Growth in the Third World

Growth and the Third World

Clark’s explanation for economic growth is simple. For growth societies must have good cultural and capitalistic tendencies and the people have to live through different stages like hunter-gatherer society to agricultural society and to industrial society. Under natural selection the most fitting ones survive with the use of the stock of knowledge in the most appropriate way.

Clark argues that this could explain why industrialists in sub-Saharan economies such as Zambia are importing Chinese workers into mines and factories, despite having to pay them more than local labor (Clark, England's success may be in our genes 2007). Here, Clark grossly underrates the political agreement that goes behind the import of Chinese workers in sub-Saharan Africa. Chinese government, in scaling up its aid (in loans and credits) to Africa by $5 billion last year , made a pact with African economies that its infrastructure (chiefly for energy extraction) would be built with Chinese investment but they have to employ Chinese technicians/workers. This is not due to realization of the importance of culture or genetic factors; rather it was driven by pure commercial interests.

What are the implications of Clark’s new ideas in the present context? Clark’s analysis implies that no amount of aid to sub-Saharan Africa would help them achieve economic growth because growth is a function of culture (bourgeois virtues) and perhaps genes (capitalist instinct) well crafted on stable institutions. This means that the poor African economies should be left to the natural selection; then only people will learn and inculcate the good bourgeois under pressure from constraint in the Malthusian economy, and gradually develop the capitalistic virtues the English were able to develop, through culture and transmission of good traits across generations. Clark boldly argues that “if we are going to solve the problem of poverty in sub-Saharan Africa, the solution is going to come in a very different form then the followers of Adam Smith are going to accept” (Ellman and Salvin 2007).

This puts a question mark on Jeffrey Sachs’ call for an increase in aid to Africa to meet targets of the Millennium Development Goals (MDG). Clark, in an article published on The Sun on July 20, 2007, argues that Jeffery Sachs’ appeal and plan to increase aid to Africa by $110 per head to end poverty is a proposal to ameliorate the symptoms of poverty, not treat its causes, i.e. since the African economy is embroiled in the Malthusian trap, as the preindustrial Europe had, any attempt to increase technology or aid (health care, inequality) would result in more misery. Given that Africa is still heavily dependent on agriculture and natural resources and population growth is higher than income per person, any attempt to increase income (through aid) would propel population growth, piling up more miseries. Clark sees a different solution to this crisis. He thinks industrialization of Africa is the only way to get rid of poverty (Clark, How To Save Africa 2007). Ritter (2007) agrees with Clark that the industrialized world’s prescriptions for growth have not changed much in Africa and “there is no simple economic medicine that will guarantee growth.” This is consistent with Eastelry’s argument on the effectiveness of aid in developing Africa. He argued that more $2.3 trillion financial aid in the past has not yielded satisfactory results (Easterly 2006).

Moreover, Clark suggests the developed countries to open up their borders to immigrants if they really care about the living standard in the poorest regions of the world because throughout the history, growth and development have been achieved through mobile migration of workers across borders. Also, Clark’s emphasis on rich crowding out poor as a unique feature of rapid economic growth in England would mean that selective breeding in favor of rich through “natural selection” would help develop bourgeois virtues like entrepreneurship, patience, hard work, etc. Clark has no justification for the rise of developing countries like China and India at astounding growth rates. Neither does he talk about the rise of the Asian Tigers. Clark’s social Darwinism does not give an explanation for the transformation of India and China as capitalist powerhouses in one generation and it ignores the advantages gained from innovations like steam engine, and the exploitation of colonies by England (Ritter 2007).

Warsh (2007) argues that Clark implicitly suggests stopping funding the poorer countries in Africa. Clark favors letting the poorer societies either “sink or swim”, and letting the forces of natural selection to work; this would guarantee the eventual escape from poverty (Warsh 2007). Growth requires market demand, institutions, human capital, and entrepreneurialism; cultural and genetic arguments leading to natural selection hypothesis does not provide a clear cut answer (Glaeser 2007).

Similar to the crucial role played by institutions, especially property rights, in attaining sustained high growth rate in Botswana (Acemoglu, Johnson and Robinson 2001), Bowles shows that societies failing to develop good property rights institutions generally have low investment and low incomes, meaning low growth rate (Bowles, Institutional Poverty Traps 2006). This essentially means that good institutions are definitely a necessary condition for growth in this century, which is contrary, is Clark’s assertions. As in the case of human capital argument of Lucas mentioned earlier, recent researches have shown that if poor economies cannot produce the levels of human and physical capital needed for certain type of economic organizations, i.e. institutions, then growth might suffer in the first place- known as the ‘threshold models of poverty’ (Azariadis 2006).

Azariadis argues that bad institutions (kleptocratic governments, immature markets) may generate macroeconomic poverty traps, polarize income, and retard growth. Entrepreneurship, a crucial bourgeois virtue according to Clark, cannot be fostered in the first place if capital market imperfections prevent the poor from obtaining capital. Hence, certain conditions- such as complete markets, institutions fostering credit facility- need to be accomplished before citizen entrepreneurship is observed in a country. For instance, citizen entrepreneurship that we have seen in microfinance sector in Bangladesh is not because of bourgeois virtues but because of the facilitation of credit among the lower class and marginalized groups, who are usually ignored by the financial sector. These kinds of institutions need to be in place before entrepreneurship really kicks in in the economy in a large scale. Bowles concludes that the “central obstacles to growth in many poor countries are institutions that make property rights insecure and protect a narrow elite” (Bowles, Institutional Poverty Traps 2006).