The Princeton University economist Angus Deaton will on Thursday afternoon receive the Nobel Prize in economics for his work on the role of individuals' consumption choices in poverty reduction. For a sense of Prof Deaton's thinking, here, in clear and straightforward prose, is his review of William Easterly's book Tyranny of Experts. The review appeared this year in The Review of Austrian Economics.
Tyranny is a meditation on history, on politics, on economics and on economic development, but it also constructs a sustained, occasionally technical, and ultimately triumphalist argument for the proposition that democratic politics and individual rights bring material well-being and good health. Poverty is not a matter of missing expertise, especially not of insufficiently expert rulers, or insufficiently expert international agencies, but comes from the absence of rights for the poor. Restore and respect those rights, make room for spontaneous organisation, and poverty and ill health will soon be history.
The title, The Tyranny of Experts, is seductive, and has the virtue of making us think hard about what should be the role of experts (and many of us are experts, after all), and beyond that, what is the appropriate role of policy. It is not the expertise that is the real target here, but rather what Easterly calls the technocratic illusion, often endorsed by experts, and in whose harm they are complicit. The illusion is that economic development is a technical, scientific, or engineering problem, to be solved by development experts, and that politics is not important, or at least will take care of itself when the engineering is complete. The charter of the World Bank precludes it from interfering in politics, or even from taking into account the political character of those they are dealing with. The Bank is precluded from nixing a project because it believes that it will not work in a noxious dictatorship; the technocratic view of development is encoded into its genes, as is true for the postcolonial development enterprise in general. For Easterly, politics means democracy and the rights of the poor; not only are those necessary for the true freedom that development can bring – a proposition with which many would agree – but they are also sufficient, a proposition that occupies much of the book, but is much more controversial.
I found myself cheering in every chapter, but I confess to some difficulty in grasping exactly how the story goes. It is easy to let the argument slide into an argument against policy experts of all kinds, a position that Tyranny denies. But which experts are good, and which are bad? There are people who know how to run central banks – several of whom have greatly helped improve African growth prospects in recent years – and the populist policies that might well be favoured by the poor – price distortions, overvalued exchange rates, import substitution – do not have a distinguished record in alleviating poverty. Most economists do not think that greater democracy would be good for the US Federal Reserve, even a limited degree of democracy that would make it more accountable to Congress. Nor do we think that every policy should be put to the popular vote; people might like to have a direct influence on policy, but that is no guarantee that such policies are good for poverty reduction or for economic growth.
Easterly's view of what does drive economic growth is refreshingly nihilistic. We can't measure growth with an even minimally useful degree of precision, growth spurts are unpredictable and typically unrepeatable, and are as near to random as makes no difference. But because such a view is so unpalatable and so contrary to common sense, to laymen and experts alike, we impose pleasing stories on the randomness, seeing gods and great battles in the clouds, and attributing success to whoever happens to be in power at the time. Growth, to the extent that we understand it at all, claims Tyranny, comes from events that happened long ago. Absent a time machine, there is little hope for policy.
Easterly's scepticism is surely well founded, and it is a welcome corrective to the nonsense that often counts as policy analysis for growth. Development writers and expert commissions peer into the entrails, looking for the magic common factors in stories of success, or for the fatal flaws in stories of failure. One might have thought that by now everyone would understand that examining only successes cannot identify the mechanisms; every econometrics and statistics course teaches that you get the wrong answer if you select based on what you are trying to explain, but the fallacy seems indestructible and the temptations too strong. Findings obtained in this way are guaranteed not to hold elsewhere. Tyranny is clear and eloquent on all this. Yet it understates what we do know. Easterly's own argument against directed technocratic development and in favour of spontaneous bottom-up development is also a policy. So too is the policy of having a more-or-less autocratic expert run your Central Bank.
Tyranny argues against the technocratic illusion, that engineering solutions to development cannot work, at least in the long run. This argument is closely related to but distinct from the case against foreign aid that I make in the final chapter of my book The Great Escape (Health, Wealth, and the Origins of Inequality). My argument is less general, applying to aid, rather than development in general, but it develops a more specific mechanism, that aid undermines the contract between government and the governed that is essential for successful development. If, as is the case in a substantial number of the world's poorest countries today, many of which are in Sub-Saharan Africa, the state can meet most of its funding needs from foreign aid agencies, it can safely ignore the demands of its own citizens. Aid agencies, whose rhetoric claims to support those citizens and especially the poor, have their own interests, constituencies, and finances back home, which must get priority when push comes to shove, while in the recipient country their activities can be (and are) gamed by recipient governments. With enormous aid flows relative to GDP, the constraints on the executive that are enforced by the need to raise money domestically are removed, and autocrats are rewarded; if they do not already exist, their creation is encouraged. Large aid flows allow tyrants the opportunity to "farm" their own subjects, using their poverty to attract the funds that keep themselves in power.
This argument, like the argument in Tyranny, depends on acceptance of the technocratic illusion by donors, who see development as requiring only the finance to implement "scientific" solutions. They ignore, as indeed the World Bank is mandated to ignore, that such funding undermines democracy and negates rights in the recipient country. Tyranny makes the argument more generally, covering cases where there is no aid, but where development experts aid and abet non-democratic governments. But at this greater level of generality, it is sometimes hard to see exactly what sort of political mechanisms are affected by development expertise, let alone why the rights of the poor are ignored, or how they ought to be protected. Constraints on the executive, which are clearly required, need not protect the rights and interests of the poor. To take an example close to home, the executive in the US faces many constraints on its freedom of action; many interests groups have a say in what happens and some are not easily ignored. Much politics is concerned with settling conflicts between competing interests; such politics can do much to defeat the tyranny of the technocrats, but it is less clear how they protect the rights of the poor.
Easterly argues that development economics was abandoned by mainstream economics sometime in the 1950s, and has preserved a museum-like belief in planning that has long been abandoned by the rest of economics. Tyranny takes [the late economist Gunnar] Myrdal as its villain and chief exemplar of planning in development, and his work is indeed now little read among mainstream economists. But I think this is a mischaracterisation of economics today, especially in Europe. Keynes would not have been such a convincing villain as Myrdal, yet he too believed that wise and public-spirited experts (like himself and his friends) could improve social welfare through government action, and worried less than did Hayek about government failure or the corruption of powerful well-meaning experts. I think it is still true today that, compared with Europeans, Americans are relatively more concerned about government failure than about market failure; both groups have (possibly self-generating) justifications for their beliefs.
One of the strands in early development economics was that Keynesian policy could be brought to bear on “under”-development abroad, just as it could be used to combat unemployment at home. Once the limits of the analogy became clear, lastingly important work was done on understanding optimal growth and its implications for development policy; that work lives on today, if not in development, in modern macroeconomics. Eminent economists, including Amartya Sen and James Mirrlees, used optimal growth theory to derive guidelines for project evaluation in developing countries. Mirrlees’ later work on optimal taxation, for which he received the Nobel Prize, is a direct descendant of this approach; in both problems, policy is chosen to optimise social welfare subject to technical and behavioural constraints. This work was certainly astonishingly naive about politics, but it hardly took place in a long-forgotten backwater divorced from the mainstream. As for mainstream economics today, what could be more technocratic than using randomised trials to discover “what works”, a list of solutions that is not contingent on the needs or politics of those who are to be worked for or upon.
The technocratic illusion is never far away in an economics that is centred around optimisation. Optimisation is engineering, and it is at the heart of much of modern economics. What has changed recently is the recognition within economics of the importance of politics. It is that recognition that undermines the technocratic illusion, and that I believe will ultimately bring down the long-delayed curtain on a modern development industry that somehow believes that it is possible to “develop” someone else’s country from the outside.
