Apr 20, 2023·edited Apr 20, 2023Liked by Noah Smith
I disagree with Noah, I think he's too bullish on Africa, specifically Sub-Saharan Africa. To quote a recent post on AE
"from 1960 to 2021, real per capita GDP grew 46 times in China, over 5 times in India, 158% in Latin America, and only 40% in Subsaharan Africa. In a closer time period, from 1990 to 2021 CEE countries increased their real per capita GDP by 144% (starting from a much higher point as well) while SSA, again, only grew by 24%."
A lot of the countries that had major issues in the past but ended up successful, like China, Taiwan, Korea, still had existing systems, people, culture, and foreign factors that could be turned to facilitate economic growth.
Currently a lot of SS Africa is like 'Haiti-lite' where nearly everything on every level has been utterly disorganized and corrupt for decades; there isn't really a place to start without a total reorganization of everything, or a miracle. It also feeds on itself; being surrounded by corrupt, poor, and unstable states is not conducive to success.
South Korea's growth has continued strong, but Taiwan's has slowed down in recent decades. Why has Korea been able to keep growing incomes fast when Taiwan has slowed?
I don't want to exaggerate the comparison. Taiwan's growth is still equal to or faster than developed countries, and Korea, while growing faster than today's Taiwan, is still far from the rocket-speed growth both countries had in the 1980s. But these are economically two very similarly positioned countries. You'd think they'd face the same laws of economic gravity. Yet Korea somehow has been able to sustain above-trend growth for 20 years longer than Taiwan.
"How countries get rich" attracts one-size-fits-all explanations, but in this case we have two countries, both growing, but obviously with some kind of important difference to Korea's benefit. If there was a reason for Korea's recent outperformance over Taiwan, it'd be worth knowing.
I am a little too optimistic, and think occasional doses of pessimism will do me good. Especially reminders that nation building doesn't happen on auto-pilot, and development is not guaranteed. But I couldn't believe that Odd Lots episode. Their talking points seemed not just negative about the future, but also contrary to my understanding about the past. While the podcast is mostly a talk show, and Tracy and Joe never do argumentative episodes, it felt like they were too ready to be believe everything the guest said.
I think the overall macro effect is that african countries need commodity booms for their nationalized commodity firms to gain more revenue and with more revenue, despite corruption, will lead to more ability to invest in infrastructure, public health, and etc. The hard part is that commodity booms strengthen currencies and make their manufacturing uncompetitive - Dutch disease. Asian nations barely had any natural resources so they never had the counter problem of commodity booms making manufacturing uncompetitive there.
Just like when China hit $4000 USD per person at the year 2000(not ppp but market rates), it lead to a massive feedback effect of consumption and investment leading to global demand of goods. Now China is at $13K at current exchange rates. . India needs the same (ppp India is at $7000 but at current exchange rates its more like $2200 income per person)
Countries like Guinea export aluminum which is now where near historic highs.
Once India becomes a massive buyer of commodities and increase their growth of commodities each year faster than countries can produce/mine those materials, commodities will spike and really, super poor nations like Guinea can grow.
From my vantage point in India, I'd say the reality may be somewhere in the middle of your two divergent perspectives. It is true that Indian growth has been a lot faster post 1990 than in the 3 decades prior. Yet, I can empathize with arguments around why the East Asian manufacturing miracle cannot be replicated here - the 'democracy tax' has a big role to play.
India is beset with 'first world problems' like NIMBYism, environmental over-activism, continued labour-law related inflexibility that will all only increase; even if its infamous shambolic infrastructure picks up. Thus India manages to do well only in services, where its famed entrepreneurs can sidestep these problems and sell to the world. Even services will come under pressure with AI.
In short, the future looks better than the past, but no runaway growth to be seen here. This is despite probably the best political and social stability among the developing world with no major wars for a long time. Other emerging economies would likely do worse on one or more of the dimensions - war, social strife, hyper inflation, famine / drought. Thus, the weighted average growth will not look great
Excellent but my point enquiring for your thoughts is a bit different.
It is not on Economic development but Economic Development economics.
I used to follow think tank and individual Economic Development economists on their www web platform, several years ago.
These blogs were well worth reading and had highly interactive comments sections. But now the www platforms just generate no interest. The comments sections are dead. Is it because people now use more modern social media platforms like twitter, facebook, whatever.
Further individual Development Economics economists have moved away from the field. They now still write on third world issues but not about Development Economics or it is with some tenuous connection.
Prof Krugman, with I think, other mainstream economists, questioned in the past is Development economics an actual thing at all.
Finally Development Economists were supposed to fix these countries so that they became normal functioning economies to the benefit of their citizens. They have failed and now basically tell people to emigrate. This failure may be resulting in a lack of interest or the economists themselves moving to other fields of interest.
It is a long way of saying is Development Economics now dead as a discipline or just Much reduced.
One of the most interesting notes in the post is this:
"But around 1990, Patel et al. find that things flipped — suddenly, there was a negative correlation between a country’s income and its growth rate, just like economic theory says there should be. "
If people were to offer an interpretation would it be:
1) That from the 50s-80s there was a lot of enthusiasm for international development. In the last 30 years there's been more skepticism, but those critiques have had an impact and we are now smarter about international development.
2) The Cold War was bad for international development, and the end of the Cold War was a boon?
Negative headlines and dire predictions sell better than hopeful ones. Plus, the fact that your articles are loaded with facts and caveats makes me lean in your direction. Trends are very hard to detect when they first start, and once established, people look back and say, "Of course, we saw this coming."
The most significant unknown that you didn't really address is the political aspect and its effects on world affairs. All bets are off if China invades Taiwan or the war in Ukraine escalates, or a major world leader dies. As Yogi Berra said, "It's tough to make predictions, especially about the future."
BTW, thanks for reminding me about 'phlogiston'. It's been a long time since I saw that word.
I would contend that economics is dependent on sociology and politics. Your example of East Asia rocketing to the top while much of Africa remains mired in poverty can be viewed as differences in social structure support for modern economic development. Rapid economic growth can easily overwhelm rickety governments and social systems. Simply throwing money at the problem is not the answer and, as we have discovered in Africa and S. America, can make it worse.
China has been criticized for its Belt & Road Initiative but, perhaps because they only recently emerged from poverty, they seem to prioritize the need for infrastructure development before attempting larger scale industrial economic development. The Chinese have the patience to pace their investment programs to allow their poor neighbors a generation or two to develop their educational and governmental basics before attempting to introduce overwhelming modern manufacturing, mining, and agricultural innovations.
I remember reading about the frustrations of the U.S. military in Afghanistan because the literacy rate was only around 30%. I recently saw a shocking statistic of Pakistani overall literacy rate of only around 58%. How can a country hope to compete in the 21st century if almost half their population cannot read or write? I am sure many countries in Africa suffer from the same literacy deficit and with a growing population of displaced populations living in refugee camps with minimum resources for educating children, there is a huge bubble of technological illiterates with no skills needed for today's automated manufacturing and agriculture.
Discussions of economics without including social drivers are meaningless. Factories will not be built until the population can develop the necessary skills to operate them. China and East Asia have the sociological framework and pragmatic willingness to educate their populations to be competitive and likely trendsetters for the changes to come. They have a good blueprint for developing the basics needed to end poverty and to thrive in today's dynamic world.
I think the elephant in the room here is that if an observer in 1945 predicted that national wealth would converge between countries with similar ancestry, they'd have a pretty good picture of what the the world would look like in 2023. Whereas these appeals to economic institutions can't explain very much about global trends in the last 80 years.
You may have noticed how there has been a recent acknowledgement of deindustrialization in developing nations. This is partly because it has reached a point where people who care about what happens there have started to take notice. Additionally, since China has been framed as the "bad guy" for much of the American establishment, they can play a "blame it on China" game while simultaneously vilifying a new "Big Bad" - a two-for-one. However, they fail to mention that large Western transnational corporations and mega finance played a role in directing that deindustrialization. They also fail to mention that manufacturing-related capital is far from the only capital leaving those countries - much of developing Africa is, in general, a net capital exporter, with at least a lot, but probably most, of it sent to the West.
Globalization, as defined by the era that began roughly with the re-liberalization of finance in the late 1970s and was built upon by the WTO and related organizations, and then finished up with the "War on Terror," has left almost all people in almost all parts of the world worse off than they would have been otherwise. Darkly ironically, despite its significant lowering of trade protections, globalization has actually left the world with far less global trade than it would have had globalization not occurred at all, due to the lower levels of economic development and economic diversity at national levels making demand far lower than it otherwise would have been.
It’s possible that we are evaluating emerging economies based on old metrics. With increasing automation and the rise of AI technologies, industrialization may not be a significant driver for poverty reduction in emerging economies.
On the other hand, eco-restoration and management could become enormous generators of employment (and so prosperity). Significantly, the cost-of-entry is close to zero; if a regulatory framework is established (e.g. exchange markets for carbon and biodiversity), then eco-restoration and management become valuable activities, contributing to overall economic growth. Note that this economic value exists independent of human population trends, and so is still present with a declining human population.
In this way, conventionally conceived industrial policy is not needed in the initial stages of emerging economies. However, it remains useful for ongoing broad based economic development.
“The proper perspective here, I think, is to realize that economic development was always hard, and always slow, and always uneven and uncertain.” That’s the best prediction of all.
I disagree with Noah, I think he's too bullish on Africa, specifically Sub-Saharan Africa. To quote a recent post on AE
"from 1960 to 2021, real per capita GDP grew 46 times in China, over 5 times in India, 158% in Latin America, and only 40% in Subsaharan Africa. In a closer time period, from 1990 to 2021 CEE countries increased their real per capita GDP by 144% (starting from a much higher point as well) while SSA, again, only grew by 24%."
A lot of the countries that had major issues in the past but ended up successful, like China, Taiwan, Korea, still had existing systems, people, culture, and foreign factors that could be turned to facilitate economic growth.
Currently a lot of SS Africa is like 'Haiti-lite' where nearly everything on every level has been utterly disorganized and corrupt for decades; there isn't really a place to start without a total reorganization of everything, or a miracle. It also feeds on itself; being surrounded by corrupt, poor, and unstable states is not conducive to success.
South Korea's growth has continued strong, but Taiwan's has slowed down in recent decades. Why has Korea been able to keep growing incomes fast when Taiwan has slowed?
I don't want to exaggerate the comparison. Taiwan's growth is still equal to or faster than developed countries, and Korea, while growing faster than today's Taiwan, is still far from the rocket-speed growth both countries had in the 1980s. But these are economically two very similarly positioned countries. You'd think they'd face the same laws of economic gravity. Yet Korea somehow has been able to sustain above-trend growth for 20 years longer than Taiwan.
"How countries get rich" attracts one-size-fits-all explanations, but in this case we have two countries, both growing, but obviously with some kind of important difference to Korea's benefit. If there was a reason for Korea's recent outperformance over Taiwan, it'd be worth knowing.
Noah, any ideas?
Thanks for the timely post.
I am a little too optimistic, and think occasional doses of pessimism will do me good. Especially reminders that nation building doesn't happen on auto-pilot, and development is not guaranteed. But I couldn't believe that Odd Lots episode. Their talking points seemed not just negative about the future, but also contrary to my understanding about the past. While the podcast is mostly a talk show, and Tracy and Joe never do argumentative episodes, it felt like they were too ready to be believe everything the guest said.
I think the overall macro effect is that african countries need commodity booms for their nationalized commodity firms to gain more revenue and with more revenue, despite corruption, will lead to more ability to invest in infrastructure, public health, and etc. The hard part is that commodity booms strengthen currencies and make their manufacturing uncompetitive - Dutch disease. Asian nations barely had any natural resources so they never had the counter problem of commodity booms making manufacturing uncompetitive there.
Just like when China hit $4000 USD per person at the year 2000(not ppp but market rates), it lead to a massive feedback effect of consumption and investment leading to global demand of goods. Now China is at $13K at current exchange rates. . India needs the same (ppp India is at $7000 but at current exchange rates its more like $2200 income per person)
Countries like Guinea export aluminum which is now where near historic highs.
https://tradingeconomics.com/commodity/aluminum
Once India becomes a massive buyer of commodities and increase their growth of commodities each year faster than countries can produce/mine those materials, commodities will spike and really, super poor nations like Guinea can grow.
Economic/geopolitical of history of Guinea
Guinea
https://open.substack.com/pub/yawboadu/p/the-economics-and-geopolitics-of?utm_source=share&utm_medium=android
From my vantage point in India, I'd say the reality may be somewhere in the middle of your two divergent perspectives. It is true that Indian growth has been a lot faster post 1990 than in the 3 decades prior. Yet, I can empathize with arguments around why the East Asian manufacturing miracle cannot be replicated here - the 'democracy tax' has a big role to play.
India is beset with 'first world problems' like NIMBYism, environmental over-activism, continued labour-law related inflexibility that will all only increase; even if its infamous shambolic infrastructure picks up. Thus India manages to do well only in services, where its famed entrepreneurs can sidestep these problems and sell to the world. Even services will come under pressure with AI.
In short, the future looks better than the past, but no runaway growth to be seen here. This is despite probably the best political and social stability among the developing world with no major wars for a long time. Other emerging economies would likely do worse on one or more of the dimensions - war, social strife, hyper inflation, famine / drought. Thus, the weighted average growth will not look great
Excellent but my point enquiring for your thoughts is a bit different.
It is not on Economic development but Economic Development economics.
I used to follow think tank and individual Economic Development economists on their www web platform, several years ago.
These blogs were well worth reading and had highly interactive comments sections. But now the www platforms just generate no interest. The comments sections are dead. Is it because people now use more modern social media platforms like twitter, facebook, whatever.
Further individual Development Economics economists have moved away from the field. They now still write on third world issues but not about Development Economics or it is with some tenuous connection.
Prof Krugman, with I think, other mainstream economists, questioned in the past is Development economics an actual thing at all.
Finally Development Economists were supposed to fix these countries so that they became normal functioning economies to the benefit of their citizens. They have failed and now basically tell people to emigrate. This failure may be resulting in a lack of interest or the economists themselves moving to other fields of interest.
It is a long way of saying is Development Economics now dead as a discipline or just Much reduced.
One of the most interesting notes in the post is this:
"But around 1990, Patel et al. find that things flipped — suddenly, there was a negative correlation between a country’s income and its growth rate, just like economic theory says there should be. "
If people were to offer an interpretation would it be:
1) That from the 50s-80s there was a lot of enthusiasm for international development. In the last 30 years there's been more skepticism, but those critiques have had an impact and we are now smarter about international development.
2) The Cold War was bad for international development, and the end of the Cold War was a boon?
3) Some other historical contingency?
"saying that countries have been deindustrializing except for Asia is a little like saying “Other than that, Mrs. Lincoln, how was the play?”."
😂😂😂🤣🤣🤣👍🏽
Negative headlines and dire predictions sell better than hopeful ones. Plus, the fact that your articles are loaded with facts and caveats makes me lean in your direction. Trends are very hard to detect when they first start, and once established, people look back and say, "Of course, we saw this coming."
The most significant unknown that you didn't really address is the political aspect and its effects on world affairs. All bets are off if China invades Taiwan or the war in Ukraine escalates, or a major world leader dies. As Yogi Berra said, "It's tough to make predictions, especially about the future."
BTW, thanks for reminding me about 'phlogiston'. It's been a long time since I saw that word.
I would contend that economics is dependent on sociology and politics. Your example of East Asia rocketing to the top while much of Africa remains mired in poverty can be viewed as differences in social structure support for modern economic development. Rapid economic growth can easily overwhelm rickety governments and social systems. Simply throwing money at the problem is not the answer and, as we have discovered in Africa and S. America, can make it worse.
China has been criticized for its Belt & Road Initiative but, perhaps because they only recently emerged from poverty, they seem to prioritize the need for infrastructure development before attempting larger scale industrial economic development. The Chinese have the patience to pace their investment programs to allow their poor neighbors a generation or two to develop their educational and governmental basics before attempting to introduce overwhelming modern manufacturing, mining, and agricultural innovations.
I remember reading about the frustrations of the U.S. military in Afghanistan because the literacy rate was only around 30%. I recently saw a shocking statistic of Pakistani overall literacy rate of only around 58%. How can a country hope to compete in the 21st century if almost half their population cannot read or write? I am sure many countries in Africa suffer from the same literacy deficit and with a growing population of displaced populations living in refugee camps with minimum resources for educating children, there is a huge bubble of technological illiterates with no skills needed for today's automated manufacturing and agriculture.
Discussions of economics without including social drivers are meaningless. Factories will not be built until the population can develop the necessary skills to operate them. China and East Asia have the sociological framework and pragmatic willingness to educate their populations to be competitive and likely trendsetters for the changes to come. They have a good blueprint for developing the basics needed to end poverty and to thrive in today's dynamic world.
https://www.google.com/search?client=safari&rls=en&q=literacy+rate+pakistan+vs+india&ie=UTF-8&oe=UTF-8
“Countries can change, and if you think they can’t, why are you giving policy advice?”
Noah was cooking in this article 🔥
I think the elephant in the room here is that if an observer in 1945 predicted that national wealth would converge between countries with similar ancestry, they'd have a pretty good picture of what the the world would look like in 2023. Whereas these appeals to economic institutions can't explain very much about global trends in the last 80 years.
What would happen if exporting or industrialized countries suddenly saw labor organizing for better conditions?
You may have noticed how there has been a recent acknowledgement of deindustrialization in developing nations. This is partly because it has reached a point where people who care about what happens there have started to take notice. Additionally, since China has been framed as the "bad guy" for much of the American establishment, they can play a "blame it on China" game while simultaneously vilifying a new "Big Bad" - a two-for-one. However, they fail to mention that large Western transnational corporations and mega finance played a role in directing that deindustrialization. They also fail to mention that manufacturing-related capital is far from the only capital leaving those countries - much of developing Africa is, in general, a net capital exporter, with at least a lot, but probably most, of it sent to the West.
Globalization, as defined by the era that began roughly with the re-liberalization of finance in the late 1970s and was built upon by the WTO and related organizations, and then finished up with the "War on Terror," has left almost all people in almost all parts of the world worse off than they would have been otherwise. Darkly ironically, despite its significant lowering of trade protections, globalization has actually left the world with far less global trade than it would have had globalization not occurred at all, due to the lower levels of economic development and economic diversity at national levels making demand far lower than it otherwise would have been.
Comments from a non-economist:
It’s possible that we are evaluating emerging economies based on old metrics. With increasing automation and the rise of AI technologies, industrialization may not be a significant driver for poverty reduction in emerging economies.
On the other hand, eco-restoration and management could become enormous generators of employment (and so prosperity). Significantly, the cost-of-entry is close to zero; if a regulatory framework is established (e.g. exchange markets for carbon and biodiversity), then eco-restoration and management become valuable activities, contributing to overall economic growth. Note that this economic value exists independent of human population trends, and so is still present with a declining human population.
In this way, conventionally conceived industrial policy is not needed in the initial stages of emerging economies. However, it remains useful for ongoing broad based economic development.
“The proper perspective here, I think, is to realize that economic development was always hard, and always slow, and always uneven and uncertain.” That’s the best prediction of all.