Gambling on Development

1. Development bargains drive progress, not just aid or policies

A development bargain is just one of many possible deals among the elite.

Elite agreements shape development. Development bargains are specific forms of elite bargains where those with power commit to pursuing growth and development. These bargains determine how political and economic resources are allocated and used. They are not formal contracts, but shared understandings among influential groups.

Three key features of development bargains:

• Credible politics favoring development
• State capabilities used appropriately for development goals
• Ability to learn from mistakes and correct course

Successful countries like China, Indonesia, and Vietnam demonstrate how development bargains, rather than specific policies or aid alone, drive progress. These bargains provide the foundation for effective economic policies and state actions.

2. Successful countries gamble on growth and development

Those in the political and economic elite move towards longer-term growth and development, they are making a bet that may not pay off.

Taking risks for long-term gains. Countries that achieve substantial progress in growth and poverty reduction often do so because their elites are willing to take calculated risks. This involves foregoing short-term gains from rent-seeking or patronage in favor of policies that promote longer-term economic growth and development.

Examples of development gambles:

• China's shift to market-oriented reforms under Deng Xiaoping
• Vietnam's Doi Moi economic reforms
• Ethiopia's focus on agricultural productivity and industrialization

These gambles are not guaranteed to succeed, but they create the potential for transformative change. The willingness of elites to take these risks often stems from crises, legitimacy-seeking behavior, or recognition of potential long-term benefits.

3. Elite commitment is crucial for sustained economic progress

What makes Bangladesh unique is that this expansion was driven not by government, but largely by local NGOs—thousands of them, some globally known.

Beyond policies and resources. While good economic policies and adequate resources are important, the fundamental driver of development is the commitment of a country's elite to growth and development. This commitment shapes how policies are implemented and resources are used.

Manifestations of elite commitment:

• Prioritizing long-term investments over short-term patronage
• Allowing space for productive private sector growth
• Supporting effective institutions and technocratic management

Bangladesh's success, despite a weak state, demonstrates how elite commitment can manifest in unconventional ways. The government's willingness to allow NGOs and the private sector to drive development shows a pragmatic commitment to progress, even if not through direct state action.

4. State capabilities must match development ambitions

Finding a balance between what the state should do and what it can do—and local circumstances will dictate what this is.

Avoiding overreach. Successful development requires a state that acts within its capabilities. Attempting to do too much can lead to inefficiency and failure, while doing too little can hinder progress. The key is to find the right balance given a country's specific context and state capacity.

Tailoring state roles:

• China: Strong state leadership in many sectors
• Bangladesh: Limited state role, allowing NGOs and private sector to lead
• Rwanda: Focused state intervention in key priority areas

Countries must be realistic about their state capabilities and design development strategies accordingly. This may involve gradually building state capacity over time or finding creative ways to achieve development goals with limited state involvement.

5. Learning from mistakes and course correction are essential

Experimentation requires both administrative and political processes to respond to success or failure.

Adaptability drives success. Countries that achieve sustained development are those that can learn from their mistakes and adjust their strategies accordingly. This requires both the technical capacity to identify what's working and what isn't, and the political willingness to make changes.

Key elements of effective learning and adaptation:

• Robust monitoring and evaluation systems
• Technocratic expertise in key institutions
• Political flexibility to change course when needed
• Willingness to experiment with new approaches

China's approach of "crossing the river by feeling the stones" exemplifies this principle. The country's leaders were willing to experiment with market reforms, evaluate their results, and adjust policies based on what they learned. This iterative process was crucial to China's remarkable economic transformation.

6. China's development miracle: A unique model, not a universal blueprint

If China has anything to teach the rest of the developing world, it is not why it took the measures it did or used the strong central state as it did.

Context matters. While China's development success is remarkable, its specific model cannot be simply replicated in other countries. China's unique historical, cultural, and institutional context shaped its development path.

Key aspects of China's development approach:

• Gradual market reforms within a strong state structure
• Experimentation and learning at local levels
• Leveraging a large domestic market and export-oriented manufacturing
• Massive investments in infrastructure and human capital

The real lesson from China is not its specific policies, but its underlying commitment to development, willingness to experiment, and ability to adapt. Other countries can learn from these principles while tailoring their strategies to their own contexts.

7. Bangladesh's unexpected success through pragmatic development

Bangladesh found a way to exploit the only resource it had: labour.

Unconventional paths to progress. Bangladesh's development success defies conventional wisdom. Despite a weak state and persistent political instability, the country has achieved remarkable progress in economic growth and poverty reduction.

Key factors in Bangladesh's success:

• Export-oriented garment industry
• Large-scale remittances from overseas workers
• Extensive NGO involvement in service delivery
• Pragmatic government approach allowing space for private sector and NGO activity

Bangladesh's experience shows that development can occur through unconventional means when elites allow space for productive economic activity and effective service delivery, even if not directly led by the state.

8. Rwanda and Ethiopia: Controversial but effective development strategies

What made Sweden stand out is not simply what was pursued, but how.

Balancing growth and governance. Rwanda and Ethiopia have achieved impressive economic growth and poverty reduction under strong, centralized leadership. While their governance models have been criticized for limiting political freedoms, their commitment to development has produced tangible results.

Characteristics of Rwanda and Ethiopia's development approaches:

• Strong state-led development strategies
• Focus on agricultural productivity and industrialization
• Significant investments in infrastructure and human capital
• Limited political space but emphasis on technocratic governance

These countries demonstrate that development bargains can produce results even in imperfect political contexts. However, their long-term sustainability depends on evolving towards more inclusive political and economic models.

9. Aid effectiveness depends on alignment with local development bargains

Aid is like learning to dance the tango: if both partners are passionate and committed, they can learn to do it, and with practice they will improve.

Partnership, not imposition. For aid to be effective, it must align with and support local development bargains. When donors and recipients share a commitment to development and work together, aid can catalyze progress. However, aid cannot create development bargains where they don't exist.

Principles for effective aid:

• Support countries with emerging or established development bargains
• Focus on building state capabilities and institutions
• Encourage learning and adaptation
• Avoid undermining local accountability

Aid is most effective when it reinforces and strengthens existing commitments to development, rather than trying to impose external models or bypass local institutions.

10. International policy can support or hinder development bargains

Trade preferences are an example of how to boost growth and nudge elites towards embracing longer-term economic activity.

Global context matters. International policies on trade, finance, and global public goods can significantly impact the incentives for development in poor countries. Supportive policies can make development bargains more attractive and feasible, while restrictive policies can hinder progress.

Key areas of international policy impact:

• Trade preferences for developing countries
• Global financial transparency and anti-corruption efforts
• Climate change mitigation and adaptation support
• Research and knowledge sharing on development challenges

Developed countries and international institutions should consider how their policies affect the incentives for development in poor countries and work to create a more supportive global environment.

11. Humanitarian aid requires long-term perspective and local integration

Humanitarian crises typically last 9.3 years.

Beyond short-term relief. Effective humanitarian aid requires a long-term perspective and integration with local systems and development efforts. Most crises are protracted, necessitating approaches that go beyond immediate relief to build local resilience and capacity.

Principles for effective humanitarian aid:

• Plan for long-term engagement from the outset
• Work with and strengthen local and national systems
• Link humanitarian efforts with broader development strategies
• Focus on building resilience to future shocks

By adopting a more strategic, long-term approach to humanitarian aid, donors and agencies can help bridge the gap between relief and development, creating more sustainable solutions for affected populations.

Last updated: August 8, 2024