poverty, growth and democracy

couple of weeks ago I was attending the lecture by William Easterly (wellknown economist, previously working as the senior economist for the World Bank) in London School of Economics, where he was trying to argue that 1) nobody knows how to end poverty and 2) that’s a good thing.

I could agree with him until the middle of his presentation when he was arguing that:

everyone is overwhelmed to find the best way how to promote growth while there is actually no clear link between growth and poverty eradication;

all those recipes (structural adjustment in developing countries and mostly in Africa, shock therapy in post-Soviet countries, initiatives of fixing governance  by World Bank, IMF etc) have been wrong, ineffective and incapable of fulfilling their initial promises;

growth acceleration does not create major changes in economy in general;

statistics is just a result of severe manipulations with data (for example, how UN can have data of major economic indicators of 15 African countries, which actually do not have any systems of national statistics);

we cant use a model of one country in another country with different political, economic, social etc situation, which is a great confession from the economist’s side acknowledging that development and growth is not just a road of rigidly following the mantras of as if correct economic and political policies; Rules of economy are not universal;

However, I could not agree with the second part of his presentation, where he tried to argue that democracy is a solution. Though he himself was questioning if indeed democracy is a prerequisite of development, he believed that democracy – and its content rather than its form – via decentralization of ending poverty could be the way to move forward.In this context he blamed developed countries which via development aid are actually supporting authoritarian regimes which is the most common form of governance in the poorest countries of the world.

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Now, I am not denying importance of democracy. However, how can one argue that democracy is a way to development, if there are no true examples? None of the current wealthy democracies has obtained its wealth and prosperity through democracy.  To the contrary, let me remind about slavery and colonialism which were completely abolished just about 50 years ago, heavy protectionism, huge state intervention in economic processes, exploitation of other countries’ resources when the framework of international law was not yet established, mercantile economic policies etc – all these elements ensured that the current democracies can now provide reasonable living standards to the majority of population.

The problem today is that these poor and fragile countries are not allowed to be protectionist, to maintain active role of state in economy, and to refuse entering this wild free-market game with defined winners.

another problem is that if a country would need extra financial resources to boost its economy, to invest in certain sectors of economy to create jobs and thus lifting people out from poverty trap, in fact the only place where to go for this money is IMF and WB, which unfortunately are overcrowded and dominated by fanatic economists who believe in existence of one perfect model to achieve growth. Whenever poor countries agree to take loan from IMF, they are bound to these economic prescriptions by the IMF which, as Easterly noted, fail to realize the expectations.

IMF does not have many success stories. IMF of course blames the authoritarian regimes, bad and corrupted governance etc. But, if we can notice a trend of systemic failure of IMF making a long term change, i think, it is too obvious, that there might be something fundamentally wrong with the recommended policies.

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