to devote their energies to making failed approaches less failed. (Yes, I am talking about pretty much every "development economist," Easterly included.)

It means that people who have not been accountable or serious about advancing actual development may potentially lose their authority, and then their jobs, because this is too big an opportunity for this country to be entrusted to people not determined to make the most of it. It is not only too big for one agency. It is also much too big for the entirety of the U.S. federal government--which, incidentally, will have succeeded if manages to remain relevant to global development in the next quarter century, much less dominant.

That is what this process is about. That is what the draft PSD-7 memo from the White House is about.

Now if you don't care about the role of the U.S. government in the world today, don't read this memo. If you do, its message is worth considering carefully. There is not an organization in this country that would not benefit from its own PSD-7 process, and that wouldn't also be moving forward if it similarly found a way to "elevate development" in its strategic planning.

Correction: ... Ummm ... well... as it turns out Bill Easterly didn't quite exactly write the post that I attribute to him in this blog post. As kindly pointed out to me by Bill, the post was actually written by Aid Watch staffer Laura Freschi. Apologies to Bill... and to Laura!

Why Entrepreneurs?

Among all the riddles of economic life, none perhaps is greater than the existence of a market for new cookbooks.

Consider TED prize winner and celebrity chef Jamie Oliver. Last night Skoll Centre Director Pamela Hartigan, her husband Martin Hartigan, and I shared a meal at Jamie Oliver's Italian restaurant in Oxford. (In case you're wondering, it's called "Jamie's Italian.") Martin and I both ordered "fish in a bag" which the menu describes as follows:

The freshest sea bass fillet from Brixham market, Cornish mussels and clams steamed in their own juices with smashed fennel, heritage potatoes, capers, arrabiatta sauce and zesty Amalfi lemon.

To accompany my fish in a bag, I had a glass of Merlot. The meal was delicious and the three of us had a great time.

But here's the point: For how long have human beings been drinking fermented grape juice? For how long have we been steaming fish and mussels--potentially in combination with available fresh vegetables? Answer: A very long time.

Now granted, there is some skill involved in organizing raw materials (sea bass, fennel, lemon, etc.) into a meal--which is to say, cooking. Very good cooks may be able to profit from their skill by, for example, charging for the meals that they prepare. (Ergo, restaurants.) Alternately, they may painstakingly document their techniques so that others can duplicate their skill. (Ergo, recipes.) Yet, even when a recipe is well spelled out, dimensions of discretion that inevitably fall to the cook can lead to very different outcomes. As Joseph Schumpeter observed a century ago in The Theory of Economic Development:

The necessity of making decisions occurs in any work. No cobbler’s apprentice can repair a shoe without making some resolutions and without deciding independently some question, however small.

All is well so far. Where we run into a problem is with Jamie Oliver, as well as with Nigella Lawson, Thomas Keller, and all other celebrity chefs. Indeed, the very existence of cookbooks is a bit vexing. How can it possibly be that, after the trillions of meals that human beings have prepared and consumed over millennia out of essentially the same fundamental set of ingredients, individual people to not only come up with new recipes, but in fact to become famous doing so? A new recipe here and there, sure. But an entire cookbook full of culinary novelty? Such a thing would seem to be a statistical impossibility.

The answer is, of course, that cookbooks aren't impossible. Indeed they are not only possible, they are ubiquitous. That is because there is no limit to humanity's appetite for novelty, just as there is no limit to human creativity. In fact, if Chicago's Moto Restaurant and Disruptive Food are any indication, we're just getting started...and that's just with the recipes.

In economic life, managers are cooks. Some are better, some are worse. Good ones can make money from their skill. Bad ones botch even the easiest recipes. Variance among managers makes it difficult to sort out, when assessing a project (as when eating a meal) whether any shortcomings experienced are due chef's lack of skill, or to the recipe employed. As Bill Easterly tweeted a while back

Nothing works everywhere, depends on how implemented RT @Transitionland: Microfinance meltdown in Bosnia - http://trunc.it/4lya2

Even in medicine, with its highly routinized protocols, over 1 million deaths per year occur as a consequence of medical error. (That number is for the United States alone. Ref. Atul Gawande's Checklist Manifesto. In 1994, that 1 million included my father, who died due to complications in the course of a "routine" surgical procedure.) When surgery fails, is the fault with the surgeon, or the technique? This is a difficult enough question to answer in a medical context, but it is even more difficult when applied to a development project.

That said, the remarkable persistence of markets for cookbooks suggests that nourishment depends on much more than ensuring that existing recipes are properly prepared--as important as that can be. It also, and perhaps more fundamentally, depends on the creation of new recipes.

Or, to get past the metaphor: sustained prosperity depends on more than capable managers. It depends on more than blueprints, manuals, and franchises. It depends on more than projects with goals, targets, and timetables.

Instead, sustained prosperity depends on novelty. It depends on invention in the face of change. It depends on creativity with limited resources.

More fundamentally--most fundamentally--sustained and sustainable prosperity depends on entrepreneurs.

Dr. Know

Recipient countries should be invited to prepare plans and budgets.

—Jeffrey Sachs, "Homegrown Aid"
New York Times April 8, 2009

Critics of big-money solutions to complex problems like to make a pariah out of Jeff Sachs. He is an easy target, in part because (unlike Bill Easterly) he generally stays up in the stratosphere, out of reach of his critics.

That would have been me until an afternoon a couple of years ago, when I happened to be out for a walk in San Francisco's Mission District with Kiva founder Matt Flannery. Reflexively, I started Sachs-bashing. I'd barely gotten started when Matt glanced my way and said, "yeah, I've noticed people like to put Jeff Sachs down a lot." Surprised and somewhat deflated by my evident lack of originality, I cut my diatribe short and quickly sought another topic of conversation.

For some time since then, I decided to hold my judgments in check. We do have a convention in academia to avoid ad homimen arguments. Focus on the message, not the messenger.

I was prepared to stick with that line of reasoning, until a few months ago, when I finally took the time to read Sachs' most celebrated popular work, The End of Poverty.

Reading this perplexing epistle to the powerful (core analytic insight: poor countries are like sick patients that require differential diagnosis and treatment??) prompted me to wonder if we, as academics, have not been too easy on Jeffrey Sachs, rather than too hard. What is the nature of the expertise for which he is everywhere lauded? For what actual contributions to understanding or human betterment is he responsible?

To seek answers to these questions is, for me, to take a bumpy ride trip along memory lane, revisiting distinct moments in my career as an economist. I suspect many of my generation have similar recollections . . .

First, I am in graduate school. The Berlin Wall has just fallen. There is this guy from Harvard advocating for something that goes by the name "shock therapy" for countries making the transition away from Communism. Apparently it has been just the trick in Bolivia.

I think to myself, "Who is this guy? What is going to happen to all that state-owned stuff when it's just flipped into the market?" Best case scenario is that it will create a lot of rich criminals who will eventually try to create a proper country ... sort of on the Joe Kennedy Sr. model.

Assessment of contribution: Kept hyperinflation at bay. Otherwise, in Russia, crashed industrial production, plunged life expectancy, and seeded the rise of an autocratic kleptocracy. Not a big win.

Flash forward. I'm a post-doctoral fellow at Harvard's Kennedy School of Government. There is that same guy! Except now he's presenting papers (this one for example) that purport to explain why poor countries are poor. It turns out, they're in the wrong place! If poor countries could be in the places where rich countries are, they'd be rich too. Or something like that.

I think to myself, "Who is this guy? ... Next he'll be telling us that he can figure out someone's IQ looking at the shape of their skull."

Assessment of contribution: In a Department of Geography, might count for credit toward Master's degree . . . if submitted on-time, without too many typos.

Fast forward a few years. I am still at Harvard, now as a lecturer in economics. Sachs has decamped to be the head of the Earth Institute at Columbia University. Only now he has morphed again.. this time into passionate advocate for the poor.

I think to myself, "Who is this guy? If he was being straight with people, his response to anyone who approached him to talk about lifting people out of poverty would be, 'I'm sorry, you've got the wrong guy. I'm a macroeconomist. Therefore, by definition, I can't tell you anything of practical use regarding the day-to-day process of economic development. You need to talk to my former Harvard colleague Amartya Sen, the Nobel Laureate and one of the great social scientists 0f the 20th Century. He will be able to help you. (Zvi Griliches has recently passed away, so I'm afraid you won't be able to talk with him.)'"

Assessment of contribution:

Potemkin villages
< Millennium Villages
< real development

But hearing Sachs speak here in DC a few weeks ago, I finally figured out how this all ties together. Sachs isn't isn't just fond of medical metaphors. He is Dr. Know. Though he has often been wrong, he seems never to be uncertain. He is the guy who believes that "we" have the solution. All "we" need is the money to put the solution into practice. Whether in Russia in 1992, or in Kenya in 2010, the obstacle isn't ignorance or uncertainty, it's willpower. When the determination to drive change is present, change happens.

Checkbooks out, please.

In the end, Matt Flannery turns out to be right. Personalized polemics are pointless. What is at stake in the assessment of the contributions and legacy of Jeffrey Sachs isn't who he is or what he knows, but how he knows.

This meta-discipline—one that encompasses not only what we know, but how we know it—is called epistemology. And, when it comes to development, epistemology is at least as important as economics. Notably, it is on the basis not only of economics, but of epistemology, that the role of entrepreneurs in development can best be appreciated.

If solutions are known, need $$. If solutions are knowable, need evaluations. If solutions are evolving, need entrepreneurs.

My Buddy Pine (a.k.a. "Syndrome") Moment

This is the sixth and last of my series of posts re. aid effectiveness guru Bill Easterly. Others are 1, 2, 3, 4, and 5.


If you have children, then you know Buddy Pine (a.k.a. "Syndrome") :He's the kid in The Incredibles who idolizes Mr. Incredible, only to turn vindictive (see expression above) after his hero rejects him as a would-be sidekick (IncrediBoy). Adopting the name Syndrome, he dedicates himself to besting his former idol.

In the confessional spirit that seems to be the flavor of the week on the development blogosphere, this post is about my Buddy Pine moment with the Mr. Incredible of the aid-criticism world, Bill Easterly.

The year was 2006 (or was it 2005?) and Easterly was visiting George Mason for a semester. Toward the end of his visit, I managed to catch a talk of his at the Mason Econ. Department. The talk was full of good stuff on dealing with endogeneity in cross-country growth regressions, the role of institutions in determining development trajectories, and other macro-development topics. After the talk I approached Easterly to pose the question that had been waiting anxiously all afternoon to ask: Would he, by any chance, be willing to author a lead essay on the topic of social entrepreneurs as "searchers" for the journal I had just co-founded with Iqbal Quadir?

Easterly was very gracious, but his reply took me aback nonetheless. Social entrepreneurship might be heartwarming, I recall him saying, but it has nothing to do with development.

Nothing to do with development? What?

Now, given that I can't remember where my car is parked half the time, I could have this wrong. Maybe that wasn't what he said, or what he intended to say. But the remark as I heard it really stuck with me. How could Bill Easterly—of all people!—take the position that entrepreneurship in any form has nothing to do with development? What about the staff of 100,000 that daily carries out the work of BRAC in Bangladesh, founded by Fazle Abed three decades ago? Not the outcome of social entrepreneurship? Not development? What was I missing?

That was the Buddy Pine moment.

From then on, I looked at Easterly's writing with, let's say, a bit more of a critical eye than I had previously. I searched copies of his books for mentions of the words "entrepreneur" and "entrepreneurship." (Elusive Quest for Growth: 6; White Man's Burden: 12 . Compare with Sachs, The End of Poverty: 4; Schramm, Litan & Baumol, Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity: 225).

What I have realized over time is that, while Easterly has made a huge contributions in pulling back the curtain on assorted Wizards of ODA that inhabit Emerald ($) Cities on the banks of the East River, the Hudson, and the Potomac, and while he talks a good game about "searchers" and "seekers," he's really not all that interested in entrepreneurs and entrepreneurship. Apparently once a macro-economist, always a macro-economist.

Now, you might say, so what? As Easterly himself pointed out to me earlier this week, it's not very entrepreneurial to try to force everyone to talk only about entrepreneurship.

Of course, he's right... Well, almost... No, actually, he's wrong.

Why? Because, among the prominent development economists and former World Bank staffers that circulate in the same environments as Easterly, the number who really focus on entrepreneur-led development is exactly zero. Which is to say, nobody. Not Rodrik, not Kremer, not Duflo, not Pritchett, not Birdsall. And, no, not Easterly. Keep working down the list. As good as they are along other dimensions, none of them focuses on entrepreneurs and entrepreneurship.

I'm sure you'll agree with me that nobody is a long way from everybody. Therefore... wrong. Q.E.D.

For the A-Team in the academic study of development to be systematically ignoring the core driver of the process of development is an alarming mis-allocation of a scare resource: talent. Instead, academic development professionals (Easterly among them) fixate upon the effectiveness of Official Development Assistance (ODA)—these days, about $100 billion. A lot of money? Well, it's less than one fifth of one percent of global GDP. It's also less than half of the $200+ billion in remittances that flow annually from people in wealthy countries directly to their relatives in poorer countries. And it is less than 1/5 of the $500+ billion that exits poor countries every year and heads to rich countries in illicit transfers of various types.

In sum, Official Development Assistance in its entirety is about as relevant to the process of global development as the programs of the U.S. Department of Commerce are to the advancement U.S. economy. Part of the story, to be sure, but a small part.

But enough about the world. Let's get back to me. I admit that Easterly's introspective ploy did cause me to abandon my plan to lure him back to Northern Virginia and subsequently to read aloud from The Theory of Economic Development (in the original German) until he reversed his prior error and consented to write not one, but a sequence of essays for Innovations about entrepreneur-led development. But, otherwise, the Oprah Show at Aid Watch this week was on the wrong topic. Tweetiquette? Blog decorum? ...

When Mr. Incredible is reduced to politely discussing a topic that doesn't really matter much to start with... well, then this Buddy Pine doesn't even want to be IncrediBoy anymore.

Next posts...

• Why entrepreneur-led development is development (picking up from Iqbal and from Paul Kagame)
• Why "top-down" vs. "bottom-up" dichotomy is not the fundamental one. Basic tension is exploration (flexibility) vs. routine (order). Sound like "searchers" vs. "planners"? It's not...
• "RCT, non merci"... Why ascending markets (a.k.a. "developing countries) need more growth capital for successful entrepreneurs and skilled mentors, not more randomized controlled trials of development projects

... and more relating to the coming prosperity.

Inviting Jeff Sachs and Bill Easterly to Agree

I just sent this email to Jeffrey Sachs. He was at my alma mater on Wednesday speaking with students and faculty at the school about global development, Millennium Villages, the Earth Institute, and related topics. I had the chance to chat with him briefly at the end of his visit and to share with him the recently published special edition of Innovations on invention-led development.

The point of the message is to encourage Jeffrey Sachs and Bill Easterly to put aside their disputes on the lesser topic of aid effectiveness, and co-author an essay on a more important subject about which they appear to be in agreement: namely, what actually works in global development.

Dear Professor Sachs:
...

I have been greatly heartened to hear directly from you, and from Professor Easterly (cc'ed), your shared view that entrepreneurship and innovation are at the core of the process of economic development. The two of you may also a share the view (one that I hold most emphatically) that a development strategy focused on entrepreneurship and innovation is not equivalent to one that relies on markets as they currently exist. Rather it is one that considers interventions to markets strategically, with an appreciation for the reality that solutions in a rapidly changing world are not known, but are rather are evolving, and thus that success at scale begins with broad-based local experimentation combined with the resources, commitment, and alignment of incentives that jointly ensure support for approaches that work.

I believe that the discourse on global development would be greatly advanced if you and Professor Easterly were to participate together in an event, and jointly author an essay, focused not on the subsidiary subject of aid effectiveness, but rather on the core issue of what actually drives global development--a topic on which it appears your are largely in agreement. The event would be all the more interesting if you could be joined by actual entrepreneurs who have, in their own work, advanced global development--people like Iqbal Quadir and Mo Ibrahim. Should you be willing to participate in such an event, I am sure that you would find any number of willing hosts. For my own part, I can say that Innovations journal would be more than pleased to publish the jointly authored essay that the two of you seem well placed to author on this topic.

Best regards,

Philip Auerswald

Obama's Road Not (Yet) Taken

In reaffirming the greatness of our nation, we understand that greatness is never a given. It must be earned. Our journey has never been one of shortcuts or settling for less. It has not been the path for the fainthearted, for those that prefer leisure over work, or seek only the pleasures of riches and fame. Rather, it has been the risk-takers, the doers, the makers of things—some celebrated, but more often men and women obscure in their labor—who have carried us up the long rugged path towards prosperity and freedom.

—Barack Obama, President of the United States
Inaugural Address, January 21, 2009

One evening in the Fall of 2008—when Lehman Brothers had just failed and the entire financial system seemed to be on the edge—a former student of mine approached me as I was leaving the School of Public Policy building after teaching my microeconomics course.

The student had a question: What should the government be doing to help small business cope with the financial meltdown?

It turned out that, in this case, the matter was not just of academic interest. The student was a staffer on an key Congressional Committee, and had been tasked to tackle this specific question. In fact, the rest of the staff and committee members were so preoccupied with the rather significant job of making sure that the entire financial system didn't fall of a cliff that she—so far as I could tell from that discussion and subsequent exchanges—was the only person responsible for this task. And she had been given four days to come up with an answer.

The importance of her assignment was evident to both of us. After, as we were both aware, all net new jobs for two decades had come from small business. If small business didn't create new jobs to get the country out of the coming recession, there wasn't going to be any getting out of the coming recession.

That legislative session came to a close without large-scale targeted action to support entrepreneurs. We then had the inauguration of a new president. We had TARP. We had MASSIVE STIMULUS. (Both needed. Some elements of the stimulus—notably, smart grid investments--highly worthwhile.) But a concerted strategy for small business and entrepreneurs? Still nowhere in sight.

In the Spring of 2009 my George Mason colleague Zoltan Acs and I published an essay in The American Interest that took note of the need for government at all levels to make support of entrepreneurs an fundamental policy priority:

Economic growth, or its absence, is merely an indicator on the dashboard of our ongoing national journey. The engine that propels American capitalism forward is entrepreneurship; the fuel is opportunity; the work of foundations recycles the energy of society, making progress and widespread prosperity sustainable. Yet, just as a Tesla Roadster is no Model-T, 21st-century entrepreneurship derives from a formula far more complex than the “1 percent inspiration and 99 percent perspiration” once cited by Thomas Edison. Far-sighted government policies are an essential element within this formula. Political leadership must do more than celebrate the “risk-takers, the doers, the makers of things” who create opportunity and extend the reach of prosperity. It must act in partnership with private foundations to ensure the existence of an environment conducive to their efforts.

Again, months passed. The President's agenda continued to be dominated by exigencies of the moment (Afghanistan) and justifiable legislative priorities (in particular, health insurance reform). But "risk-takers, the doers, the makers of things" that the President celebrated at his inauguration remained sidebars on the President's policy agenda.

And then, in the past three weeks, a change: The Obama Admistration started not only talking about small business and entrepreneurs, but actually proposing specific initiatives to help them continue their role as featured participants in the creation of American prosperity.

This is good news. It could get even better. For example, the Obama admistration could embrace wholesale the outstanding set of recommendations the Kauffman Foundation has advanced recently to drive innovation and advance prosperity through entrepreneurship.

Why do all this? Because what the past America and the next America have in common is entrepreneurship, innovation, and a nation's defining determination to find the practical solutions needed to maintain momentum "up the long rugged path towards prosperity and freedom."

Would Americans everywhere embrace such a story?

Here's hoping the Obama administration helps us find out.

When the Blue Screen of Death Really Means Death

The Blue Screen of Death. Even Mac users know what this means. It means that you have a problem. The problem may be small, or it may be big. You may have lost some time, or you may have lost a piece of your soul.

Why the seeming inevitability of the Blue Screen? Because computer code is complex. New programs interact with old programs, and with the operating system, in ways that are all-but- impossible to anticipate. The only way to find out for sure what will work and what won't is to try things out. (Ergo the concept of the Beta version.) When you try things out, sometimes they don't work right. When that happens... BSoD.

Now here's how another computer user experienced the Blue Screen of Death (from today's NYT):

It was a Saturday afternoon, April 19, 2008, and [Guadalupe] Alberto, a 77-year-old former autoworker, was driving her 2005 Toyota Camry. Within blocks of her home, witnesses told police, the car accelerated out of control, jumped a curb and flew through the air before crashing into a tree.

Mrs. Alberto was killed instantly, leaving her family stunned at how such an accident could happen to someone who was in good health, never had a speeding ticket and so hated driving fast that she avoided taking the freeway.

Her car was not among the millions of Camry models and other Toyotas recently recalled for sticky accelerator pedals. And it also did not have floor mats at the time, which were part of a separate recall.

Instead, the crash is now being looked at as a possible example of problems with the electronic system that controls the throttle and engine speed in Toyotas.

Mrs. Alberto was not aware she was using a computer when she left her home. But she was. Any automobile built in the last decade has computing power comparable to... a personal computer. In today's world, computing power is ubiquitous. The water from your faucet? The power in your home? These and more infrastructure services are brought to you by "supervisory control and data acquisition" systems--referred to by professionals as "SCADA" systems--the category of software that runs the background programs for everyday life in industrialized countries. (If you're interested in that sort of stuff, you might want to check out this... and if you're really a glutton for punishment, this.)

Recognizing that society's operating system = computers + the built environment + people, the BSoD itself becomes a ubiquitous metaphor. The Challenger and Columbia crashes. The Northeast power blackout. Katrina. All BSoD phenomena in one way or another.

Now let's get back to the Blue Screen we started with--the one on your computer. How do you deal with it? We all know that the only way to deal with the BSoD is to expect it to happen, to prepare accordingly, and to get good at recovering rapidly. In other words, you need to be resilient. After all, what good is weeks, months, or years of efficient, productive work if it all gets lost in one Blue Screen. Ask Akio Toyoda.

The 20th century was all about growth. Not the 21st. For communities, businesses, and nations, resilience is the quality that matters most.

Speaking of Scarcity...

Bill Easterly has a blog post today titled "Who gets the Last Seat on the Plane? Why Aid Hates Economics." He's right again. But his argument could be extended. For example, there is another scarce resource not mentioned in this post whose allocation matters for development: The talent of development economists, like Easterly.

Take, for example the Aid Watch blog itself, whose motto is "Just asking that aid benefit the poor."

Now (bear with me for a moment here!) let's say you're back in the historical paradise of planning, namely the Soviet Union. Everyday, you have to eat the same old cr&p food...

photo credit

You're sick of it, but you can't find a way out.

Then one day, a leader arrives, with a banner that reads "Just asking that the food not suck!" You cheer! You hoist your comrade on your shoulders! At last, you are fighting back against the system. The battle for better cafeteria food is on!!

But what is the opportunity that is missed here? What is the thing you really need, that you're not going to get from the "Just asking that aid benefit the"--I mean, the "Just asking that the food not suck" campaign?

What you're not getting, and what you really need, is some new restaurants!! Yes, that would be just the thing. Some options. You would like another place to go to eat.

There is a general rule here: What really drives change isn't protest, but genuine competition driven by consumer choice. (Back to dining for a moment: Think about food in airports twenty-five years ago, if you were alive then. All Sodexo monopoly. Uniformly terrible and expensive. Now, with entry and competition for licenses, the food in the airport is at least as good as what you get outside the airport.)

Entry (or threat of entry) doesn't have to be by entrepreneurs in order for it to induce beneficial change. In the U.S., the most significant new entrant in the aid business in the last decade has been the Department of Defense. At his big event at Brookings last month, Easterly ridiculed the assertion by Secretary of State Clinton that the DoD's mission could be aligned with development, saying:

Her big think point was that we can merge defense, diplomacy, and development. And that’s probably one of the worst ideas I’ve heard in my career as a development economist.

Well, what does he think is more likely to stir USAID from its longstanding torpor: (a) the Aid Watch blog, or (b) the threat of being rendered obsolete by the Pentagon? I'd put my money on (b).

So instead of "just asking that aid benefit the poor," how about just asking for some new restaurants?

Randomized Out-of-Control Trials

Listening to the audio for the recent "What Works in Development" meeting at Brookings, I couldn't help but notice the moderator's (no need to name names here) telling insistence on using the term "randomized clinical trial" in place of the generally preferred "randomized controlled trials." Either way, the message is the same: "Put on your lab coat, Sonny. . . It's time to do some people experiments!"

Now I'm going to let the experts--and they were in abundance at Brookings last month--address the finer points of external validity (for the uninitiated, this reflects the researchers ability to answer the question "Well, so what?") and other challenges to the claim of RCTs to being the big thing in development.

What interests me is what RCTs might do to entrepreneurship. And it's not a pretty picture.

To set the stage, consider this observation on the process of development from very-smart-guy Mancur Olson:

Because uncertainties are so pervasive and unfathomable, the most dynamic and prosperous societies are those that try many, many things. They are societies with countless thousands of entrepreneurs who have relatively good access to credit and venture capital.

Power and Prosperity, pp. 188-189

What works in development, according to Olsen, is experimentation. Why? Because we don't know what works. Such a view, earlier articulated by Hayek and other, finds a contemporary expression in Bill Easterly's now-familiar (to folks that follow this sort of stuff) distinction between "searchers" vs. "planners" in development. For those of you inclined to economic theory (anyone? ... hello?) here's my version.

Now Bill Easterly is also known as an advocate for accountability in aid. He has concerns about the potential overuse of RCTs. However neither he nor the colleagues represented in his recent book with Jessica Cohen, (mis)titled "What Works in Development," have much of a notion of what else might really work better.

All good so far.

But here's a problem.

No entrepreneur ever used randomized controlled trials to create a business. None. Ever.

OK, I don't know that for sure. But please find me one... and you know I'm not talking about a biotech startup that pulls off a clinical trial to test for safety and efficacy. I'm talking about using a randomized trial to build the business itself... the entrepreneurship part of entrepreneurship.

Development driven by entrepreneurship (also known as "development") is comprised of randomized out-of-control trials. That would be--yes!--the opposite of randomized controlled trials.

Why does this matter? Stop and think. In what U.S. industry do clinical trials dominate? That would be pharmaceuticals. And in what industry are markups higher, and barriers to entry greater, than they are in the pharmaceuticals industry? The answer to that question is, of course, no other industry. When it comes to persistent oligopoly, pharma beats them all.

A very big part of the reason for this is that large-scale clinical trials are expensive. But you can't sell a drug without them. (For mostly good reasons, I might add, in the case of medicines.) So even successful biotech companies have had great difficulty breaking into the business of conducting their own clinical trials; instead they often partner with "Big Pharma" on the last mile of drug development.

Now I'm not saying we should abolish the Food and Drug Administration--though, like the U.S. Patent and Trademark Office, it is in serious need of some tender loving care . . . alternately administered with a potential kick in the groin or two.

No, I'm just asking this question: Is the increasingly widespread use of RCTs a move in the direction of an FDA for development--if not in a hardwired, institutional sense (unlikely, unless you think that the World Bank is in danger of becoming relevant again) then instead in the sense of customs, standards, and expectations.

I can see it now... A well-meaning RCT acolyte popping up on NPR to talk about the Aravind Eye Hospital and saying

Well, yes, it is true that they have cured two million people of blindness in thirty years. But we don't have any real evidence of their effectiveness. How many of the people treated at Aravind would have ceased to be blind without the surgery they received? Was the Aravind approach really better than alternatives? And did it really have an impact on economic growth in the regions in question? The only thing I can say without proper evaluation is that this is a nice retirement project. But I can't tell you that it is effective development.

Am I making this up?

Will not "higher standards of evidence" not only distort resource allocation (if outcomes are improperly defined) but also create barriers to entry? Won't this favor incumbents, 0r outside consultants flown in to do the work? Might not all of these "secondary" effects more than outweigh any benefit gained from "better" standards of evaluation?

Furthermore, might we not do better by studying the work of those exceptional entrepreneurs--like Aravind's founder, Dr. Govindappa Venkataswamy--who do a particularly remarkable job in creating social value, and putting our resources into supporting the nascent efforts of others like them, using an approach to evaluation that is actually appropriate to entrepreneurship?

Instead of putting our faith in randomized controlled trials whose beneficial impacts are uncertain, shouldn't we bet on the process of randomized out-of-control trials (a.k.a. entrepreneurship and innovation) that has been the very definition of development and growth pretty much everywhere in the world for five centuries?

Randomized clinical... that is, controlled trials work fine in public health, but for development, they could well be the cure to aid ineffectiveness that turns out to be worse than the disease.

IMAHAINGTTIA!

@montero funny how entrepreneurs define by creating and academics define by quoting and correcting each other.

me: guilty as charged

Having for five years taken great joy in editing a journal featuring narratives by entrepreneurs addressing global challenges, I can relate to what Montero's saying here. Academic one-upmanhip isn't even interesting to academics. How can it possibly be interesting to anyone else?

But, in the immortal words of Peter Finch, IMAHAINGTTIA!

Take the alleged "debate" over what works in development, featuring the inimitable (please don't try) Jeffrey Sachs and his Big Apple neighbor, William Easterly. Why would the two of them be adversaries on the topic of what works in development? After all, they both know what works and what's more, they agree!

But not only don't they listen to each other, they don't even listen to themselves. (For you folks watching at home: Yes, that is pathetic.)

Here's the Jeffrey Sachs version:

I believe that the single most important reason why prosperity spread, and why it continues to spread, is the transmission of technologies and the ideas underlying them. (The End of Poverty, p. 41)

Here's Easterly:

Historically, industrialization arose in initially poor countries which have since become rich, with the common theme of a heavy reliance on both domestic and international market opportunities and decentralized private entrepreneurship.

Now only two things need to happen to connect the dots between these two statements.

One is to pull Sachs out of whatever Secretariat meeting he happens to be in at the moment to remind him that human beings are responsible for the "transmission of technologies" and furthermore that the most adept among us at this task actually have a name: technology entrepreneurs. These people do not wear lab coats (for the most part), they do not work at the United Nations, and they do not know Bono.

The other thing that needs to happen here is to drag Bill Easterly away from friendly chats with fellow economists for long enough to give the topic of aid effectiveness a rest (perhaps permanently) and start spending some time and attention studying what matters most in development.

And, again, what was that?

Entrepreneurs. Technology. Innovation. These have been the drivers of increased prosperity for the past 500 years. They continue to be the drivers of increased prosperity today.

Jeff and Bill: If you don't agree with this statement, why do you yourselves--like pretty much all other growth and development economists--use variants of it in your own writings?

And if you do agree with this statement, then why don't either of you pay any serious, scholarly attention to entrepreneurs, technology, and innovation?

What is the matter with you people!

IMAHAINGTTIA!

The Trouble With Bill (He's So Close to Great)

First, a question: What would happen if an exceptionally public-spirited chiropractor was to blow the whistle on exaggerated claims made by other chiropractors? We'd all say "great!" And what if he was to persuade similarly high-minded colleagues to collaborate on a book about making chiropractors, as a profession, more accountable? Again, we'd say "great!"

But what if that same well-meaning chiropractor was to endow said book on chiropractor-accountability with the title What Works In Health-care? We'd all say... well, it wouldn't be nice. "Who's making exaggerated claims now! Isn't there more to health-care than the work of chiropractors? And I thought you just told us that most of your fellows are frauds anyway? What exactly is going on here??"

The problem would be worse if policy-makers, political leaders, and power brokers actually believed that the book and its cover were one and the same. Nutrition? Don't bother me. Exercise? Who cares. Preventative medicine and therapeutics? No my concern. All I care about is straightening your spine.

Now go back and substitute "development economist" for chiropractor, "aid-effectiveness" for chiropractor-effectiveness... and, for "nutrition" and "exercise" the words "entrepreneurship" and "technological innovation." There you have my dismay (OK, fine, over-reaction) to the book by Jessica Cohen and Bill Easterly titled What Works in Development.

Now let me explain why I'm going to spend the next 4-5 posts persisting in the seemingly irrational undertaking of picking a fight with Bill Easterly: It is because Easterly is the most compelling voice among development economists today. Others are brilliant (Michael Kremer, Esther Duflo among them) and worthy of genuine admiration as scholars. Some are doing great practical work, alongside their academic work.

However, Easterly is alone in having solid academic background, a large platform from which to speak, and something like the right message to deliver.

That last phrase holds the key to my frustration... "something like the right message." Yes, Easterly is near the top of the list among economists addressing the vitally important issue of strategies to make the most of the coming prosperity (see post #1 of this blog). If he can't get it right, what hope is there for the rest of us?

In any event--whether or not it turns out that there's anything to my particular angle here--my guess is that boxing with the blind men Uptown who still don't see the limits of big money approaches to development has got to get a bit tedious. So if my observations serve only as a brief, peripheral break from the "aid good"/"aid bad" show, so much the better.

Aid Effectivess DOES NOT= Development

When I first heard about the new book by Jessica Cohen and Bill Easterly on What Works in Development, I was downright excited.

Then I looked at the papers posted online , the combined texts of which look like this

... and listened to the podcast of the book release event at Brookings on January 21, the transcript of which looks like this

I finally got a hold of a copy of the book itself. If you are interested in techniques for assessing the impact of aid (and, parenthetically, why cross-country macroeconomics is difficult to the point of being, well... pointless) I urge you to order up a copy right now. An impressive list of the usual suspects in development economics shares insights as to what we Think we really Know about aid from Randomized trials.

But "what works in development"? I think not.

What is my view of what works in development? Here's one picture (the text of chapter 3 from The Coming Prosperity):

http://wordle.net

Many other plausible pictures are possible... None resembles an economist's navel.

More to follow on this general topic... including why framing the search for solutions in global development as Easterly vs. Sachs is a bit like framing the search for solutions to the obesity epidemic as Coke vs. Pepsi.

Without Google, Will Baidu Become China's Minitel?

I clearly remember visiting my cousins in France in the mid-1980s, the heyday of a device launched in 1982 by Poste, Téléphone et Télécommunication (the French national telephone company) called the “Minitel.” The Minitel was a marvel. It consisted of a small keyboard and monitor with myriad uses: you could buy things, book seats on the train, check the market, find a phone number, and even chat with friends. It being France, pretty much everyone in the country eventually had one. It was a pre-Internet Internet—connected by phone lines, through a centralized system.

Now if there was any way to save this Gallic innovation from its inevitable demise once the Internet rolled into town, I am sure that the good folks at the PTT (now France Telecom) would have teamed up with this or that minister to find one. Indeed, they tried. But a national network, operated through a centralized carrier, could not compete, in any way, shape, or form, with the global, almost organic, architecture of the Internet. The Minitel limped along, but today is nothing more than a glorified phonebook.

Such battles happen all the time—and, almost invariably, open networks beat closed networks, and larger networks beat smaller ones, in that order.

All of which leads me to wonder if Baidu, the Chinese search company which currently has 66% of China's search market, won't be up next up for monopolistic, closed-network obsolescence if Google (which has the remaining 33% of the search market) ends up pulling out. Search is a tough business to break into--though, admittedly, most folks thought it was locked up in the US before Google got going in the late 1990s... and they were wrong. But, for a variety reasons, a search monopolist in China may be tough to displace in the market, with complacency being the predicted outcome. As one Chinese Internet market analyst quoted in today's New York Times put it, "Without competition, Baidu has no motivation to innovate."

Nick Kristof had this to say in his column today: "In a conflict between the Communist Party and Google, the party will win in the short run. But in the long run, I’d put my money on Google."

He's right. In the controlled chaos that is economic development, the chaos has a tendency to pull back every once in a while before it once again overwhelms the control. Sooner or later, that's what's going to happen here.