Democracy's Role in Economic Development: Insights from Stiglitz & Easterly, Exercises of Political Philosophy

Download Democracy's Role in Economic Development: Insights from Stiglitz & Easterly and more Exercises Political Philosophy in PDF only on Docsity! Globalization, Growth, and Poverty Joshua Cohen & Joel Rogers* William Easterly, The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics (Cambridge: MIT Press, 2001): xiii, 342. Joseph Stiglitz, Globalization and Its Discontents (New York: W.W. Norton, 2002): xxii, 282. Here are two books on the world economy and the murderous poverty that separates populations of the North and South. Both books are written by distinguished economists. Both economists, in addition to making important contributions to their discipline, have years of experience in the world of international development institutions. Both are highly critical of the performance of those institutions, and of the global economy itself, which has stranded billions in destitution. And both conclude that what is most needed to improve that performance is neither more resources, nor perfected markets, but better political arrangements: in a word, democracy. * Joshua Cohen and Joel Rogers edit the New Democracy Forum, appearing regularly in the pages of Boston Review. Their most recent book together is Associations and Democracy. Cohen is professor of philosophy and linguistics and political science at the Massachusetts Institute of Technology, and editor of Boston Review. Rogers is professor of law, political science, and sociology at the University of Wisconsin Madison, and director of the Center on Wisconsin Strategy. docsity.com Where they differ—as a matter of emphasis—is on what needs to be democratized. William Easterly focuses on improving government accountability and representativeness within developing countries. Joseph Stiglitz focuses on increasing the accountability and representativeness of global economic institutions. This difference in focus is less impressive, however, than the centrality of democracy to both accounts. Treated as mutual complements, indeed, their composite view comes remarkably close to one line of progressive response to globalization. The destructiveness of world capitalism owes to its indifference to humanity. Ending that indifference requires political representation for all affected interests. And such representation means more democracy. This view should be of particular interest to labor and its friends, and we conclude with a sketch of some of its implications. William Easterly served for sixteen years as a staff economist at the World Bank, before being forced out—or strongly encouraged “to find another job” (x)1—after publication of this book. Elusive Quest sums up his experience at the Bank, and offers a masterful narrative of how economists’ understanding of economic development has evolved over the past 50 years. Even as he is devastating in his criticism of much development practice, Easterly is at pains to emphasize the essential good-heartedness of its practitioners. He compares development economists like himself to those mythical heroes who fruitlessly searched 1 Page references to the respective books under review. docsity.com existing technologies. Moreover, when the skills of different workers are complementary (when different skills “match”), the benefits from one skill enhance the benefits from others.2 When there are substantial interdependencies of these kinds—with spillovers of knowledge and a need for matching skills—economic development is essentially a social problem: coordination of separate efforts—rather than more perfect market competition—is the key to growth. If most people in your economy are skilled, it makes sense to get an education, because your skill can be combined with theirs in ways that bring rewards to you while raising overall productivity. But if most people in your economy are not skilled, it makes little sense to get an education, because your investment will effectively be drained away by the lack of investment by others. When an economy faces such a “poverty trap,” individual incentive seekers acting on their own will not act in ways that promote economic development. 2. Turning poverty traps into self-sustaining wealth generators is what kick-starting growth is essentially about. Here Easterly sees a positive role for government. It needs to stabilize the macroeconomic environment, provide the transportation and communication infrastructure needed for commerce, and ensure a safety net of essential health and other public services. Most delicately but important, however, government needs to pay for behavior not yet rewarded by the market, but needed to 2 This story is, as Easterly indicates (chap. 9), very partial. The other side of the complementarities and increasing returns noted here are the “negative” complementarities that result when a new innovation—computers—makes past technology—typewriters—more or less irrelevant, and destroys the value of past investments. docsity.com for economic development: to subsidize research in and development of new technologies, support the provision of relevant skills, and foster foreign investment that imports new ideas. It needs, in short, to invest in activity with large social benefits whose market rewards are insufficient to make it pay. 3. But any government that is strong enough to play this constructive role in economic policy is also strong enough to do real damage. To avoid the damage, government must be held accountable. Easterly’s views here are broadly conventional, and market oriented. It is critical that government not play favorites, and that the public be organized enough to insist on government accountability. It is essential that property rights be established, that interest rates are positive, that there is enough education around to exploit technology, and enough new technology to stay current with trading partners. But being able to make the right choices here, and being accountable to the broader public in making them, requires a greater measure of democratization than is common in poorer countries. This, finally, is what Easterly identifies as the barrier to their growth: the political institutions needed to identify and implement the right sorts of policies are missing. Ethnically- and class-polarized societies and corrupt governments are the norm, and this norm is bad for growth. To be sure, development requires institutional constraints on government, including the rule of law and independent central banks. But because development docsity.com also requires affirmative government action, these institutions of constraint are not enough. Democracy, too, is required to ensure that a government with sufficient capacity to serve the population does not turn into its corrupt master. Joseph Stiglitz takes a quite different tack in Globalization and Its Discontents. He says almost nothing about politics within developing countries. Instead, his attention is focused almost exclusively on the international development organizations, which he believes do not have the interests of the developing nations at heart, and need fundamental reform. The International Monetary Fund (IMF) is a target of special wrath. When countries are in trouble, the IMF applies a nearly unvarying agenda of deregulation, trade liberalization, privatization, deflationary monetary policy—a “Washington Consensus” on development policy that makes little economic sense and reflects overwhelming indifference to the fate of the peoples of the South. Summarizing his experiences with the IMF: “Decisions were made on the basis of what seemed a curious blend of ideology and bad economics, dogma that sometimes seemed to be thinly veiling special interests.” But the problems extend beyond the IMF. While the World Bank’s policies have in some measure been corrected, it continues to play an unwelcome supporting role in enforcing the Washington Consensus. And such was always the purpose of the WTO. docsity.com Stiglitz says very little about how to do this. Broadly, however, his suggestion is, first, to establish norms on transparency in decisionmaking—sunlight being, as ever, the best disinfectant. Second, more ambitiously, to change the allocation of voting rights at the Bank and the IMF, and the decision rules on their country-specific recommendations, to get greater representation of developing countries. His ideal is a system in which “all countries having a voice in policies affecting them” (22). Third and finally, round out the cast of international institutions to address world problems extending beyond economic development. So, keep the UN as a multilateral mechanism for addressing security needs. But also charter new multilateral institutions on health and the environment—again with better representation of the community of nations. In sum, move toward greater global democracy by moving toward more inclusive and transparent intergovernmental bodies, governing a greater range of problems than they do at present. Together, these two books are invaluable for their informed denunciation of present global economic governance, and their recognition of the importance of a more democratic politics in correcting it. Where they fall short is in saying much about how that politics should be designed, much less how it might be achieved. Take Stiglitz’s prescription of multiple intergovernmental bodies, each more inclusive and representative of developing nations than are the docsity.com present institutions of global governance. But inclusion alone is not helpful if those included are corrupt and themselves indifferent to the fate of the destitute. As a first and friendly amendment to the Stiglitz scheme, then, national governments need to be accountable to and representative of their own populations. A minimal threshold, for example, might be evidence of secure property rights, constitutionalized speech and associative freedoms, and a process of regular free elections to choose government. But this threshold can be passed by governments wholly dominated by economic elites who compete for control of government but show little concern for their country’s poor. Merely bringing representatives of such governments to some international table of discussion cannot then be plausibly expected to ensure that “the poor have a say in decisions that affect them” (216). A further friendly amendment, then, might be to ensure a place in policy discussion for organizations and interests beyond those reflected directly in electoral politics. So that means a role for interest and advocacy groups—on the environment, health, labor standards, women, human rights, etc.—and secondary associations of different kinds—trade unions, community organizations, business federations, etc. In most democratic countries, and certainly in international discussion, such non- governmental organizations (NGOs) currently play an essential role in establishing the terms of public discourse and in promoting, formulating, and monitoring the implementation of regulations. docsity.com Neither Stiglitz nor Easterly say much about such groups though on the analysis of both they are essential to economic development. These are, after all, the characteristic sources of the local knowledge that Stiglitz sees as so essential to making the right contextual calls in structural policy. They are, for good or ill, key to intensifying or domesticating the ethnic conflict that concerns Easterly. In virtually all states, developing and rich alike, they are essential service providers to the poor. In the South, they often are the lead organizations through which development support runs. And—as in the case of organizations involved in certification arrangements for labor and environmental standards —they are playing a large role in an emerging global system of standard setting and enforcement. For all these reasons, as well their more narrow representative functions, NGOs presumably should be included in any account of global democratic governance. But that inclusion generates its own problems of accountability and structure. Whom do the NGOs represent, and to whom are they accountable? What guards against their corruption? What weight should their views be assigned, relative to more formal public authorities? Finally, and irrespective of who is involved in discussion, there are obvious questions of power. Let’s say discussion is widened, one way or another, to include representatives of nations and groups now neglected. Let’s say even that that discussion is made more transparent. Democracy is not only about transparency and inclusiveness in discussion, but about docsity.com