For nearly the last half-century, we have heard that a shift of 1-2% of GDP from the developed to the developing world would raise as many as 1.5 billion people to a level that would assure the benefactors that the beneficiaries are on their way to lives much like the benefactors’ own. However, this widely advertised claim is best taken as ‘inspirational bookkeeping’, a phrase that should be understood not simply as a euphemism for ‘false’ or ‘delusional’. Nevertheless, a hard-headed economist would say that the stated figure ignores ‘transaction costs’ – that is, the costs of providing the background conditions that would allow the stipulated 1-2% transfer of income to work the desired magic. In what follows, these hidden costs are discussed in light of the recent eye-opening work, Poor Economics by two MIT economists, Abhijit Banerjee and Esther Duflo.
Inspirational bookkeeping gets its political legs from an unexamined mythology about the rich and the poor as suffering from complementary liabilities. On the one hand, the rich are presumed to be less productive per unit of wealth than the poor; on the other, the poor are presumed to be appropriately productive with whatever unit of wealth they receive. That the global gap between the rich and poor remains wide is then explained by saying that the rich buy politicians who let them sit on their wealth (e.g. via preferential tax rates), while the poor are stymied by overlords who divert or squander whatever aid comes their way. In both cases, politics is the fall guy. But at a deeper level, there is also a question of living up to one’s potential. Neither the rich nor the poor do this, but for opposed reasons, reflecting how they differ in relation to the sources of power in their societies. The rich expend considerable energy to avoid having to live up to their potential, whereas the potential of the poor is quashed by rulers worried about their own fate, should the poor acquire a sufficiently decent standard of living to participate in politics.
What makes this mythology attractive is that the rich and powerful are portrayed as corrupt, while the poor appear as blameless victims waiting to be liberated. The underlying assumption is that there is a sense of human potential – or ‘human capital’, if you will – that is common to rich and poor people. As economists would put the matter, the two groups are fundamentally similar in disposition but operating under radically different resource constraints – the rich having too much money and power, the poor too little. If we make that assumption, then income redistribution looks like a win-win strategy for releasing human potential to its fullest. However, the reality on the ground presents a subtler picture, one that increasingly suggests that if our inspirational bookkeeping is to be made real, we shall need to engage in a new and quite possibly more entrenched round of Imperialism. The question then becomes more one of political will than economic resources.
‘Poorer’ regions use the new technology more to extend than to transform their current lifestyles
The main obstacle is that the evidence is at best patchy that the global poor see themselves as ‘poor’ in our morally degrading sense. Even more striking than the fact that mobile phone penetration in, say, India is greater than in the United States is that ‘poorer’ regions use new technology more to extend than to transform their current lifestyles. Of course, there are cases in which mobile phones have enabled the creation of new economic infrastructures that permanently transform living conditions. But typically without the sustaining presence of some development agency, there are no guarantees of what might happen in the long term. Those who still cling to Abraham Maslow’s hierarchy of needs, according to which clean water and safe housing must be secured before the sense of self-transcendence permitted by the internet is fostered, have cause for concern.
Poor Economics and Cultural Relativism
Would-be global developers are faced with a problem, which might be seen as the revenge of cultural relativism. Whether ‘rich’ or ‘poor’ from the standpoint of GDP per capita, the meaning of people’s lives is tied to whatever they take to be normal. It follows that if you deem the conditions under which a culture normally survives as ‘impoverished’, you run the risk of disliking the people themselves – or at least wishing that they were people other than who they really are. This worry simmers just below the surface of the generally positive vision advanced in Banerjee and Duflo’s Poor Economics, perhaps the best book on development published in recent years.
Although Poor Economics has been rightly feted for its success stories of grassroots development projects in Africa, at a deeper level the book points to obstacles in the way of generalising from those stories. In one very general sense, we fail to take seriously just how alike the rich and the poor are. Both envisage their lives as having a certain texture, reflecting the various challenges they expect to face, which in turn play into larger narratives that illuminate how their societies are maintained over time. To see how this applies very close to home, consider the havoc that the steady rise in life expectancy in the developed countries over the 20th century has wreaked on state welfare systems.
When Bismarck set up the first national insurance scheme as a bulwark of German solidarity over a century ago, people were expected to benefit from the system for only a few years after having paid into it throughout their working lives. However, as people now routinely live twenty or more years after their formal retirement from the labour force, crises have arisen on many fronts at once, including: (1) the sheer fiscal maintenance of the welfare system; (2) intergenerational conflict as the young are either blocked from career advancement or channelled into caring for the elderly; (3) general cultural confusion concerning the boundaries between ‘young’ and ‘old’ (4) more downstream ecological effects, as a greater number of healthier and wealthier people consume more resources.
The Cost of Scientific Progress
While it is easy to blame particular politicians and policies for landing us in this predicament, at a deeper historical level it is simply the long-term unintended consequence of the amelioration of the human condition through science and technology. For at least a quarter-millennium now, the West has been sold on the Enlightenment promise that the promotion of science and technology will deliver indefinite human progress. Thus, whatever crises we now face reflect the efforts of, say, seven or eight successive generations trying to make good on this promise.
The West has been sold on the Enlightenment promise that the promotion of science and technology will deliver indefinite human progress
Make no mistake: this author still backs the Enlightenment as necessary to take humanity to the next stage, what Julian Huxley originally called ‘transhumanism’, whereby we aim to make all of reality conducive to the realization of human ends. Nevertheless, anyone with cross-cultural consciousness must concede that this project is indigenously ‘Western’, which is to say, difficult to justify unless one sees science and technology as delivering on the promises of the Abrahamic religions, with their distinctive focus on humanity’s godlike dominion over the Earth. Indeed, our sense of identity as Westerners is largely defined by our perseverance with this project (the so-called ‘civilising mission’) in the face of enormous pushback – not only from the four previously mentioned problems at home, but also the massive collateral damage to other cultures that has resulted from the attempt to impose competing versions of this world-view across the globe in the 20th century.
This immediately raises the question: Suppose you do not naturally define yourself as a ‘Westerner’. To what extent should you be drawn into this project? The question is rarely asked so explicitly because Western analysts – abetted by Marxist notions of false consciousness – tend to believe that residents of developing countries are beset in ways that compromise their ability to deliberate rationally about their own self-interest. But why should these self-avowed liberals, perhaps even egalitarians, adopt such a patronising attitude? After all, residents of developing countries often inhabit a world where the average life expectancy is just over half of that which is being promised by Westerners. Is it not more rational, then, to stick to the devil you know than to sup with the devil you don’t know? Not only would those of the developing world have to trust the Western development agencies to deliver on their promises but they would also have to be willing to absorb all the consequences – both positive and negative – of realizing the Western dream on their own soil.
A Question of Identity
Readers who continue to have difficulty understanding the source of suspicion towards Western development agencies should consider their own attitudes towards the ‘transhumanist’ initiatives most closely associated with Aubrey de Grey, which would extend current scientific research to halt or even reverse the ageing process, so that we live many times longer than we currently do. Here too there is both scepticism that it could happen and horror that it might – the latter exacerbated by the long-standing crisis of the welfare state: what would we do with the extra time – and who would pay for it?
Implied in this analogy are complementary challenges: the developers must be resolved to make the necessary changes in the target environments, while the targeted beneficiaries must be resolved to lead radically different yet still meaningful lives in the wake of these changes. There is reason for doubt on both scores, if only on grounds of risk aversion. Thus, the developers may not sufficiently invest, and the developing may not sufficiently exploit the investment and the fear of loss trumps the hope for gain.
Not surprisingly, to make their development projects work, Banerjee and Duflo have had recourse to Western-trained native collaborators who can explain that long-term strategic thinking is not simply an exotic Western fantasy but something that ultimately results in concrete benefits. But among those ‘benefits’ is a major change in your sense of identity, such that you are effectively ‘Westernized’. In this context, Banerjee and Duflo stress the importance of what behavioural economists call ‘time preference’ (or ‘discounting’), the strikingly fashionable – and neutral – way of capturing the disciplined fervour behind first Imperialism and then Leninism, as they fearlessly pushed their agenda on those who may have started from a point of indifference or hostility.
So who is this new person that denizens of the developing world are being asked, if not forced, to become? In brief, this person treats the future as her friend, with longer time horizons suggestive of opportunities for potential to be realized. She does not insist on assurances that all the fruits of her efforts be borne in the short term. The sociologist Max Weber famously argued that Protestantism, with its proactive commitment to building a ‘Heaven on Earth’ in hope of divine approval, enabled the strong future-orientation of the Christian salvation narrative to morph into the capitalist practice of re-investing rather than simply consuming company profits. This tendency was ratcheted up a level with the advent of Imperialism, with its claim that the full benefits of capitalism would not be realized until the entire world was made into a free trade zone that allowed everyone to maximise their productivity. This then licensed an expansionist geopolitical strategy, which Lenin, armed with Marx’s account of socialism as capitalism’s heir apparent, adapted to launch Communism as a worldwide movement that would not rest until every nation had been converted.
The poor get richer only if the rich get richer too, suggesting that greater inequalities are the cost for the improvement of everyone’s fortunes
The inspirational bookkeeping cited at the start of this article, so characteristic of United Nations and such relatively innocuous contemporary figures as the philosopher Peter Singer, the economist Jeffrey Sachs and U2’s front man Bono Vox, is the natural, albeit less grandiose and violent, descendant of this general line of thought. Indeed, it may even be its death rattle. However, Banerjee and Duflo offer one last throw of the dice by using Western-trained natives to mediate the transition of the developing world into one in which, as the economists gingerly say, ‘does not discount the future so heavily’.
Helping the Rich Get Richer?
The question then is the cost of generalising from the successful social experiments documented in Poor Economics. In the first instance, it would mean the systematic recruitment of natives of the developing world for a Western education, after which they would be parachuted back into their societies. The recruitment process alone would incur all the social disruption that comes from evaluating people in terms of an externally imposed standard. Scaled-up, the proposal is no less than Imperialism 2.0, an unprecedented infiltration of the mindsets and lifestyles of perhaps a fifth of all humanity. Pursued long and successfully enough, this project is bound to transform massively if not outright destroy existing cultures. But the world on the other side of the change may be one in which Homo sapiens will have reached new milestones in liberty, productivity and rationality – at least as their would-be benefactors understand those concepts.
In this scenario, a shift can be detected in what it means to ‘release human potential’. It is not simply a matter of taking the lid off an already boiling pot, which is very much an Enlightenment image: If only the obstructive tyrant were gone, the people would be free to self-legislate! This image lay behind the optimism of the theorists of the 1789 French Revolution, as well as the American neo-conservatives who believed in 2003 that a short ‘shock and awe’ military strategy would liberate Iraq, whose natives would then form a liberal democracy. On the contrary, the task ahead may be more like the riskier strategy of ‘fracking’, the deep rock drilling for oil and gas that nowadays generates so much controversy because of its possibly long-term destabilising effects on the environment. Eventually the rocks do yield the desired resource – but perhaps much else as well: are we prepared to deal with the collateral damage? By analogy, then, the problem may be less that the natives provide resistance to accepting a longer-term life horizon than that the developers lack the perseverance to make their efforts sustainable.
It is worth noting that most of the billion people who have been taken out of extreme poverty over the past generation have not been beneficiaries of the global income redistribution scheme proposed by our inspirational bookkeepers. In fact, more than half of these people have been in China, an authoritarian state that has imposed markets to stimulate growth. The strategy has worked by providing incentives for those with disposable capital to employ the services of those lacking it. The lesson here seems to be that the poor get richer only if the rich get richer too, suggesting that greater inequalities are the cost for the improvement of everyone’s fortunes, a situation, to be sure, that egalitarians find both unpalatable and unnecessary. The challenge for them, then, is to set aside knee-jerk feelings of resentment and provide an alternative economic growth strategy that also reduces disparities in wealth.
On 1 June 2013, an editorial in The Economist celebrated the above achievement as a victory for capitalism, while shrewdly observing that the remaining billion or so still mired in poverty are perhaps not so attractive for capital investment. Longer time horizons will be needed to introduce the requisite mental and material infrastructures both to turn a decent profit for investors and to deliver promises of a new world order to natives. To describe the task simply in terms of redistributing global GDP by 1-2% is to ignore transaction costs. Rather, it is a job for Imperialism 2.0. This time, instead of Christian missionaries, social scientists following the example set in Poor Economics would pave the way for capital development by engaging in social experiments designed to convert the natives to the idea of an extended and open future, notwithstanding any short-term hardship and disorientation they might experience.
The economic historian Niall Ferguson is perhaps the most outspoken and clever defender of ‘Imperialism 2.0’ today – certainly the person who would most happily embrace the moniker. He diagnoses the decidedly mixed balance sheet of Imperialism 1.0 in terms of lack of political will on the part of the imperial powers to realize their global vision. They ultimately recoiled at the magnitude of the task, despite ample evidence that their strategy was largely working. But in addition, Ferguson is notorious for arguing that the United States – not the United Nations – should be the driver of Imperialism 2.0. It is easy to assume that his case is purely ideological. However, his best argument rests on the moral debt that the US incurred by becoming the world’s banker – that is, once the dollar became the global monetary standard, in terms of which the values of other currencies are set.
The US, through its influence in the International Monetary Fund and the World Bank, has determined the economic and political fate of nations. But what exactly does the US do in return? The most obvious answer is that, through its ‘hard’ and ‘soft’ power, the US maintains sufficient stability across the globe to enable market transactions to flow smoothly. But if one truly believes that capitalism can bring prosperity to all, does the US not have a further obligation to develop the world’s capacities so that every region can function optimally in the global marketplace? To be sure, the US has taken this obligation seriously in the past, especially during the Cold War, when the Soviet Union offered a serious alternative in the global development sweepstakes. But once the US lost its market competitor, it interpreted its moral commitments to the world in more narrowly strategic terms.
Of course, all of this may change quite dramatically in the next few years. The dollar standard is already under attack, especially from China, which sees capitalism more as an instrument for national self-improvement than as a full-blown global ideology. No doubt, many Americans – both on the right and the left – would welcome losing the ideological baggage associated with being the world’s banker. Yet, it is equally clear that Ferguson’s appeal to imperial history – or for that matter the more general Western legacy recounted here – is unlikely to shift China’s policy horizons. In this respect, cultural relativism may be vindicated, but perhaps not as its advocates would have wished: real bookkeeping suggests that less overall suffering would result simply from respecting the poor as they are and dealing with them on those terms. At least, they suffer for a shorter period and without the disappointment of broken promises. In short, taking seriously the agenda of Poor Economics as a global proposition makes rational sense only as a long-term ideal for which we would be willing to have both them and us suffer a fair bit in the meanwhile.