The Roots Of Sustained Economic Development Rest On A State Of Mind – Most Of The World Has Yet To Experience Real Development, Let Alone Understand It – Even In The West We Do Not Have A Clear Economic Recipe That Can Be Embraced By All – Part 4

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By Paolo von Schirach

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July 25, 2012

WASHINGTONThis is the fourth installment in a series exploring what we know about “economic development”. Please look at the link above to get to the previous three pieces.

Development: For Most Still a Distant Concept

When it comes to economic development, the capitalistic West and the large portions of Asia and other continents that have adopted Western practices are not yet the universal standard. A large, if not still the largest, portion of the world’s population is still functioning according to the old, pre-capitalistic parameters focused perhaps no longer on sheer survival but still on subsistence.

Subsistence is still the only reality for hundreds of millions

Hundreds of millions who subsist on $ 1 or $ 2 a day can scarcely begin to comprehend the concept of “man made growth”, let alone embrace it by becoming actively involved in activities that would engineer such growth.

For hundreds of millions of people on earth life is still about toiling in order to get enough to eat today in a world where they believe that there are only finite resources, most of them inaccessible to them, because of cost. This narrow worldview cannot conceive of the notion of entrepreneurial activities aimed at “producing” more than what exists today.

Zero sum world

By the same token, those who live in realities dominated by the entrenched perception that resources are finite, by default operate following a “zero sum game” approach. According to this view, in a world of finite resources one can have more only by taking away something from others. Following this basic idea, clever people become involved in activities, (political, military or otherwise), that will place them in a position to either directly control the existing pool of wealth or to acquire material gain by supervising its distribution. The name of the game is not “wealth creation”, (the outcome of economic development), but it is instead “wealth control”.

Wealth control versus wealth creation

Anywhere we have the predominance of a mind set and practices aimed at wealth control, it is very hard –if not outright impossible– to have the germination, let alone the rooting, of the idea that people can advance both economically and socially, not by taking away from someone else, in a zero sum game, but by engaging in economic activities aimed at creating something more and something new. In these circumstances, the mental path to even begin to think about increased “wealth production” has yet to be discovered.

No theoretical consensus in developed countries

But, as discussed in earlier pieces in this series, even in the modern, industrialized world, where economists have been theorizing for centuries as to the purported methods that will cause or foster wealth creation, we have not yet mastered or defined a proven recipe. We have produced large libraries of books on economic theory, models and analysis. But the most striking observation in reviewing economic literature is a lack of conceptual unity based on real facts.

To date, economics is not a real “science”. At best it is a diverse, sometimes confusing, ensemble of widely differing theories. As yet, we have not been able to clearly identify basic principles which determine certain dynamics nor the ingredients that will trigger growth both in societies that have it and in those which do not have it or that would want more of it. The confusing element that tends to spoil most theories is that human beings, the economic actors, in most cases do not act in a predictable way. There mind is not where the theory assumes it should be.

How do we create constant growth?

All this is to say that thus far we have not yet singled out the rules (assuming that they exist) nor devised a system that can generate and guarantee continuous, steady growth. All this may appear quite paradoxical. Think of it. Long ago the West embraced the concept of the possibility and desirability of economic growth largely based on technical innovations. One way or the other, growth, albeit uneven and often elusive, has become a tangible reality. Yet experts, after a century long debate, have yet to agree as to what the exact recipe to make it happen should be. And, even assuming good recipes, how come that quite often they are not embraced by those who really need growth?

Socialism: a better way to achieve growth?

To cite just the most obvious example of a radically different approach to the goal of growth, Socialism, (in its different varieties), was conceived and then applied –no doubt in good faith at least in some instances– as a supposedly better, indeed more “scientific”, way to secure the same goals of progress and growth –only to agree later on, friends and foes alike, faced with the evidence of monumental failure, that its shortcomings were far greater than its benefits.

Disagreements within the capitalistic West

But even in the Western mainstream, supposedly based on capitalistic principles of investments and competition along free market principles, we vehemently disagree about the right mix of ingredients for growth.

We do not have clear recipes. Carefully crafted economic plans fail miserably or, at least, fall short of desired results. Conversely, periods of high growth occur without any clear correlation to existing economic policies. In some instances we have had gigantic economic reversals, painful and long, such as the Great Depression and the more recent Financial Crisis.

Uneven development

In other instances some societies, try as they may, seem to be impotent prisoners of listless, anemic trends that fail to deliver on the general expectation that they should be moving forward. Think of much of Europe today, Japan and large parts of Africa and Latin America.

By the same token, even in societies that seem to be doing relatively well, such as the United States before 2008, we have significant portions of the population that neither participate in nor benefit from this unprecedented stretch of great economic dynamism. Last but not least, predictions about economic trends are almost always wrong.

So, half the world has yet to experience self-sustaining economic development. The other half, knows it, sort of, but cannot create a formula to sustain it and reproduce it at will.

End of Part 4


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