Prosperity for All

Summary

Bill Easterly, an economics professor, critiques traditional development aid and foreign expertise, emphasizing the importance of globalization, trade, and market-driven reforms for economic growth. He argues that most successful development stories, like China’s shift from central planning, are homegrown, with domestic policies being key to prosperity. Easterly highlights how integrating cheap labor into the global market boosts wages and growth, and warns that rising protectionism in wealthy countries threatens developing economies. He calls for more focus on large-scale economic policies, rather than small interventions, to achieve sustainable development and growth.

Takeaways

• 😀 Global economic growth and higher wages for unskilled labor depend on increased global demand for this labor, rather than fears about robots taking jobs.
• 😀 Bill Easterly critiques foreign aid and expert advice, noting that many development strategies have failed, particularly in Latin America, Africa, and the former Soviet Union.
• 😀 Successful development is often homegrown, as seen in China, South Korea, Taiwan, Singapore, and Ghana, where local solutions led to economic progress, not foreign intervention.
• 😀 China's success story shows that moving away from central planning to a market economy can lead to rapid economic growth, especially when combined with globalized trade.
• 😀 Unskilled labor is often cheap in developing countries, which keeps wages low. Exporting labor-intensive goods to the global market can increase demand for labor and drive wage growth.
• 😀 Ghana's economic revival serves as an example of the positive effects of market liberalization. Decontrolling the cocoa market boosted growth and prosperity.
• 😀 Political and economic freedom, such as property rights and the ability to protest government policies, have played crucial roles in the success of economies like Ghana’s.
• 😀 Backlash against globalization and the rise of protectionism in rich countries could hurt developing economies, which rely on open trade to succeed.
• 😀 The fear that robots will replace unskilled workers is misguided, as labor-intensive industries will thrive where labor is cheap, like in developing nations.
• 😀 Rich countries should embrace more immigration policies and open trade to take advantage of the global surplus of unskilled labor and avoid automation.
• 😀 The development field needs to refocus on big, national policy-level questions, such as how to foster rapid economic growth, rather than focusing too much on small-scale experiments like randomized control trials.

Q & A

What does Bill Easterly suggest is the solution to the problem of cheap labor in poor countries?

Easterly argues that the solution is not to worry about robots or automation replacing workers. Instead, the key is to increase globalization, allow more trade, and promote migration, enabling countries with abundant cheap labor to integrate into the global market and drive up wages.

Why does Bill Easterly criticize the role of foreign aid and outside expertise in development?

Easterly criticizes foreign aid and outside expertise because they often fail to achieve sustainable economic growth. He believes that development success is mostly homegrown, with countries like China, Ghana, and South Korea finding their own path to prosperity rather than relying on external intervention.

What are some of the key examples Easterly uses to illustrate the failure of foreign aid and external advice?

Easterly mentions the economic disappointments in Africa, Latin America, and South Asia during the 1970s and 1980s, as well as the failure of the Soviet transition economies in the 1990s. He emphasizes that despite the influx of foreign aid and advice, these regions did not experience the expected economic growth.

How does Easterly describe China’s path to economic success?

Easterly explains that China’s success was not due to foreign experts or aid, but rather China’s decision to adopt market-driven economic reforms. The shift away from central planning to a more market-oriented approach allowed China to tap into global demand for its cheap, unskilled labor, particularly in labor-intensive industries.

Why does Easterly argue that the fears about robots replacing unskilled workers are misguided?

Easterly believes that the fear of robots replacing unskilled labor is exaggerated because robots are simply another form of capital. He argues that when labor is cheap, investors tend to favor labor-intensive technologies, and it’s the lack of globalization and immigration policies that are more problematic in rich economies.

What role does globalization play in economic development according to Easterly?

Globalization is central to Easterly’s argument for economic development. He suggests that poor countries can prosper by exporting labor-intensive goods to the global market. By doing so, they create demand for their abundant cheap labor, which increases wages and drives economic growth.

How did Ghana turn around its economic situation according to Easterly?

Ghana’s economic turnaround came when it liberalized its cocoa export market, ending the state's control over cocoa prices, which had previously harmed cocoa growers. By providing incentives for exporters, Ghana stimulated growth in the cocoa industry, eventually leading to broader economic and political reforms.

What does Easterly mean by the phrase 'homegrown success stories'?

By 'homegrown success stories,' Easterly refers to countries that achieved economic growth through their own internal efforts and reforms, rather than relying on external aid or advice. Examples include China, South Korea, and Ghana, which made their own decisions on economic policies that led to growth.

What does Easterly believe is a major flaw in current development research?

Easterly critiques the focus on small, narrowly defined questions in development research, such as the impact of specific interventions like flipcharts or de-worming drugs. He believes that more attention should be paid to the broader, more important questions of how countries can achieve rapid economic growth, which is often neglected in favor of more rigorous but less impactful research.

How does Easterly view the relationship between national policies and economic success?

Easterly emphasizes that national policies are crucial for economic success. He argues that countries with policies that promote freedom, property rights, and market economies tend to prosper, while those with policies that restrict these elements, like Venezuela, experience economic collapse.