Friday, November 9, 2007

The Elusive Quest for Growth

The Elusive Quest for growth, written by William Easterly is an economic text that chronicles some of the reasons that some countries are able to become prosperous and the reasons why other countries are not able to ‘cut the mustard, as some would say. In the prologue, the books tarts off with a definition of what is meant by the Elusive Dream. We find out that the ‘Elusive Dream’ is nothing more than trying to find the recipe of wealth that some small poor countries have found.

The book goes on in Chapter One to list some of the ramifications of living in a poor county. The author shoes us some examples where the poorer the country, usually, the higher infant mortality rate is, which means that the wealthier the country or individual is, healthier they are. The relationship to wealth and starvation rates is also presented. Here we see the correlation between hunger and wealth. We find out that the poorer the county the hungrier its citizens are. Also, poor countries are much more susceptible to being oppressed or taken advantage of by other, more powerful countries because of dept that may be owed to them. This fact leads us to say that poorer counties’ poverty rate grows more quickly than in other, wealthier countries.

The author leads us to the realization that economists had different theories of how smaller, less developed and poorer countries could catch up to the wealthier, more advanced ones in chapter two. Theories by Lewis, Rostow are presented and the fact that some economists stressed the ability to save and invest as one way to gain power is shown.

Chapter three sets the tone for the book and gives us a perspective of the stance that the author is trying to prove in this book. We find out that the author theorizes that the current formula for dispensing aid to poor countries is not effective or efficient. The correlation of aid to investment to GDP is almost non-existent. Also, we see that the investment in capital without investment on labor does not constitute success and we also see that advances in technology must be considered in the equation.

In the next chapter, the author tells us that education is one of the principle means to human development. He explains that in the years spanning 1960 to 1990 there was an explosion in schooling. This growth was favorable in Asia and the western countries but not so favorable in sub Saharan Africa with the exception of Botswana. Some said that education was the key to economic growth but from examples presented in this chapter, we find out that it is not the case. There are economists that argue that the correlation in the investment and saving in physical and human capital can explain 78% of per capita income differences among nations.

Chapter five brings another disputer issue as to what would help poor undeveloped counties in their quest for growth. Here we see how population factors in to this quest. Some economists theorize that the more people that are in the population of a country, the higher the GDP. There are holes in this theory. Lester Brown stated that population grows faster than the number of jobs in poorer countries. Also it is stated that world population growth does not vary enough to explain variation in per capita growth and that there is no real correlation between the two. The fact that population growth could cause a positive outcome is not discounted. Two positives for population growth were theorized to be “the genius principle” and the possibility of more technological innovations and advancements.

Moving on, chapter six brings yet another theory in the quest for growth. Over the yeas, the IMF and the World Bank have given loans and other types of aid to help in the growth of nations or to bail them out of trouble. Once aid is given, many economists thought that this would be the solution. The author shows us how this was not the case in Africa, Latin America and the Middle East. The exceptions were the countries of Ghana and Peru. With this aid, there were many stipulations that were imposed, so that the country that is receiving the aid did not fall into the same trap. In most cases where aid was given and there weren’t any stipulations of policy change imposed, the aid never accomplished what it was set forth to do. The author gives us an example of Russia and also gives several things that should be imposed by the government so that debt does not consume the country. The author points out that it is now the ‘trend’ for countries to change policies when aid is given. In concluding this chapter, the author suggests that aid be based on the past performance of governments and not their future promises.

In the following chapter, the author talks about some of the reasons that poor countries obtained high budgets deficits to be that it should have been stipulated that forgiveness of loans and dept should only be done once and recognizing that the debt burden of the poor countries came about because of lending by IMF, World Bank and donors in the face of withdrawal of private and other types of lenders.

Chapter eight also brings the beginning of the third section of the book. Here is where the author introduces to us the fact that knowledge does not remain with its original owner and the fact that some countries get involved in spending circles. Some are virtuous and some are not. Some of the reasons that countries are caught in a non-virtuous spending circle is because potential investors are not rewarded for social contributions.

The next chapter introduces that fact that luck can play a large part in some countries growth and went on to state that luck causes fluctuations around a long term trend determined by more fundamental factors. Chapter eleven went on so reiterated the fact that people and potential investors respond positively to incentives.

The last three chapters of the book gives instructions and strategies that need to be followed so that growth could be established, states that income distribution was the cause of some poor countries continuing to stay poor and concludes with the statement that there is not a magical formula to bring prosperity to the masses and that there are many different things that influences growth.

2 comments:

Dave Gardner said...

It's this quest for growth that is getting us into a lot of trouble. We should be striving to see that everyone's needs are met. Don't you think it's clear the planet can't support 7 billion people who insist on perpetually rising GDP?

Dave Gardner
Producer/Director of the Documentary,
Hooked on Growth: Our Misguided Quest for Prosperity
www.growthbusters.com

Kareem said...

Dave,

You bring up an excellent point. In this post, i did not mention my postion of the Quest for growth which should be explained. In short, I too beleive that this planet can not and will not support its growth at its current rate for much longer and alternative energies must be explored.