Wednesday, June 04, 2008

Why Do Some Countries Remain Poor While Others Grow Rich?

This is a question that has never stopped nagging me since the very first time I left this country eleven years ago. It is one thing seeing it on television growing up, it is another being in the First World yourself. Explanations by the likes of F. Sionil Jose - which basically say we are poor because of our culture - is simply unsatisfactory. Being a materialist, I believe culture (i.e ways of doing) is fundamentally determined by the material circumstances (i.e. the environment). The question of whether culture produces reality or reality culture is something that I have agonised over for quite a while now.

See:

Are We Poor Because We're Lazy or Lazy Because We're Poor?
In a Wowowee State of Mind
The Philippines as Open Pussy Country?
Excising Cinderella, Maria Clara and Inang Maria From Our Minds
AbsurdiTV

In explaining poverty I prefer being a materialist. In getting this politico-socio-economic unit out of poverty I prefer not being overly deterministic (i.e. we can still make choices that are not necessarily constrained by the economic).

Here is Dani Rodrik, an author I have only read, not heard or seen, delivering a short presentation that attempts to answer this question. I am surprised at how unassuming the man is. And how humble.



In the end its simple. Get the economics and politics right. And culture? Ah. Its probably that sticky, gooey glue that is lodged in between.

Outline:

1. Global income distribution
2. Decomposing global income inequalities to within - and between-countries components
3. Understanding why some countries produce so much more output per worker than others

Important points:

"Would you rather be rich in a poor country or poor in a rich country?"

- Most of Rodrik's students would rather be rich in a poor country. But in actuality, the poor in a rich country are better off.

- World inequality has gone from almost exclusively a "within" country to mostly "an "across" country phenomena.

- What produces GDP per worker?
a) factor endowments - natural resources, people
b) "efficiency factor" - how these endowments are organised in a society

a+b = total factor productivity

What accounts for the differences across countries? Factor endowments or Efficiency?

Illustration: Turkey vs. US factor productivity. Turkish factor productivity is only 1/3 of US. Why?

- Economic Dualism in Turkey: a modern industrial sector (high productivity) and a traditional agricultural sector (low productivity)

What are the social and structural bottlenecks that keep the two sectors from closing the gap in productivity?

a) Poor institutional environment - government effectiveness, political stability, over-all, regulatory mechanisms, "rule of law" (i.e. predictable, consistent) (the organisation of society)

b) Macroeconomic instability and overvalued currency - an overvalued currency tends to lower labour productivity. An environment with a competitive (i.e. low) currency value tends to move labour and capital to the more productive parts of the economy.

c) "Innovation" doesn't necessarily mean heavy investments in R&D. Innovation in a middle income country is success in removing the impediments to the structural transformation of the country.

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What needs to be done is to organise society in a such a way that maximises wealth production per person - this is the economic part. How to do this 'organisation' is fundamentally political and bounded by our culture.

Oh. And I will take Rodrik's explanation over Jose's any day.

2 comments:

SPLICE AND DICE said...

Zooming in, I think there are quite a large number of poor countries who also have blocs of rich citizens. Which reminds of what Gramsci had to offer: his concept of hegemony. The bourgeoisie values took the form of the common sense values across people. Apparently, that is also the reason why slum areas usually "occupy" (literally and figuratively) the areas surrounding the areas of the 'elites' or the rich, with a few slums scattered somewhere inside those 'elite' areas.

Which is also the reason why people flock to the cities, let alone Metro Manila. It's a hegemonic culture that's infiltrating the minds of the people.

Two cents inspired by Gramsci :)

cvj said...

Rodrik blogs here:

http://rodrik.typepad.com/

I like his approach to Development Economics particularly his Growth Diagnostics framework (one was published by the ADB for the Philippines) as well as his concept of Embedded Autonomy between the Public and Private sector.