Economic growth has its sceptics. Books have been written on degrowth (the idea that economies should shrink), steady state economics (the idea that economies shouldn’t grow) and doughnut economics (the idea that economies should only grow so far).

There are three good reasons to doubt the desirability of economic development.

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In this article I’m going define development, explain why development is generally a good thing, and I’m going to point out one big problem with it.

Then, in following articles, coming out at the rate of one every few weeks, I’m going to look at economic development explain why it has no intrinsic benefit, but why it’s valuable nonetheless, and then I’m going to explain where aid fits into all this.

Feel free to disregard these three posts if the last thing you want to do with your summer is think about your day job. On the other hand, if you’ve ever thought about your day job and wondered why, read on…

The best explanation of development lies in a space of sorts — a gap.

This is the gap between the Sweden and the Central African Republic.

Sweden is no utopia. It suffers problems. But Swedes can expect to live on average to over 83 years of age. They can expect to receive nearly 13 years of education too. And the median Swede lives off about $57 a day. Most people in Sweden will also live safe lives free from conflict and have little reason to fear their own government.

People in the Central African Republic, on the other hand, can expect to live to just 57, go to school for 4 years and get by on $1.92 a day.1 They are living in a country that has suffered through a long and violent civil war. It’s a place where, according to Amnesty International, human rights are under constant threat.

The gap between these two countries is no construct. It represents a vast divide in the lives people get to live. The differences between Sweden and the Central African Republic also demonstrate what development entails. Development is the journey from hardship, danger and ill-health to a life that has its challenges, but which is also mostly safe and comfortable.

To be very clear, in stating that Sweden is developed — a better place to live — than the Central African Republic I am not saying the people of Sweden are in any way superior. The differences between the two countries are not a product of people’s personalities; they stem from structural features of the countries’ political economies.

When it comes to the good life, not everyone wants the exact same things and there is plenty of room to debate what matters and what matters the most, but the integral components of a good life — of development — are obvious enough when you think about what Sweden has that the Central African Republic lacks: human rights, health, and freedom from hardship. If you’re reading this, then it’s very likely you’ve had more than four years of education too. It seems fair then, to add education, and the opportunities it brings, to the list.

I’m not the first person to have wondered what development means, so it’s no surprise that the list I’ve come up with contains the three core components of the UNDP’s Human Development Index, plus human rights.2

It’s also convenient from a data perspective, because it allows me to take UNDP HDI data, combine it with survey data, and address a possible question you might have. Namely, “how do we know that what you, Terence, call development is not simply a product of your Western fixations?”

The good news is that you don’t have to ask me. People from around the world have already, in effect, answered this question when surveyed as part of the Gallup World Poll, which draws on representative samples of people in countries around the globe.

The chart below compares Human Development with the average response Gallup gets when it asks people to rate quality of their lives (which I’m going to refer to from here on as “life satisfaction”).3

Each dot is a country. Countries further to the right have higher levels of Human Development. Countries higher up the chart are home to people who, on average, say they are more satisfied with their lives. Sweden and the Central African Republic are marked on the chart in red.

The chart shows a clear positive correlation (r=0.82). There’s variation about the line of best fit, which is inevitable in social science research. It probably reflects noisy data as well as the fact that some things other than development contribute to life satisfaction. Nevertheless, countries with higher levels of human development have much higher average surveyed life satisfaction. The UN’s Human Development Index doesn’t include a measure of human rights, but when I added a standard measure into a multiple regression, both variables were clearly positively correlated with life satisfaction.4 It’s not just me projecting. People in more developed countries are happier with the lives they live. Development is, in short, real and meaningful.

Development is real and meaningful but it’s also problematic. In particularly there is the issue of environmental sustainability. I was tempted to build this into my definition of development — that is, to state that development is only genuine if it’s sustainable. But in the end I left it out so as to leave room for debate around whether development is sustainable, and whether it could ever be sustainable.

Clearly, to-date, development has not been sustainable. This is a huge problem. If the ecosystems of our planet unravel completely it will be disastrous for human wellbeing.

Perhaps, then, that’s a good reason to oppose development? After all, today’s developed countries have cooked our climate in their race to affluence.

This isn’t really an argument against development though, it’s an argument for taking sustainability into account when countries, particularly developed countries, make policy choices. The technology already exists to allow us to move away from a fossil fuel-based economy. We could do it if we tried. And, unless we do it, demanding that the world’s poor countries stay poor just to protect our environment would be impossible as well as utterly immoral. There is only one solution to the problem of sustainable development: affluent countries need learn to live sustainably and share the technologies required to do this globally.

Development is more than a mere discourse. It brings positive change to people’s lives. The challenge going forward will be creating a world where everyone benefits from development and a world where this is done sustainably.

For now though, that’s all I have to say. In the next article in this series I will discuss the most environmentally harmful, and controversial, aspect of development: economic development. Is it good?

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Footnotes:

1

Life expectancy and education data come from the UNDP’s HDI. Income/consumption data come from the World Bank via Our World in Data. Income/consumption data are in international purchasing power parity adjusted dollars and take into account the fact that the cost of living is cheaper in CAR than in Sweden. As best possible, the data also take into account consumption associated with subsistence agriculture.

2

There is one important difference, which is that my preferred metric of economic development is the income/consumption of the median person (or household) in a country. The HDI on the other hand uses GNI per capita. Median income does a somewhat better, albeit still imperfect, job of dealing with issues of inequality. However, GNI per capita is easier to get data on. It’s also a reasonable enough measure for the purpose of this article.

3

I have used 2014-19 means for both variables to smooth out the effects of any unusual years years. I’ve used 2014-19 to avoid potential data problems emerging from the Covid. The question asked was: “Please imagine a ladder with steps numbered from zero at the bottom to 10 at the top. The top of the ladder represents the best possible life for you, and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time?”. This the standard Cantril Life Ladder question. Gallup asks other questions including about positive affect and about negative affect. There is a clear negative relationship between HDI and negative affect. There is a weaker, but still statistically significant, positive relationship between HDI and positive affect.

4

I know that correlation does not equal causation. However, it is very hard to see how reverse causality could explain the relationship shown here. The idea that people who are intrinsically more satisfied will build countries that have higher levels of development is far-fetched. It’s possible that the correlation is a product of a third variable. Something such as governance, which causes both better development outcomes and higher levels of life satisfaction, but it is very hard to see how governance, or some similar feature, could improve life satisfaction through any pathway other than by promoting development. If you want my data and Stata do files for this analysis please email me.

There are, however, people who would like to put an end to this…read the rest of this post on my Substack: https://terencew.substack.com/p/tying-new-zealand-aid-is-an-awful

Clarifications and other dreary stuff…

Some countries, including the United States, give military aid. This post is not about military aid, it’s about development aid, or what is called the jargon-strewn world that I inhabit “Official Development Assistance” (ODA). USAID delivers ODA. ODA is what Trump has put a halt to (not military aid). Only poorer countries are eligible for ODA (the official OECD list is here.) People often say Israel is the largest recipient of US aid. It gets a lot of military aid, but no ODA.

Over the rest of this post I’ll use the word “aid” out of habit but, strictly speaking, my focus is on ODA.

America First

In absolute terms the United States gives more aid than any other country. But it is also affluent and has the world’s largest economy. If you want to take this into account, dollar values aren’t the right metric. If you want to know how much the United States sacrifices when it gives aid, you need to compare aid to Federal spending. Total US aid is about 1% of federal spending (1.2% according to Pew Research, 0.9% based on my hasty calculations using OECD data). Even if you assume that US aid is completely altruistic, and all about putting other countries first, the US government still devotes 99 cents out of every dollar spent to putting America First. Next to nothing is sacrificed as aid.

But the US is the world’s largest aid donor. So surely that shows that other countries aren’t pulling their weight?

No. The chart below, based on OECD data, shows you aid as a percentage of Gross National Income (GNI). This is the standard measure used when comparing how generous countries’ aid spending is. The countries on the chart are members of the OECD’s Donor Assistance Committee – the World’s original donor countries. The percentage value is the mean over the five most recent years with data. By US standards this was an unusually generous period thanks the aid it has been giving to Ukraine. The US is shaded in red. I don’t need to say anything else here.

The left-wing critique

Aid is often decried on the left. If you spend too much time in universities, you’ll hear some genuinely stupid critiques of aid, such as the complaint that it reflects Western preoccupations – becoming more affluent, better educated and healthier – and that it undermines indigenous cultures in doing so (cultures are always changing, and most people actually appreciate not dying in childbirth and the like).

A much better critique is that aid is often given to advance donors’ own interests and does little to help poorer countries become less poor, better educated and healthier.

Economists have been studying aid’s effects as well as why it is given for decades. It’s not easy. The data are poor, even the most sophisticated regressions, the standard tool of analysis in this work, struggle to separate cause and effect, people P-hack, and so on. But, for what it’s worth, it appears that – on average – aid has a small positive impact on economic development, education and health. “Small positive” may seem underwhelming – but as far as global capital flows go, aid itself is very small. It would be unfair to expect much more.

There is also good econometric evidence though, that donors devote some of their aid to advancing their own national interests. Sometimes this is harmless, or even beneficial. If donors want their aid to bring soft-power by winning hearts and minds, they’ll only do so if their aid actually helps (this blog neatly summarises the evidence on aid and soft-power).

However, there are many examples of aid being used badly by donors and causing harm as a result, particularly during the Cold War. (The example I usually give in class is aid given to Mobutu to make sure he didn’t turn to the Soviets. He was a ruthless dictator, aid helped prop up his regime and he stole much of the aid money while he was at it.)

Beyond individual cases there is reasonable econometric evidence that some donors give aid to advance their own interests and that this probably undermines aid’s overall effectiveness in promoting development (this summary of the econometric evidence is good).

So the left is right then?

Not really. Even in the Cold War, when aid was at its worst, some aid still helped (a lot in the case of the eradication of Small Pox and the Green Revolution). And aid didn’t buy the US much power on its own. It played a role, but the CIA, military assistance and military interventions did the heavy lifting.

Thinking sensibly about aid

It’s easy to generalise about aid. Indeed, I’ve done it in this blog post, and I’ve also linked to studies assessing aid’s average or overall impact. In reality, aid is given in many different ways (see the figure below, from one of my slides in a course I teach) and many different actors (academics, civil society, campaigners, foreign policy hawks, churches, Bono…) have some influence on how aid is given.

The end result is that aid varies a lot. Some organisations and countries give aid a lot more effectively than others. Focusing on the US alone, indeed focusing on the George W Bush administration alone, some US aid, such as that given to Iraq, was given for the wrong reasons, and may well have done harm (a lot less harm than sanctions, missiles and IEDs though). But other aid, particularly PEPFAR, which began under Bush, has saved many lives.

Aid isn’t a panacea, aid is complex, but aid can help. When it is given with the right motives it is more likely to help.

So what about Trump then?

What Musk-Trump want to do is the worst of all worlds for aid. Aid infrastructure is complex and inter-dependent, an overnight freeze has caused a lot of it to fall apart meaning that the supposed humanitarian exemptions to the freeze aren’t working. As a result, vulnerable people — people who need medications, people in refugee camps, people dependent on food aid — will die. Are dying. And as the dismantling of aid agencies in New Zealand, Australia and the UK has shown, the end of USAID will lead to the loss of the expertise needed to give aid well.

Left-wing critics of aid have a point, up to a point. Some US aid is given for nakedly geostrategic reasons. And some of that aid does harm. But the whole point of the Trump pause and review is to identify aid that is not advancing US interests, and cutting it. The worst types of aid will remain.

If you want to put America First, aid is pocket change. If you want to be rid of aid given to advance US interests, don’t celebrate now, that aid isn’t going anywhere. If you’re concerned about poor and vulnerable people, the Trump administration and its aid policies are a disaster.

Appendices

The claim that only 10% of US aid reaches its intended recipients is completely wrong.

The White House press release attempting to justify the demise of USAID and the aid freeze is profoundly misleading.

Nevertheless, he lost the last election, why didn’t he lose this one?

Some answers seem pretty simple, prosaic even, but they’re likely the most important ones:

1. Inflation. It’s really unpopular. It might be coming down, and one day people will have forgotten all about the old prices, but for now disinflation doesn’t cut it. Inflation has been a nightmare for sitting governments the world over, including the Democrats. Combine this with the stagnation of real wages, the lingering effects of the GFC, the opioid crises, and you’ve got a bad brew in an economic sense. It’s easy to tell people that their lives were better Before Biden.
2. Immigration. Particularly illegal immigration. People just hate it. It makes them feel vulnerable. It makes the state seem impotent. (As an aside, maybe if the US wasn’t strangling the life out of Venezuela with sanctions, and maybe if it did something constructive in Haiti for a change, immigration would be a lot less, but I digress).
3. Joe Biden’s desperate desire to cling to power. It discredited the Democrats, he looked awful for not doing a Lyndon Johnson and not bowing out earlier on some or other pretext, and it meant the Democrats couldn’t choose the most effective candidate.

Then less important, but still important (I think):

1. The fact that Trump could, despite his obvious flaws, hold the Republican coalition together. The wealthy make sense. The social conservatives baffle me. But my guess is that churches play a role similar to that which unions once played in this.
2. A reluctance to vote for a black person among some voters. And a reluctance to vote for a women.
3. Harris simply wasn’t a very good candidate. Everything from how she spoke at rallies, to the tone of her voice, to her uninspiring interviews, to her inescapable association with Biden.

Of course what is much less clear, and much more important, is what will happen now, with Congress, the Senate and the Supreme Court (and nuclear weapons!) he is in a very powerful position. He’s also got some very nasty people trying to advise him. Yet at the same time he’s a very capricious person. That’s awful on the nuclear weapons front. But on the domestic front, in terms of policy, it may be somewhat different. And projects such as the Heritage Foundation one or Musk’s idea to radically shrink the government will go down awfully with the American public, eventually, when they see what it means for their lives. This, and Trump’s desire to be venerated, may serve as something as a countervailing force on radical economic change. Similarly, courts, including even the Supreme Court, might prevent him from dismantling democracy – might.

That’s only a small consolation when, literally, the fate of the World is in his hands along with the fate of US Democracy.

The expansion of settlements in the West Bank seems very colonial. But calling Israel a colonial power per se is wrong. The Jews who fled there in the 1940s were in desperate flight, unlike my colonial forebears here in New Zealand. And the first Zionists were in search of safe haven after millennia of oppression. The subsequent treatment of Palestinians has been deeply, morally wrong, but it’s a different wrong to the crimes which have occurred here (or in Australia, or the US, or Guatemala, or…).

What’s more, if you’re trying to win arguments in countries like the UK, the US, Australia and New Zealand, the term colonial is impotent. The majority of people in these countries shrug their shoulders when they hear the word — it has little traction. That’s wrong, but it’s the truth. On the other hand, ‘ethnic cleansing’, ‘humanitarian catastrophe’, ‘gross violations of human rights’, are urgent, forceful words, which many more people will react to. If you want to win arguments, use words that have power.

And, for obvious reasons, most white people in colonised countries — me included — will have very, very unfavourable reactions to the implicit suggestion that it’s ok to indiscriminately butcher “colonisers”. Just like many of the Israelis Hamas murdered, I didn’t chose to move to the country I currently live in. I was born here. I have no other passport. I have an obligation to help make amends for past crimes, and to stop future ones, but I’m not a legitimate target for murder. The argument is vile. Good luck trying to convince any New Zealand government to take a stronger stand on Israel’s aggression with that sort of logic.

My frustration with the left runs deeper than this though (even though I’m a lefty). Why is it so hard to simultaneously hold the following beliefs?

• What Israel has been doing in the West Bank and Gaza strip has — for years — been morally wrong.
• Nevertheless, Hamas’s butchering of civilians on October 7 was a heinous crime. It was also a crime against the people of Gaza. Hamas must have known what was going to happen in its wake.
• That doesn’t justify Israel’s response though, which has been abhorrent in so many ways. There have been countless violations of human rights. What is happening looks a lot like ethnic cleansing.
• The tepid response of the governments of countries such as my own is to our shame.

I guess the search for certainty and binaries isn’t unique to the left. But if you want to make the world a better place for the majority of its people, at some point you need to embrace some nuance.

His voice was determined though. It arced. The way his words carried through the departure lounge café, he could have been preaching to all of us. Instead, he was hectoring a phone. Lecturing an occasional voice at the other end.

It was the type of intrusion I could have hated, but it was easy eavesdropping. And anxious and unwell, I was limping home, trying not to worry, keen on distractions.

“You look around you at the people in the village darlin’, are they progressing? Are they goin’ forward, like you want to do?”

His voice shrunk the question marks into full stops.

“Remember, Lincy? You know. Lincy Toam. Lincy! Oh. Limsy. Yes Limsy. Well he’s in High school in Port Moresby now. He’s doin’ great. He’s progressing.”

A grandchild in a village somewhere, I wondered? A child? A worker from a hardscrabble mining company?

Ever since it realised it had a neighbour, Australia’s been washing over Papua New Guinea in waves – colonial officials, crooks, businessmen, aid workers, preachers, economists – waxing and waning, succeeding and failing. Leaving bits and pieces along the way.

“You need to progress too darlin’.”

“You need to follow the Lord Jesus. Look where he came from. The stable. He progressed to become perfect. God almighty.”

The hardscrabble minerals company vanished. I sipped my coffee, and started thinking grumpily about the problem of evil.

He kept on. Blending advice on education and getting out of the village with scripture. Exhorting and exulting, his voice bouncing up and down, up and down, in agitated waves.

“Well, when the Lord likes what you are doing, He will exalt you, and that is when you will get what you want. Later this afternoon, you go and read Matthew…”.

Chapters, verses – he knew the bible. Yet he didn’t sound like the expat ministers I’d met in Melanesia. They didn’t dress like geologists either. And their god was never in such a hurry. Nor quite so personal.

“I know you like the village life darlin’. But you need to progress.”

The voice at the other end of the line was tiring, boring, explaining why it had to go and do something else now.  

All that energy. But Papua New Guinea’s been frustrating Australian energy for years. Absorbing those waves. Changing, just never in intended ways.

Or perhaps it had nothing to do with nation states. Families have complicated geographies of their own.

“Alright darlin’. Well remember to read the bible later like I told you.”

He hung up. Stood up. And strode out of the cafe. Tears tracing their way down his skinny, stubbly cheeks.

Hi ###,

Also see: https://elibrary.worldbank.org/doi/abs/10.1596/1813-9450-6158

I think J&T is the best available evidence because, they run a comprehensive range of regression models, including IV models, and time series analysis. And the also run a good range of robustness tests. In addition to this they use aid data data to disaggregate different types of aid flows. This seems to me more sophisticated than some approaches to date (some which have been simply theoretical, others–dubious–single case studies such as that of Somaliland, and others which have involved regression analysis but less comprehensively).

That said, I’m still aware of the limitations of the type of analysis that J&T undertake. And perhaps their findings will be refuted in further work. (Hence, ‘best available’, rather than ‘definitive’.)

However, in between the J&T findings and some other pretty good work on the relationship between aid and democratisation and the like (see below) my reading of the evidence is that, overall, available evidence shows positive aid/governance relationship. And that it certainly doesn’t show the negative one so central to Deaton’s arguments. Maybe this body of evidence is wrong, but, if it is, the burden of proof ought to fall on those who believe it is wrong to show that it’s wrong, before making claims about a negative aid/governance relationship.

Also, it’s worth noting that J&T aren’t outliers with respect to their findings. Some other related papers with similar (or otherwise interesting) results:
http://dx.doi.org/10.1016/j.worlddev.2014.11.009
http://dx.doi.org/10.1017/S0007123413000264
http://www.personal.psu.edu/jgw12/blogs/josephwright/Dietrich%20Wright%20OUP%20Ch3.pdf
http://dx.doi.org/10.1111/j.1540-5907.2010.00501.x
http://dx.doi.org/10.1017/S0020818304582073
http://dx.doi.org/10.1016/j.worlddev.2014.05.014

cheers

Terence