Dan Banik and Stefan Dercon discuss the benefits and pitfalls of global development blueprints, how certain elite bargains can favour growth and development, and why some countries win and others lose.
Development is a gamble because success is not guaranteed when benefits materialize in the long-term and a host of factors may undermine elite positions. Some countries are able to settle on elite bargains that favour growth and development, and others are unable to reach such settlements.
While elite bargains in China, Indonesia, Bangladesh, Ethiopia, Rwanda and Ghana ended up being development bargains, the opposite was the case in Nigeria, DRC, Malawi and South Sudan.Â
Stefan Dercon is Professor at the Blavatnik School of Government and the Economics Department at theUniversity of Oxford, where he also directs the Centre for the Study of African Economies.
His latest book – Gambling on Development: Why some countries win and others lose– draws on his academic research and his policy experience across three decades. Twitter: @gamblingondev
Key highlights:
Introduction - 0:55
Bridging the gap between research and policy – 3:09
Why a general recipe for development is not very helpful – 11:22
Gambling for development: Key arguments – 28:38
The future of foreign aid – 45:13
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Host:
Professor Dan Banik, University of Oslo, Twitter: @danbanik  @GlobalDevPod
Instagram: @GlobalDevPod
https://in-pursuit-of-development.simplecast.com/
E-mail: InPursuitOfDevelopment@gmail.comÂ
Banik             It’s lovely to see you, Stefan. Wonderful book, I enjoyed reading it. Welcome to the show.
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Dercon                      Thank you, Dan, for having me. I’m really pleased you enjoyed reading the book and I look forward to our conversation.
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Banik              One of the first things I wanted to talk to you about was your amazing, fantastic, fascinating career as an academic. You are a professor at Oxford, but you’ve also been a policymaker -- you’ve been Chief Economist of the erstwhile DFID, it doesn’t exist anymore, and you’ve been a policy adviser to the UK Foreign Secretary. So, in this journey Stefan you appear to have personally become some sort of a bridge between the worlds of research and policy, something that is quite rare. So, let me start by first asking you to reflect on this concept or the idea of development as you see it, and secondly, I would very much like you to reflect on how your thinking, your academic thinking has been shaped by this practical experience of being a senior official in international development.
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Dercon          These are two great questions and potentially very big ones. Since you      refer to my career and the way I went about it, I will want to first make sure that you don’t have the illusion that I planned it, that this is how I was going to do it. I’m actually an academic who was reluctant to become an academic because when I finished my PhD, I couldn’t find a job, but as a postdoc, that was the only job that wasn’t taken. The World Bank didn’t want me, the ODI Fellowship, something in the UK people do a lot working in ministries overseas, nobody wanted to take me. So, I’m a bit of a reluctant academic in some sense. But it’s a really good question in terms of how I think about development, I got into development probably most seriously from reading Amartya Sen.I came to Oxford because Amartya Sen was at Oxford at the time. That was why I wanted to do the masters there. It was quite funny because he’s been very influential in my career, but maybe not in the way that he may think about it if he were to ever think about it. When I got there, it took me a year to get the courage to ask him and get him to actually talk to me and I said look, I’m now doing a masters and I would love to do a PhD and I would love to do it under you and so on and he said, while it’s really nice and I’m looking forward to working with you, I’ll be at Harvard because I’m leaving Oxford. So, I actually stumbled upon working on Africa, and doing more statistical, econometric analysis, data collection and so on, it was a lot to do because while he had gone, I could have been a very different type of economist. But the other part of the question is probably the more important one which is this whole idea of what changes you if you don’t stumble as I did, I got a job as Chief Economist at DFID, not because I knew anyone there, not because I’m an obvious choice, I was a Belgian citizen, I had no British passport. What I definitely learned is that as academics, we love to reflect about what ought to happen and Amartya Sen told me, it’s about normative economics, what development ought to be. While you’re sitting in a more policy environment and you know what ought to be, you don’t really get that much time for it and what ought to be is that you would love children to have better education, better health, better things, and whatever, you don’t really spend that much time thinking about all the different bits, you say, if I have an opportunity to improve any of the 55 dimensions, I’m quite happy. But then the other part of it is that the problem is really not about what we ought to do. Once you sit in the policy space, it’s so much more about the how to get it done, how can we actually do this? I think that’s definitely changed in terms of asking myself, how can we actually get things to change? Arguably, that’s where I come to now, once I joined DFID, I had never really worked on political economy or in politics, I’m very interested in politics I always have been. But then you start asking yourself, why don’t leaders across the world do these sensible things? I think that’s a little bit where I got to and learned in this period, once you bump into politics, which you do when you deal with ministers in the UK, you see politics and you see it in its raw form, but also in its power or lack of direction or lack of sensible things.
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Banik              One of the more difficult questions that I face, when I present my work particularly to think tanks or aid agencies, is, so, what should we do now? What are the policy implications? A general response is, I’ve done the study, now it’s up to you to operationalize this and tell me which parts you find most interesting. So, I think it’s that kind of reality check that we can come up with lofty ideas, but these need to be operationalized. Talking about Amartya Sen, I just got a copy of Home in the World, a Memoir and I’m looking forward to reading this, it will be nice to have Amartya on the show at some point. But just going back to this idea of development, Stefan, in my own work, I often find that development as a concept is very difficult to be against it because there’s this very positive notion that it’s progress, it’s forward-looking, so in that sense, I think it is really important to go beyond that positive vibe and to better understand who is actually for it and who is fighting against a policy? I think we have to be a bit more realistic and understand that in some societies development policies do not always have the support of all groups, right? So, there may be some people who will benefit from a policy, who will then push for it and there would be lots of people who are very against it, and we have to also be aware of their motives, they may be dragging their feet. I think there’s something about being somewhat realistic, it’s pretty important I think to understand that powerful players may be pushing for something, and powerful players may be against. Is that also your take? Because I read these fascinating accounts in your book about all these places that you visited as a DFID official which may have given you totally different perspectives on what is possible and what is not possible.
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Dercon           I definitely learned, first of all, inside the UK, many of the ideas in the book also stem from recognising that once you see what is possible or what’s politically possible for, say, a minister within a coalition of power in its own government, its action can be very limited. There’s with all kinds of narratives and all kinds of public opinion issues as well. But it’s definitely my take that when you say it’s very hard to be against development, it’s very hard to speak out against development, and there’s no political leader ever going to, maybe you could imagine some because there’s still an idea of modernity behind an idea of change. But simply growing your economy and having some simple version of development, it’s hard to be against it even as a as a political leader. But what we observe is that any change as you say, brings winners and losers, but especially, it can undermine those people that are in power, because once you bring in whoever controls a setting, their first incentive is usually to stay in control and any change, including development or a growing economy, will imply new groups emerging, certain groups becoming stronger and so on. I think it’s that reality that we have often underestimated in development, you’ll never meet find a minister of education against education, you’ll never find a minister of finance against growth, but actually in their actions they may be quite happy to do certain things that fundamentally may end up undermining progress, whether it’s education or in or the economy.
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Banik              I’m trying to place your book in relation to very many influential books out there, giving us advice on how to achieve development, and many of these authors which include friends and mentors of mine have been on this show. So, for example, Frank Fukuyama and I have discussed how to get to Denmark, you talk about you getting to Sweden perhaps in your book, Jeff Sachs and I’ve discussed the idea of a big push. I know that you’re not a big fan and I disagree with Jeff that there aren’t all of these solutions that we know and that is only about the money. Another mentor of mine, Jim Scott, and I have discussed the role of the state and why some people want to flee this state. I was thinking particularly about the last episode in my season three, the last season, Daron Acemoglu and we discussed the role of institutions, stuff that you also referred to in the book Why Nations Fail, that hypothesis, but also this sweet spot that they called the narrow corridor, Jim Robinson and Daron Acemoglu, that you don’t want a too powerful state, you don’t want a too powerful civil society, something in between. So, generally this feeling in all of these books, some of which you also refer to in your book, that there is some specific policy advice that has offered a recipe, road map, a blueprint, but you’re actually pretty sceptical to that, and so let’s just firstly discuss why you think that a recipe for development, as mentioned in some of these books, is not very helpful.
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Dercon           It’s probably answered in two ways. The first one is that when you look at what countries have done that proved to be quite successful, they all did it a little bit their way, there is no obvious, clear, precise common denominator. Of course, we had, and I think it was in 2007, Michael Spence, and others, and at the time the Gross Commission report where they talked about what it takes to get to 7% per year, this kind of 30 years, 7% per year being a metric of success. When it comes down to it, you need to do something about the investment climate you need to do something about infrastructure even there, beyond some trivial things, you need to do something about your education and human capital, you need to do something about all these different things. The macroeconomic stability matters, and you can’t just be too crazy about markets and opportunities. But that’s still a very broad set of things and we have this tendency to try to be very precise and maybe as an economist, this best type of idea of this is the thing exactly. That leads me to that second part because you know the first part is really empirical countries did actually quite a diverse set of things but the other part of it is a bit like calling normatively, what advice do you give? Maybe there is a similarity with at least one aspect here of what Daron Acemoglu would say is that you know there is this narrow corridor, but it actually is very specific in your country and it is a lot to do with where you are then and if you then want to do it at a particular moment in time you better understand who are the different players in it, it’s not just history that will determine whether you succeed or not, but actually that moment as well. Then just being very clever, there’s certain blocking interest groups, certain blocking people maybe that lead certain risks that elite groups will mobilise popular dissent and being very populist around them. So, you need to balance this and then you actually find the way the thing that works at that moment in time to progress. In that sense, the economic policy that Korea did in its early stages or the economic policy of China, it’s not so helpful to say let’s all do a Korea or China because Bangladesh has little to learn from these two countries, let alone Malawi has very little to learn from these places. You need to find that and at the same time what I like about this rather than making this really difficult task ahead, unless you do a big push, nothing will happen or unless you get institutions perfect, nothing will happen. Actually, I’m trying to say something can happen, you may not turn into Singapore, but you can definitely do better than today, and you need to get some of these things aligned. So, it’s much more about being willing to be aligned amongst key players in your society and trying out what that path can be for you than anything like a blueprint that you should just adopt and then do as if that will give you success in your own setting.
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Banik              I completely sympathise with that because the more you think about it, there really isn’t a magic bullet. We are all sort of searching for it and so the one question of course, is why do we keep searching for this imaginary magic bullet? Is it that pressure that practitioners have to justify their interventions, it could be academia and policymaking, reinforcing this pressure, right? There’s pressure to generalise that you want to learn from experience. One of the things I really enjoyed in the book is that the problem isn’t really about the recipe or the blueprint, it is about the instruction manual, that there isn’t that detailed instruction as to who’s going to do it and what’s the first step? And at what level? Then there’s another set of issues as we discuss whether one recipe that worked for China. I read in the book that your trip to China at one point really changed how you saw things, that that one recipe that worked for China may not work for other parts of the world. So how did that journey through China actually change your thinking on development?
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Dercon           As a DFID Chief Economist, I have moved my office for many weeks to do my job from Beijing, it’s almost 10 years ago now and I was lucky to interact with a lot of senior officials. The story that I had is that I’m interested in Africa, I want to learn about what you’re doing in Africa, and China and understand it better, what are the lessons from what you do? So, they took some time to show me all the things they were doing, and we talked about the experience and the history. What is it that changed me is that the more I heard from them, the more I saw how they had done it, the more I realised that how they had done it no one else could ever do it. You do it in China, in a very particular moment in time, if we date it in 1979, institutions were very weak then because that was actually a country in chaos after cultural revolution and death of Mao and the Gang of Four. They looked for some path that is still consistent with the politics that they were pursuing and at the same time trying to find this path forward. What changed it is that there was almost nothing in the steps that they had set, nor the way they had gone about it in their internal politics that you could ever do beyond, that’s where it really changed my mind to say, OK, what’s the lessons that the world can learn from this? It’s that they really wanted to succeed and that from 79 they basically said look we need to regain legitimacy in the Chinese state, then Xiaoping and the reformers had to have legitimacy, at least in the party that this was the right route to go, and it was a search for legitimacy and progress, and so that’s what actually changed me. There’s nothing about, I think what I call in the book, is the flat pack version of China, China’s development, special industrial zones, lots of infrastructure in the central state that leads it, that’s not what we learn. It’s if you want to do it, you better try to see through, you do it in a way you can within your own setup but totally committed to it, and you’re willing to learn while you do it, and you hold yourself to account within it. I think that’s what I say when it came to dawn upon me, that’s much more relevant for the rest of the world, and probably much more in common with other success story than anything specific about what China did exactly and even how they actually did it.
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Banik              This brings me to what a lot of people term the Chinese model of development. It’s very difficult to trace it to one model and to even talk about that, I would question whether there is one Chinese model of development. But what you do mention, and you do a very good job of in the book, is to say that China, like many other countries, and we’ll get to this idea of the development bargain slightly later in the conversation, in 1978-79 something happened, there was this agreement, there was a political and economic set of deals that were done. But also, more importantly that a lot of people don’t emphasise enough, was a robust bureaucratic setup that enabled that kind of mobilisation of state capabilities from below. There’s one fascinating story in connection to China I read where you mentioned Justin Lin, who I’ve also had on my show by the way. He was asked by someone, what did China not get right? Because there’s always these questions about all the good things and he apparently said nothing, we got everything right. So, I wondered whether you could reflect Stefan on what is it that you think China did not do? Because Shenzhen was a success, but there were three other zones that were not a success. What were those problems? What could they have done even better?
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Dercon                     When Justin was asked this it was actually by the Finance Minister of Ethiopia at the time, did you succeed in everything you tried? Then it becomes really very obvious that the essence of the model of China was that they were willing to experiment, and some of the things were not terribly successful, you refer to it on the industrial zones, and that’s actually very important. In fact, at some point in Beijing at one of these meetings in subsequent years I kept on going back meeting the same people and reflecting on their experiences and what they did right and wrong. There was an older advisor who had actually been with Deng Xiaoping and berated the young scholars there by actually saying, you’ve forgotten that even three of the four had failed. That never really gets reported and it’s more important that they didn’t continue with the three, and then we thought it and we keep on only hearing the story about a successful one. So, that is part of the of the of the Chinese experience, what did they do right or wrong? Well, I think another moment of insight happens and it’s not recounted in the book, and I thought it was always very amusing that we had one of these meetings where we want to renew our model of experimentation, that is where government officials in the Development Research Centre, the kind of a think tank within the State Council or reporting to the State Council, and they said, look, we hear that you do all these RCTs, can you tell us a bit about these things? It was such a wonderful lead into them telling, we did something similar, but we asked, could you then act on it and how do you do it? In fact, the problem with experimentation was that politics hadn’t gone away, and the problem with experimentation was that you needed to take your time to learn. You would experiment and they would say, well, if a politician failed with something you could not immediately punish this person because they may still be politically connected, so you had to wait until this politician was moved to an ex-post and by that time you were allowed to declare it a failure you couldn’t do it while they were there. So, politics for them was all the time there, this is not a pure technocratic experimentation. Now you ask me, could you have done that better, what’s for me to judge and Yuen Yuen Ang could judge this much better, but clearly politics was still a constraint ideology. With hindsight you would say obviously they could have been thinking a bit earlier about green things and I think citizens in Beijing would love them to have thought a bit more about the location of some of their industries and the wind direction and so on. You have these things that clearly, even in their own politics couldn’t quite correct in time and do the right things, I think that’s actually quite good; the imperfection of China is in some sense more helpful for the rest of the world to learn from than the sense of the of the perfection. Maybe a small point finally, here is that I also agree with you, this idea that there is the Chinese model because the one that is exported now, they never did it, they didn’t start with massive infrastructure. That’s much more in recent decades that the growth kept going through lots of public infrastructure investment. Now that seems to be the one that’s exported, and we need to make sure that the right lessons are learned on these things and getting the information better.
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Banik              I repeat this argument that Amartya Sen and Jean Dreze made many years ago, what really helped China is not that fast economic growth, of course, that is important, but it was the investments in human development that was made a long time before in the decades preceding. You may or may not agree it’s the doctors and nurses and education, etc that in some way made China ready for that take off. Do you agree with that? That initial investments in human development were key?Â
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Deron             I would slightly turn it around the scale of the poverty reduction that we saw from growth that was very much helped by this. Its maybe a more general point that you could argue that China for 2000 years was preparing and doing quite a few, right things to at some points do better than they did. So, for 2000 years they centralised bureaucracy, centralised taxation, meritocratic bureaucracy, and of course under the communist doctrine, when they came to power under Mao they did some of these things as well. What’s very interesting is that what was really lacking was any model, any way within that centralised state that they actually could still do economic take off, and I actually think what they did, that was maybe the final ingredient to mobilise all these things that you described, is that actually by doing a further governance reform where at least for economic matters you go lower down you could unleash this whole thing. But it is important that one of these fascinating conversations happening in Beijing and also pointed to something I was surprised by, because we were complimenting them in the spirit of what you just did, in the talk you have and say, look, you were the country with the fastest poverty reduction in history over 1980 to 2000 and this is an amazing achievement. They actually felt it important to reply a little bit tongue in cheek, and say, we never planned for this poverty reduction exactly because they planned for growth, but because they had a healthy workforce and then and a basic educated work force they could actually get a model whereby they use the only natural source they have, which is people and kept on absorbing that for such a long time and in the process pushing up wages slowly and getting better wages for people and so on. So, you’ve got something there and it’s very amusing that they had to say, we didn’t plan for the poverty reduction.
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Banik              Which really brings me to the meat of your book, the key argument, because what is really nice about some of the cases, and you discuss several countries, is that you’re really trying to understand why some countries implement certain policies that are relatively successful and there are some that fail. It’s this combination of success and failures in relation to economic growth and development and what you do is sort of highlight the presence, what is key is the presence of a development bargain, which you define as some sort of an underlying commitment by a country’s elite, these elites are economic, political, social elites that are committed, they want to shape politics, they want to shape the economy and the society with the overall goal of economic growth and development. So, in this respect, the three key features that you highlight, let me just repeat them and if you could expand on these, one is credible politics that you identify politics that is durable, political, and economic deals that last for a while and are perceived to be legitimate. Then there is the second set of issues that is state capability, the state does not take on too much and doesn’t get too overwhelmed I suppose, and a final category is the ability and willingness to learn from mistakes. Now for the benefit of our listeners, Stefan, can you expand on each of these very briefly.Â
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Dercon           Where there is every society, you have somewhere another implicit or explicit elite bargain, some can be more fragmented, some can be more stable. For development as a way of reflecting that shared commitment to growth and development, politics needs to be credible enough that you actually keep peace and stability. It’s one of the things that I always found amusing but truthfully whenever I would hear a vice minister from China give a speech on development, they would always say the first and most important thing for development is peace. They’re not wrong, it is this basic principle and it shaped a lot of the thinking of China and it has all kinds of other meanings here politically, but it’s that minimal thing, peace and stability, these are minimal requirements to actually do development. When the elites are so fragmented and there’s always forces to destabilise, there is no long-term policy making possible, there’s nothing possible in the long term, it’s all basic. So, that’s the minimal amount and that’s what I mean by credible politics and uncredible politics. It’s not just leaders saying the right thing because as you already said, it is basically the right political and economic deals because interest groups need to be brought in and that is sometimes a bit of deal making brought into it and some have access to resources to do it. The second one is the idea of the self-aware states that I really like to push, is that states, historically, and here and now they’re not the same, and it’s not just about technical capabilities, some states are, as we referred to earlier to China, built up over centuries as a centralised instrument with a quite meritocratic bureaucracy and so on. If you have that, I think you don’t make a bad choice to try to have the state lead quite a lot in development. But with states that are just emerging over a couple of decades, and I think of Bangladesh now and states that emerged after independence in the early 1970s, full of crisis, politics and famine in the early 1970s, chaos in the way the state can operate, your state capability is minimal. So, Bangladesh, which I will call a development bargain definitely in that period and still works all the time to renew it but definitely something there, it probably was more one in terms of giving space to other actors, whether it’s private sector or NGO’s. In the Bangladesh case to do an awful lot of things in ways that probably no other countries, not least in the region, would have been allowed to do. But it’s self-awareness, you need somehow not to think as you sometimes hear in African countries, from now on the state will do all the development, everyone that works in the state in certain countries is appointed there because someone had to give a favour to someone else and not because of capability and maybe there’s very few people that are there on merit, but most of them are there for any kind of clientelist deal, don’t start thinking that these are the people that are going to lead your economy and lead your development, so that’s what I mean by the self-awareness. The third thing is this kind of idea of learning, and in fact, since writing the book and it’s actually almost expressing a slight little bit of regret, I’ve actually realised how close learning and accountability come together that actually accountability is in some sense another one of the possible mechanisms that actually helps you to get learning to take place because failure can happen, but the most important thing is whether you learn from it. There is a form of accountability in the sense that it matters that failure is recognised, whether it’s punished or not, that is not what I mean, but there’s a recognition that this part of a government or this part of an economic policy is not happening, so we need to be held to account and work hard at improving it. Now, accountability can be external maybe like in Ghana, through political transitions regularly, it can be more internal, like in functioning bureaucracies, or indeed like in China where you could say there is actually quite a lot of accountability within the Communist Party in terms of the performance but you need something, learning and accountability it has to be there. So, it also means, and I’ve been asked that question, is this just simply about having a national narrative, no, it has to be more than a narrative. Narratives matter, and everybody talks about them these days, but it can’t just be a story, it needs to be backed up there needs to be something that makes you correct the narrative and the stories if you need to learn.
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Banik              So here’s my take on this Stefan, let’s begin with the last one and I’m glad you mentioned that because that’s something I’ve been also thinking about, correcting course and admitting to mistakes because this is really difficult for politicians to admit that they were wrong. I mean, for me, a credible politician is one who says he or she was wrong, at that time I thought this was correct, now I’ve changed my mind, here are the reasons why and I think that would get in any society a lot of sympathy, but it takes a lot for a politician to come clean. Having come clean, you can also then strengthen your legitimacy and thereby say, you can hold me to account by voting me out of office. I’m just thinking about these deals that elites make, and I’ve discussed this with Kunal Sen and others who’ve written books on deals, etc. It turns out that there’s certain deals or certain political settlements that are beneficial and that some aren’t. In some cases, of course, you can make a political deal and arrive at a settlement that facilitates rapid economic growth, but the benefits of the group don’t get translated. You could have inequality, as has been the case in China, uneven growth or in Ethiopia fast economic growth but not spread. So that’s one set of perspectives or reflections on these. The second has to do with state capacity which you also have interested in, and we discussed the role of a public administration, the bureaucracy but the key thing for me has been motivated bureaucrats, are there actually incentives for bureaucrats to do something? I did a study of Indian civil servants, the Indian Administrative Service many years ago and the title was The Transfer Raj because they were transferred every two years or six months and transferred to an unattractive position and that lead to demotivation, and they were transferred because they were either honest or not willing to do what the Minister wanted. So that led to demotivation, and you didn’t really want to touch anything, even though you thought you had some good ideas, you wouldn’t pursue it. Overall, I think my major reflection on your three key features is that it turns out it’s really difficult to coordinate elite action and I’d like to hear your thoughts on that. How is it that that kind of deal making bargaining is coordinated? Because the deals that elites reach can be of different kinds, there could be a democracy bargain, not necessarily a development bargain, why would they be interested in a development bargain and not something else? That is really what I’m wondering about.Â
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Dercon           All the things that you describe and the difficulties that clearly exist with all these three things, it makes it actually quite remarkable that countries are growing. The thing that gives me hope, you know my very first essay in development economics in the early 1980s, I had to write in Belgium in university, the title is Bangladeshi Basket Case
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Banik              Well, that’s the Kissinger statement.
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Dercon           Exactly and I did answer, of course, yes, it’s a total basket case, nothing will ever come from Bangladesh. Now I’m praising Bangladesh saying wow, it found a way of getting its act together and it found a way of beginning to progress so that is maybe a first observation. It does suggest that these elite bargains, these kinds of implicit deals within their imperfections seem to be emerging at times. It’s hard to not think of Bangladesh finding some element of elite cohesion in the in the late 1970s, early 80s, not getting the kind of reaction of let’s kill all the big NGOs, that came in maybe a bit later, but, let’s push against the private sector at entrepreneurs in the government who initially weren’t that politically connected, there were some that were supported, but we’re not really politically connected players. So that’s the thing it links to, that by calling out Bangladesh as a success case and saying look, I’m quite happy that that’s a success, this is quite imperfect institutions there’s definitely a lot of things imperfect there. So, there is something there that you need to be willing to say, look, success is also defined relative to your potential and Malawi being a success is probably just growing a little bit faster, but you’ll never be Singapore. Your willingness to actually say something there that gets tracked together and is not seeking perfection here. So, you don’t want to have this perfect thing, but then finally, maybe they choose one for democracy and it’s harder for development, and I think that’s a really interesting thing and I’m glad that you make them quite different. Because we know democracies we have Malawi, we have Nigeria, that is not saying they’re beautifully functioning democracies, but we know given what’s happening in the US, the US isn’t a good formal functioning democracy either in some senses, there is certain things that can happen, and so on. Political finance matters in all kinds of places to an extent that clearly can’t be healthy, and that’s not just in Africa. But you can basically get an elite bargain that yeah, we’re happy to find a way of transmitting power, a bit like as it was called in Kenya, it’s my time to eat now, Raila Odinga at the time people identified it almost as if that was his slogan and that’s a bit of Kenyan politics there as well, so you can have that. You could have a democracy bargain, that’s one way of legitimising your hold on power, what I really like about the idea of development bargains is that it’s about regimes seeking legitimacy, maybe, or maybe other reasons as well, but one reason sometimes is also seeking legitimacy while delivering something for people in real terms. Of course, I would love it to be democracies that are doing this and Ghana to some extent begins to do this, but in the book also, I want to argue you could have development bargains, countries that are clearly with leaderships delivering for legitimacy seeking behaviour, and you know I can’t help it, but have at least some admirations for these places as well.
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Banik              Staying on Bangladesh, I’m thinking about how purposively targeted are these elite actions because it seems to me, and Bangladesh is a great example, that things happened not because they were pre planned, but by chance, right? So, Daewoo starts the garment industry, which has been extremely important for Bangladesh. It isn’t as if the elites said let’s focus on the garment industry because we have abundant labour, so it seems that the stars were aligned sometimes. So, I’m just trying to get you to reflect on whether you think this is a very well-coordinated strategy, or do you think elites have a general idea and then just play along as things evolve.
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Dercon           Exactly what you just said, so it is definitely an informal, implicit thing that is happening, you could say in China the shift in 78-79 was somehow deliberate, but it was not just the whole party wanting to do it. In fact, they had so many opponents within it as well, so people pushed their luck and somehow, they could push this through. In Bangladesh definitely, it was more a matter of different individual understanding that we can’t make a bigger mess of it and then the things we were doing and stepping back and giving space and doing it, so it’s about stars being aligned, there’s a little bit of luck in it as well. It also means it's not easy to observe it in the moment that’s happening, you see it emerging, but the moment itself is a bit hard to judge whether this is empty words, whether this is actions. But you could see macroeconomic policy started improving in Bangladesh, they were being more sensible there on it, the kind of centralised planning was less and less attention being played, so you start seeing signs that actually people who are doing it get a little bit of an issue.
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Banik              There are certain drivers of this development bargain that you write about. One is, of course, leadership we’ve talked about the quest to seek legitimacy, and then there’s this emerging or emergence from conflict. But one aspect that you tend to disagree with, say, the Acemoglu Robinson hypothesis is this prior endowments and history in the overarching scheme of things, why is that so?
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Dercon           There’s two things to be set on this kind of issue, of course, history matters, intuitions matter what institutional approaches can’t quite explain is then why does it start happening at some point in time, and why does it happen even in the presence of quite a lot of imperfection. That’s more the thing that I’m alluding to, that there is agency here, there is at some point in time decisions that individuals take, people stepping back, not doing certain things, maybe doing certain things as well, getting coalitions of power of the right thing with insights together. That’s actually what matters, this is not like being opposed to it as saying that it doesn’t matter, but we can’t just wait until perfect institutions emerge, no country ever developed with its perfection in place, and that’s probably what I’m more alluding to, and that’s where it is a bit more different. It doesn’t mean that some of the actions that you may want to do, but the policy advice that you also get from this kind of view is a little bit annoying because it basically tells you, well, you had a bad history therefore you can’t do anything, get yourself a better history and that’s a little bit unsatisfactory, because that’s not helpful to anyone.Â
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Banik              For a long time, for years we’ve known as academics, as practitioners that local knowledge is important, doing the homework is important, understanding local politics is important for all aid agencies working there, you can’t just have a helicopter approach. So, how does aid fit into your analysis? I’m thinking about countries like Malawi that I’ve been studying for many years and are increasingly aid reliant, can aid be a catalyst? A facilitator to promote a development bargain, is it at all possible for aid to have this goal? I’m thinking about how local elites need to be provided with some incentives for this political settlement for this development bargain, at the same time, you don’t want to impose certain conditionalities. So, what are your thoughts there?
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Dercon           So I think humility is a good starting point here. We are outsiders, we may have the best intentions and I hope we do, also, whether we work as international agencies, bilateral agencies and so on. But somehow there has to be something locally that you can work with. So, I like to think of it a bit like dancing the tango, if you want to dance the tango you better be both totally committed to wanting to dance the tango.
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Banik              That’s what they’ve been saying about ownership all these years.Â
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Dercon           Yes, exactly, but the question you have to ask with ownership is who owns the country? And who are the ones that you’re dealing with? Because if they want to dance the polka and development involves the tango, it’s going to be a mess, we can’t dance the tango and they do the polka and then think something good will come out of it. So, it’s a bit like that, the organisations, the part of government, it could be local government, whatever level it is, if there is a serious commitment to make things work then I think we can do something. But this idea of well, they vaguely say they want to do something, but fundamentally the game in town is something very different, the commitment of the elite is about something very different, distributive politics just keeping in power, clientelism, whatever it is, to just start with you should have humility in terms of how much you can do. Now, do I want to give up on Malawi? I’ve been getting a bit in trouble on Twitter because I seem to be giving up on Malawi and there are moments that I do because we’ve been doing development work and they’ve been very welcoming for development agencies for 60 years and we’ve done an awful lot, but actually, fundamentally, I don’t think the elite, and that’s not about one politician, there’s sometimes very well-meaning politicians there, but across the board the way the incentives are set, not much is happening. Then you can say, look, what are we doing? Then it becomes this whole tricky thing, how do you shift the incentives? Can you as outsider do this? You can try a little bit, but you want to be very careful. But I’ll give you an example, what you can do properly, in these countries people that genuinely want to do reforms, say they are put in charge, they have some mandate on some particular agency within it just be willing to do a little better on them, give them the support, try to actually see where they can do it. If I go back in time in across Africa where I would say in the 1980s-90s very difficult times but elite commitment was very hard to find in a lot of places actually quite a lot of places, for example, central banks got strengthened in a way that they became more sensible and reasonable, and there’s a lot of countries where you now have quite able central bankers with decent people that actually try to keep the economy stable as much as they can do. As you have it, in some countries like it used to be, the Governor in Uganda at times telling Museveni that he can’t just get access to all the money and let inflation run and make people suffer after an election campaign and so on. So, there’s bits and pieces you can do, but have some humility that we are outsiders.
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Banik              On that note, you discuss in the book your interactions with Ethiopian officials over the years who may not have had a very sophisticated World Bank kind of language when talking with you and others and yet seemed to have had political backing and commitment in order to implement this. I’m talking about the time Meles was the supreme leader, unlike your experiences in the DRC where you have a fancy group of economists telling you all the right stuff, but you go away feeling that they may not be able to implement it. So, I think in many ways Stefan aid agencies are stuck in that, I suppose I wouldn’t say stuck, but they face that challenge, right? That you have people on the other side of the table telling you, we are committed but you are not really sure whether they will follow up. Coming back to Malawi you recount your interactions with the then Minister of Agriculture, who told you all the right things, he agreed with all your proposals and then a few months later, he’s been indicted for corruption, and he’s out of office. So, how do aid agencies actually grapple with that? You can’t say, oh, I doubt what you’re saying, you’re not really committed, so, the tango is there, but you don't know how well that dance would be performed later on, so that’s also a gamble, that’s also a risk, as I see it.
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Dercon           Exactly and I wouldn’t want us to shy away from development partners, not to take that risk, this is not an appeal to be totally risk averse. Probably to the contrary is to see whether, first of all, where do you have signs that something is really trying to happen and be willing to support it. Meles, you mentioned him, Meles Zenawi, it was complicated, politically it was complicated, it was quite repressive against certain groups and so on, it was definitely not a democracy. But something was going on that for the first time in almost ever, leadership wanted to develop and wanted to actually do something. Now we have so much baggage with us in terms of can we support, can we not support? I remember the data, this was actually after Meles’ death, but I would actually say this continued definitely also between 2010 and all the way up to almost the beginning of the conflict, where there was that underlying commitment to try to make it work. But then while there is of course concessional finance in the world, the top three countries in that period ends up being Nigeria, DRC and Pakistan were countries that actually were trying to do something, not perfectly, but I’m thinking here say of Côte d’Ivoirewas beginning to do things, Senegal, and of course, Ethiopia and Rwanda and Ghana were there as well. I think all of them ended up going to the bond market to raise capital to pay for their development, and there’s all kinds of issues with what Ghana did and so on, but they’re now stuck with kind of a much more difficult financial situation and now you say, well, are we betting on the right horse? There is a lot of talk, we do this in practise, in fact, some of the criticism I’ve been getting on some of my writings is saying oh, but that’s all standard 101 of how you do development support. But actually, in practise we don’t because we are in the same way approaching Malawi as we are Ghana, or as we approach Ethiopia in that period. So that’s a bit also what I want to bring out, don’t behave as if, and this is a bit of humility, if things are totally stuck in Sierra Leone or in Malawi, as I write about in my book, they say well, don’t think that keeping on bringing in finance and all kinds of big projects will change that much. Then maybe you actually step back for a bit and say look, we do small things, we do it very selectively and then you start being a much more selective model in how you deal with it and you’re willing to be again a bit more humble and say look I can’t see very well how I can do much in Malawi at the moment rather than, you know Malawi is a country I think every NGO in the world is present there, every bilateral agency is present, they welcome you well because to be honest, too many people in power don’t care, so they’re all welcome here.
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Banik              So my take on this is Malawi is such a great place to experiment, it’s a donor darling. One reason is because Malawian politicians never say no, I’ve been telling them to say no more often like Paul Kagame does. But I actually was recently there, and they said the reason why we don’t say no is because there’s so many challenges anything that anybody can do, even if it’s a little bit is good, so we welcome it. But certain other things that I just want to raise here Stefan, one is of course that from the agency perspective I agree with you about the humility aspect, but you want to convince your people, the taxpayers back home that everything is fine, money well spent, you’ve invested all of these hundreds of millions, you don’t want to pull out and then there’s this other aspect saying if we pull out, if we are very strict and we extract too much accountability what about people living in poverty? They will suffer why should we punish them when we’re trying to punish the elites. So, you have that complex system that makes it very difficult to ask or to be even comfortable talking about the uncomfortable questions.Â
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Dercon           But you touched on something really important, and I think this is something I felt uncomfortable with in my period working inside government. There we are probably, I would say like as DFID, we were on the moral high ground, so it’s a really safe place to be it’s really great. We were trying to do our best in places but then somehow because we wanted this whole thing to keep on continuing, we are to some extent amongst almost the most dishonest people in terms of telling it to our own audiences. Because, yes, we know, it is only a small fraction of the people who either want to understand it or do understand it and there’s a slightly larger group that cares but you know they want what you describe well, at least make sure you do it all perfectly and we’ve started telling stories, whether we are NGOs or whether you’re an aid agency we know how to get these people out of poverty to the other big level of the whole world is now united and suddenly by 2030 everything will be sorted. It’s that kind of dialogue I just find it so troubling and I’m just looking for a way to be slightly more honest about it and I’m not saying that my language will do it because I already experienced that it will give some ammunition to people who are really against any of us trying to actually make a difference in these places, but at the same time we need to find a slightly more honest conversation even with our parliaments with our politicians, and indeed with our public in the donor countries because it’s not right either.
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Banik              You are sceptical, you have been about these major global goal projects and the fact that they are nonbinding etc and I share some of your concerns. Some of us are thinking about the post 2030 agenda now, because we’re not going to make 2030 at all, it looks pretty bleak. What is your advice to anybody working on global development? How should we view the SDGs for the next seven years going forward?
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Dercon           My scepticism is a lot to do with creating the impression that the commitment is actually credible and serious. Countries that really want to develop and do the right thing don’t need to go to New York to be on a photograph on the Millennium Declaration or sign a document of the SDGs and countries that don’t care we actually give them an excuse because they are on that same picture, they are in the same places and so on. So, this kind of idea of the global coalition, where everybody in it doesn’t feel to me like the way we make best progress. Sometimes we could say well, yes, increasing the progress, well maybe it’s a coalition of the willing, so maybe you go to a framework where you actually try to really get people on board that really want to do it in places and so on. But again, I’m not quite sure what it actually will do beyond the idea of a peer group, a group that actually holds itself to account and encourages each other. I can see in practise that’s probably where it works, it’s a bit like if you get a couple of countries in Africa, like five or six or seven, but actually in the next couple of years people making progress and doing really their best you could see them as well. Someone yesterday was talking to me in a very different context of coalitions of the unlikely and I think that’s maybe where we need to go to actually find countries that actually are similar to the Henry Kissinger kind of basket cases as Bangladesh is of the 1980s and actually saying that we’re actually going to really do anything we can with all the humility but really encourage you to within your own country to get somehow an elite bargain that’s stronger and we’ll commit to it and support it if we can forge it and so on. Maybe these are the kind of agendas, with a fragmented geopolitics, maybe it’s actually the realistic way of going about it and you mention things like human rights and democracy and so on, if we want to portray Western values as being something that are also worth being part of this whole thing then work with that, work with countries that want to do it. I would say, make a central part, the developmental and the growth part of it, and maybe we can do it. But I’m just sceptical of the illusory sense of a global coalition, where actually the world is so deeply fragmented. Things need to come from below, from these countries there needs to be serious elite commitment. I think our role as outsiders is to support whenever there’s emerging, strong elite commitment and then really, we should go full out on supporting them.Â
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Banik              Thank you so much for this fantastic enjoyable conversation over two days by the way.
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Dercon                       Thank you very much, Dan.
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