Stefan Dercon, Gambling on Development: Why Some Countries Win and Others Lose, Hurst & Company, 2022. Hbk £25.
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Stefan Dercon's early work for the World Bank (Dercon 2002) was slightly off the pace, as it suggested that safety nets for the poor, if not carefully structured, might have the negative result of allowing some households to opt out of existing informal risk-sharing schemes, thereby increasing the vulnerability of others. The Bank was just then coming round to a different view - that the primary purpose of safety nets should not be to provide protection against vulnerability but to make it possible for the poor to take risks that might propel them into more productive activity, and it would subsequently conclude that informal risk-sharing schemes were unhelpful as they held back individuals who might otherwise use savings for entrepreneurial ends (Cammack 2012). However, he was soon up to speed, as a contributor to the 2010 European Report on Development, Social Protection for Inclusive Development (Robert Schuman Centre for Advanced Studies 2010) and in a paper on social protection, efficiency and growth written for the ABCDE (Annual [World] Bank Conference on Development Economics) in May 2011. The European Report described social protection as 'more than mere "safety nets" that can cushion the impacts of serious crises: it is part of a comprehensive approach to getting people out of poverty, allowing them not only to benefit from growth, but also to productively take part in growth' (1), and elaborated as follows: 'Social protection ... can foster growth by protecting assets and encouraging households to invest in riskier but higher productivity and higher return activities, and can increase social spending returns by offering poor people the means to use available services. ... It can offer protection so that households can take the risks involved in new activities or migrate to take advantage of economic opportunities' (1-2, 5). Dercon's 2011 paper took the same line, identifying 'three areas where there could be potentially high growth impacts: social protection focusing on children, especially before the age of five; social protection measures to make migration smoother and cities more attractive places to live for low skilled workers, possibly via urban workfare schemes focusing on urban community asset building; and social protection targeted at adolescents and young adults, including transfers conditional on training focused on urban labour market transitions' (Dercon 2011: 1). On the first issue, Dercon noted the long-term consequences of childhood deprivation for human capital and lifetime earning potential; on the second, he noted that 'economic transformation requires a ready supply of workers, and despite perceptions to the contrary, migration in many developing countries is often too slow leading to inefficiencies, and the lack of the appropriate skill mix for local labour markets' (21); and on the third he was bang on trend, as the 2013 World Development Report, Jobs, and subsequent policy would shortly confirm:
'As economic transformation, and the inclusiveness of growth depends (sic) on the extent to which labour markets can absorb these relatively low-skilled workers, they would deserve specific attention on efficiency grounds from social protection systems. Designing conditional cash transfers conditional on additional training and labour market preparation, or apprenticeships, may well have high long-term returns, and helping (sic) to bridge the absorption of this group in the labour market. It would in any case be preferable to using social protection funds for large scale self-employment oriented micro-business training with credit, a favourite intervention: as the evidence above has suggested this is likely to be beneficial to only a limited and well-targeted group of potential entrepreneurs. Preparing an army of workers for the informal sector would in the long-run not be the appropriate recipe. As the history of the economic transformation in rich economies has shown, relatively few are called to be successful in self-employment, and most will end up wage workers – and together this forms a successful formula for poverty reduction' (22).
These were Dercon's views at the time of his appointment as Chief Economist at the UK Department for International Development (DfID) in 2011, a post he would hold for six years. He was already a long-time contributor to World Bank thinking, and fully in line with its commitment to promoting global capitalism by drawing more of the world's poor into labour markets and productive work (proletarianization). This makes it important to address his attempt, in the preface to the book, to suggest some distance between himself and the Bank:
'A lot has been written about what happened in China and how it came about. Some experts argue that China and other East Asian states serve as an example - a recipe even - of how to promote development. Fundamentally, say the experts, the steps that these countries followed are exactly what needs to be done: invest in growth as a state, preferably export-led growth, and encourage the emergence of a dynamic private sector to drive not only growth but also job creation. Meanwhile, also invest in health, education, and basic social protection. Policies that promote economic growth and development are key. Most important, these good policies could be introduced into other countries. I admit that I quite happily bought into this perspective for a long time - that there is a clearly defined recipe for success, and refining and applying it to other countries are all that is required. The task of the academic is to improve this recipe using ever better evidence. When travelling in China, I realised that, no matter how successful it and other countries had been, no single policy recipe can be refined and spread around the world. And when China's progress took flight, China did not have a clear recipe either. Those in power took a gamble, committed to it, but did not know where it would end' (x).
This is misleading. Dercon agrees with the World Bank programme of private sector-led growth supported by state investment in health, education and basic social protection, and the World Bank has been saying for decades that there is no single policy recipe that can be taken from one country and applied to another. Gambling on Development shifts the focus of risk-taking from the individual to the state, but it does so in terms that have long been central to World Bank and related thinking, contrasting liberal governments that promote competition and capitalism with 'populists' who favour rent-seeking and reward their friends. So when Dercon introduces his own broad recipe for development and growth it mirrors every item of the 'recipe' condemned earlier:
'Countries that have achieved their development goals have achieved broadly reasonable macroeconomic stability, invested in infrastructure and in health and education, managed their natural resources prudently, provided a reasonable investment environment for private sector growth, allowed the market to play a central role but with a broadly supportive state, focused on international trade, and avoided specific firms or families cashing in to an extreme extent on connections to the state. Moreover, specific programmes have helped to further reduce poverty' (3).
This posturing is mildly irritating, and there are other irritations too, the most prominent being the adoption of a zoological classification of types of developing states, discussed below. But although Rory Stewart may be overstepping the mark when he describes Dercon on the back cover as 'one of the greatest living development economists', he is a seasoned practitioner, with extensive knowledge of development initiatives on the ground across a fair number of African countries. Forget his presentation of himself as breaking with orthodoxy: he actually offers a good guide to the way of thinking typical of the global development establishment, and presents his own perspective clearly and without undue theoretical elaboration. However, there is much less to his big idea (the 'development bargain') than at first appears, and, like all his kind, he skirts around the class logic of what I call the politics of proletarianization and global competitiveness. So in what follows I set out the principal features of his approach, discuss briefly the manner in which he applies it in country case studies of varied substance, and finally address its limitations.
First, Dercon argues, within the broad policy framework set out above successful countries 'have at times pursued a rather diverse set of policies and priorities. There is no one, cost-free path to development' (3-4). Second, and requiring quotation at length,
'a better understanding is needed of why some countries implemented sensible economic and other policies, while others never did, despite often claiming they would as part of arrangements with international funders. Even though both sets of countries adopted the same rhetoric, those that were far less successful did not appear to take actions consistent with growth and development. It would be naive to suggest that these nations and their leaders simply did not know what to do - it was not just a question of ignorance or lack of good advice. Understanding why the rhetoric was followed by action in some places and not in others is at the centre of understanding how development works' (4).
And third (the 'big idea', discussed further below), successful growth and development requires the presence of a 'development bargain', a long-term commitment on the part of the country's elites, or 'an implicit contract among those who can make development happen' (6).
Significantly, Dercon simply assumes without question not only that the broad policy approach favoured by people like himself and the institutions that employ them is self-evidently right, but also that the leaders of developing countries know this, and understand what needs to be done to achieve 'growth and development'. This reflects the hegemony of the politics of global competitiveness, and it leads him, like the official development institutions that take this for granted, to the narrower question of how developing countries can be 'helped' to adopt the right course and stick to it. In this line of quintessentially World Bank thinking, challenges arise from the necessarily long-term nature of the process, and the inevitable fact that in conditions of multifaceted uncertainty mistakes will be made, and corrections of course will be needed.
After his introduction, the first substantive chapter offers a literature review with a twist, setting out some competing diagnoses in the form of four propositions, then examining development thinking through highlighting key points from the texts recommended to Justine Greening in 2010 when she became UK Secretary of State for International Development. The 'competing diagnoses' are (1) 'Countries and people are poor because they are poorly endowed', (2) 'Market failures are costly for poor people and may trap them in poverty', (3) 'Growth traps stem from market failures that are costly for poor countries', and (4) 'Growth traps stem from failures in states and their governance' (15-20). The last two here can be seen as competing, to an extent, but overall these propositions are actually more complementary than competing, and Dercon recognises as much. He also notes that the views of the chosen authors 'are generally quite nuanced' (20), but still offers ruthlessly simplified summaries of their key messages: Jeffrey Sachs (The End of Poverty, 2005): give lots of aid; Abhijit Banerjee and Esther Duflo (Poor Economics, 2011): make small, specific interventions in accordance with evidence-based research; William Easterly (The White Man's Burden, 2006), and Angus Deaton (The Great Escape: Health, Wealth, and the Origins of Inequality, 2013): don't give aid at all, as most developing states are ill-equipped to use it sensibly; Dambisa Moyo (Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa, 2010): ditto, and trust the free market; Joseph Stiglitz (Globalisation and its Discontents, 2002): reform the global development institutions; Ha-Joon Chang (Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, 2008): use protectionist policies and other measures to create industrial comparative advantage; Dani Rodrik (The Globalisation Paradox: Democracy and the Future of the World Economy, 2011): adopt local strategies on global markets in accordance with democracy and social inclusion; Paul Collier (The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done about It, 2006): focus on combatting corruption, and promote a good environment for investment; and Daron Acemoglu and James Robinson (Why Nations Fail, 2012): build inclusive economic and political institutions that favour growth, innovation, and development, even if the odds are against you.
This is fine for a busy Secretary of State without a background in development studies, or, come to that, an introductory lecture prior to closer examination of these texts, but otherwise it is a gross oversimplification. Dercon suggests that he and his civil service colleagues took Acemoglu and Robinson's Why Nations Fail as their point of reference for DFID policy-making (30-31), but rather trips himself up in going on to differentiate his approach from theirs on the grounds that it's all very well to advocate well-established property rights, but 'because protection of these rights evolves over time, just rolling out some programmes to establish property rights is bound to be tricky' (31). This alleged contrast is based not on their detailed argument, but his own simplification of it: if you read the conclusion to Why Nations Fail, and particularly pp. 446-62, you will be hard pressed to find any difference between Dercon's approach and their own. Dercon is a mainstream practitioner, as his concluding summary to the review chapter reveals, despite the fact that it is presented as a characterisation of the way his 'mental model of development' differs from those of the authors discussed: 'the primary challenges that developing countries must overcome reside within those countries, not in global markets'; 'although sensible economic policies are needed to nurture growth and development ... the essential constraint lies more in how countries are shaped, ruled and managed by those with the power to do so and less in the details of specific economic policies'; 'although historical foundations play a role in explaining the economy and politics of today ... the choices made by today's political and economic elite matter a great deal'; and 'aid should not be a core concern in debates about development because putting aid to good use is hard or even at times counterproductive unless an elite bargain that is consistent with development is present or emerging' (32). Only the fourth of these points makes Dercon's approach potentially distinctive, and the claim with which he finishes the chapter, that overall 'they all miss the boat on one thing: a clear explanation of why a diverse set of countries have changed for the better in recent decades and why others have not' (33) is simply wrong. They all have such explanations (not necessarily convincing ones, from my perspective), but Dercon has not explored them.
What are we to make, then, of Dercon's notion of the 'development bargain'? It turns out to take as its starting point a text not among those highlighted in the literature review, but the World Bank's Growth Report (Michael Spence, ed, 2008). If you read one other thing, in addition to Dercon's text, read the Overview to this document. In it you will find, along with an excellent summary of the approach of the Bank itself in recent years, the essence of Dercon's 'development bargain':
'Successful cases share a further characteristic: an increasingly capable, credible, and committed government. Growth at such a quick pace [7 per cent per year], over such a long period, requires strong political leadership. Policy makers have to choose a growth strategy, communicate their goals to the public, and convince people that the future rewards are worth the effort, thrift, and economic upheaval. They will succeed only if their promises are credible and inclusive, reassuring people that they or their children will enjoy their full share of the fruits of growth. Such leadership requires patience, a long planning horizon, and an unwavering focus on the goal of inclusive growth' (Spence 2008: 3).
Summarising the Growth Report, Dercon says that 'There appear to be many routes to successful take-off and catch-up growth when starting poor. All the successful countries took some similar steps, but they did not have so much in common in terms of precise economic management and policies'. What they had in common was macroeconomic stability, high levels of investment, including public investment in health, education, and safety nets, and trust in markets to 'provide signals and the impetus for the reallocation of capital and labour from less productive private sector firms to more productive ones'. They had credible and capable states, and they all sold to global markets when they could, but on all these elements key policies and emphases varied (39). 'I doubt,' Dercon concludes, 'any team of this calibre would agree differently on the ingredients for growth. Why then aren't more countries finding their own recipe? This question leads to my core argument' (40). And he proceeds to present the 'development bargain' (40-58), in part through a contrast between Ethiopia and the DRC (Democratic Republic of the Congo). It's simple enough: the DRC's plans cover 'much of the ground suggested by the Growth Commission,' but 'those ... that can make it happen have little interest in seeing that these policies are pursued or are successful' (40). In Ethiopia, in contrast, 'those in power were clearly focused on kick-starting fast growth and development' (43). More generally, countries with a development bargain in place have three things in common - credible policies, state capacity, and the ability to learn from mistakes and correct course (41-2). These elements were lacking in the DRC, but in Ethiopia 'the state apparatus, with all its imperfections as far as capabilities go, was directed towards supporting its ambitious plans', and its leadership 'trusted some able technocrats and put them in powerful positions in the government, allowing them to take key decisions, especially when trying to manage tricky macroeconomic conditions' (43). Unfortunately, the shine is rather taken off this analytical framework by three endnotes, corresponding to this discussion, that contradict each other and question the aptness of Ethiopia as an exemplar. The first says that 'there is no need for a "developmental state" as it is portrayed in today's research and policy literature', but the second says that this 'does not mean that Ethiopia is a success in the sense of what East Asian countries achieved', and the third adds that 'by 2020, this development bargain fell apart after years of political tensions within the leadership, followed by conflict' (notes 9, 10, 11, p. 334).
Bluntly, there is not much to be said for the idea of a 'development bargain'. There is nothing new in contrasting 'vested interests' among the elite who want to stick with the status quo with unspecified others willing for whatever reason to 'gamble' on pursuing 'growth and development', World Bank-style. If anything, it represents a step backwards from the political economy and related policymaking promoted by the World Bank for more than thirty years, as it eschews a careful analysis of the character of the social forces involved, appealing instead to the vague concept of 'elites'. The literature on which Dercon draws, starting with Burton and Higley (1987) on 'elite settlements', notoriously favours political over social-structural explanation, and quickly falls into circular argument and contradiction (Cammack 1990). Granted, it makes sense to say that whatever goals a state may undertake to pursue, it needs to have the willingness and the capacity to pursue them. Who could disagree? But it doesn't get you very far if you then insist that there is only one broad strategy that makes sense, and decline to look closely and critically at the alignment of relevant social forces in any particular country, and their relationship to a global economy dominated by the politics of competitiveness. Here Dercon makes things hard for himself by thinking in terms of 'internal' and 'external' factors, rather than focusing on interactions across the global capitalist economy as a whole. His four 'drivers' of a development bargain' are rather eclectic (an enlightened leader, emergence from conflict or other extreme events, a quest by the elite in power to gain legitimacy, and 'the foresight that that a better economic deal is likely to result from pursuing growth and development', 50), and fail to consider the relationship with or manner of insertion into the global capitalist economy. And as this suggests, despite passing reference, he does not follow or engage closely with the more nuanced literature on 'political settlements' associated with Mushtaq Khan and others (on which see Behuria 2017 and Chinsinga 2022). All in all, Dercon's sketch of the 'development bargain' is rather broad-brush and indeterminate, so a great deal depends on the quality of the case studies that make up the central core of the book, after an informative chapter on poverty reduction (61-83) that highlights the 'Africanisation' of poverty as relative improvements occur elsewhere, and Africa's population heads towards over a third of the global population.
Dercon adopts what he calls a 'zoomorphic' approach to classifying the developing countries he writes about, riffing (inventively, it has to be said) on the reference point of 'tiger' economies. Indonesia, Thailand and Malaysia are 'tiger cubs', Bangladesh a 'Bengal tiger cub', China the dragon, and India the peacock. African states are mostly hippos (Sierra Leone, Malawi, Kenya, Uganda and Ghana); Nigeria and DRC are hippos than have somehow evolved into tigerfish; Ethiopia and Rwanda are potentially African lions; and South Sudan, Afghanistan, Nepal, Lebanon and Somaliland are hyenas. I found this rather unhelpful, but other readers may differ. Either way, the organising principles are simple. The points of reference are on the one hand sustained development (which the cubs may achieve in time), and on the other either clientelism (with Nigeria and DRC descending into predatory states, Sierra Leone and Malawi mired in clientelism, and Kenya, Uganda and Ghana perhaps poised for 'take-off'), and conflict.
In tone the book is as much a memoir as a textbook on development, and the style of the case study chapters is relaxed, to say the least, with frequent recourse to reminiscence, personal experience, and anecdote, and the lightest of touches with regard to secondary analysis. Where it is relevant, Dercon is generally able to apply his development bargain framework to his own satisfaction (demonstrating in so doing its capacious flexibility), but he does little to illuminate the underlying class politics and political economy or the wider global context, with the result that some important issues are side-lined altogether. So, in Chapter Four (on China, Indonesia, and India) Dercon says in relation to the new direction followed in China after 1978 that 'the party leadership no doubt understood, probably correctly, that its position might not remain unchallenged and so its main source of legitimacy would have to be growth and development' (98), but he makes no reference to Deng's conviction, following a visit to Singapore, that China was falling behind and needed to change course; on Indonesia he suggests that: 'One explanation for the elite commitment in Indonesia during the early period in the 1970s may well lie ... in the need for the regime to gain legitimacy with the elite and the population in general' (106), but makes nothing of the fact that the murderous violence of the period 1965-6 primarily targeted workers, trade unionists and members of the Communist Party; on India, he notes that his 'focus is on the pivotal period in the 1990s when the elite bargain did not change in itself but its outlook and focus did - a substantial course correction that began with a new economic deal' (95), casting doubt on the need for a developmental bargain to inaugurate the process of change, then identifies the 1991 crisis and the liberalisation policies of Manmohan Singh and Narasimha Rao as the fundamental turning point, commenting that it was only in 1998, with the defeat of the Congress Party-led government, that it became clear that 'a shift in the political bargain had taken place' (112). In all three cases, one governing (and class) alliance was displaced by another. In none is there direct evidence of a specific 'political bargain to achieve growth' (113). At the same time, he takes no account of contrary arguments in the sources he cites: for example, Nee and Opper argue that the 'rise of entrepreneurship and modern capitalism in China was an unintended outcome of the economic reforms initiated by the Communist Party,' and that reformers in central government 'responded by shifting to policies of accommodation, supportive of the rapidly growing private enterprise economy' (2012: 228); Bevan, Collier and Gunning argue that in Indonesia, despite the lingering impact of clientelism and economic nationalism, 'expert advice and proximity to East Asia did gradually build a group with a concern about international competitiveness that provided a rival to the old vision' (1999: 4); and Rodrik and Subramanian date the transformation of productivity and growth in India from the return to power of Indira Ghandi in 1980, and attribute it to an attitudinal shift on the part of the national government in favor of private business (Rodrik and Subramanian 2005: 195): by which they mean that close alliances were formed, particularly in states controlled by the Congress Party and with substantial levels of industry built up over previous regimes, between incumbent businesses and the state.
So this is not a heavyweight intervention in the political economy of development. The contrast on which the African case studies depend between 'hippo' states (so-called because only the 'ears' are visible but there is a lot under the water) featuring 'an apparent political bargain for short-term gains by those in the elite who control the state' (118) and putative 'lions' in which a gradual development process is 'driven by a strong political commitment to growth and development' (235) can take Dercon only so far, and he is at his best when discussing specific episodes where he has both background knowledge and first-hand experience. This applies in general to the case of Ethiopia, and to such issues as the handling of the Ebola crisis in Sierra Leone (118-24), and the saga of Malawi's maize support programme (128-35). The downside, captured in his disarming confession in relation to Nigeria and the Democratic Republic of Congo that the relevant chapter 'only scratches the surface of why these two countries with such potential appear to be underperforming so spectacularly' (164), is that in too many cases the treatment is brief and anecdotal. This is all the more mysterious, and regrettable, as Part III of the book, ostensibly addressed to the issue of how the best use can be made of foreign aid, consists of three very offhand and poorly referenced chapters that appear oblivious to the political economy of the Millennium and Sustainable Development Goals (Cammack 2017), focus narrowly on concessional aid (so fail to examine the World Bank Group's IDC or China's AIIB and Belt and Road programme, or the increasingly close cooperation between China and the World Bank - on which see Xu 2017), and end up recommending standard World Bank strategies that have been in place for decades.
All in all, then, the idea of a development bargain conceals as much as it illuminates. It focuses too much on an accommodation between national elites, and too little on the class character of their commitment, where there is one, to a particular strategy for 'development and growth', and the international affiliations that this entails. Dercon understands the World Bank's approach perfectly well, as demonstrated by his earlier advocacy of 'social protection' strategies that would prepare young people to be productive workers, promote migration to boost ready supplies of appropriately skilled workers, and reform welfare in order to oblige adolescents and young workers to undertake training that will equip them to succeed in continually changing urban labour markets. This deflects attention from the fact that 'successful' development bargains rest primarily on embracing the strategy of making populations available as productive labour for exploitation in the world market. At one end of the spectrum is Nepal, characterised as falling short of a true 'development bargain', but still showing a stronger focus on development, and a 'more inclusive' economic deal (206-7). You have to go to Dercon's endnotes (46, p. 356), though, to find this:
'Happily (sic) for Nepal, [migration] has resulted in a vast increase in remittances and is an important factor in the decline in rural poverty. Remittances increased from less than 1 per cent of GDP in 1996 to 16 per cent in 2006. Since then they have increased further, peaking at 31 per cent in 2015.'
Nepal's 'happiness', that is to say, depends upon its having become a major contributor to a global underclass of heavily exploited and poorly rewarded labour, with negative consequences that have been well understood for two decades (Seddon et al 2002, Sapotka 2013, Sharma 2017). Sharma documents over 1,000 deaths among migrant workers in 2015, with sudden unexpected death syndrome, workplace accidents and suicide prominent among the causes, and adds that at the societal level, 'remittances have contributed to family breakdowns, erosion of family values, exploitation and inhuman treatment of migrant workers by employers in destination countries, and problems of reintegration upon return' (288-9). Beyond this case, the character and prospects of the strategies for incorporation into global labour and product markets vary. Among cases where Dercon does identify a development bargain, Bangladesh is another major exporter of low-skilled migrant workers, but combines this with making its urban poor available to global capital in garment export industries in particular. Rwanda is focused on turning Kigali into a hub for international services (Behuria 2019: 589), and Ethiopia has been assiduous in schooling its rural and urban populations alike in the disciplines of global competitiveness in a 'productivist' institutional framework that even outdoes that advocated by the World Bank in some respects. Only for the case of Ethiopia does Dercon provide anything remotely resembling an informed critical appraisal (235-52), and as he does so it becomes clear that the 'development bargain' is not simply a political deal between domestic elites, but a class strategy, coordinated by the state in alliance with foreign capital and international organisations of global economic governance. Here and more generally, the 'development bargain' is a commitment on the part of the state to deliver the poor into the hands of global capital.
References
Behuria, Pritish, and Tom Goodfellow. 2019. 'Leapfrogging Manufacturing? Rwanda’s Attempt to Build a Services‐Led "Developmental State"’, European Journal of Development Research, 31, 581-603.
Behuria, Pritish, Lars Buur and Hazel Gray. 2017. 'Research Note: Studying Political Settlements in Africa', African Affairs, 116/464, 508-25.
Burton, Michael G. and John Higley. 1987. 'Elite Settlements', American Sociological Review, 52, 3, 295-307.
Cammack, Paul. 1990. ‘A Critical Assessment of the New Elite Paradigm’, American Sociological Review, 55, 3, 415-420.
Cammack, Paul. 2012. ‘Risk, Social Protection and the World Market’, Journal of Contemporary Asia, 42, 3, 359-377.
Cammack, Paul. 2017. 'The UNDP, the World Bank, and Human Development through the World Market’, Development Policy Review, 35, 1, pp. 3-21.
Chinsinga, Blessings, et al. 2022. 'Using political settlements analysis to explain poverty trends in Ethiopia, Malawi, Rwanda and Tanzania', World Development, 153.
Dercon, Stefan. 2002. 'Income Risk, Coping Strategies, and Safety Nets', World Bank Research Observer, 17, 2, 141-66.
Dercon, Stefan. 2011. 'Social Protection, Efficiency and Growth', CSAE Working Paper WPS/2011, University of Oxford.
Nee, Victor, and Sonja Opper. 2012. Capitalism from Below: Markets and Institutional Change in China, Harvard University Press.
Robert Schuman Centre for Advanced Studies. 2010. The 2010 European Report on Development: Social Protection for Inclusive Development, European University Institute, San Domenico di Fiesole.
Rodrik, Dani, and Arvind Subramanian. 2005. 'From “Hindu Growth” to Productivity Surge: The Mystery of the Indian Growth Transition', IMF Staff Papers, 52, 2, 193-228.
Sapkota, Chandan. 2013. 'Remittances in Nepal: Boon or Bane?', Journal of Development Studies, 49, 1, 1316-1331.
Seddon, David, Jagannath Adhikari and Ganesh Gurung. 2002. 'Foreign Labor Migration and the Remittance Economy of Nepal', Critical Asian Studies, 34, 1, 19-40.
Sharma, Basu. 2017. 'Socio-economic Problems of Remittance Economy: The Case of Nepal', Journal of Advanced Management Science, 5, 4, 285-90.
World Bank. 2012. World Development Report 2013: Jobs. Washington DC: World Bank.
Xu, Jiajun. 2017. Beyond US Hegemony in International Development: The Contest for Influence at the World Bank. Cambridge University Press.
'As economic transformation, and the inclusiveness of growth depends (sic) on the extent to which labour markets can absorb these relatively low-skilled workers, they would deserve specific attention on efficiency grounds from social protection systems. Designing conditional cash transfers conditional on additional training and labour market preparation, or apprenticeships, may well have high long-term returns, and helping (sic) to bridge the absorption of this group in the labour market. It would in any case be preferable to using social protection funds for large scale self-employment oriented micro-business training with credit, a favourite intervention: as the evidence above has suggested this is likely to be beneficial to only a limited and well-targeted group of potential entrepreneurs. Preparing an army of workers for the informal sector would in the long-run not be the appropriate recipe. As the history of the economic transformation in rich economies has shown, relatively few are called to be successful in self-employment, and most will end up wage workers – and together this forms a successful formula for poverty reduction' (22).
These were Dercon's views at the time of his appointment as Chief Economist at the UK Department for International Development (DfID) in 2011, a post he would hold for six years. He was already a long-time contributor to World Bank thinking, and fully in line with its commitment to promoting global capitalism by drawing more of the world's poor into labour markets and productive work (proletarianization). This makes it important to address his attempt, in the preface to the book, to suggest some distance between himself and the Bank:
'A lot has been written about what happened in China and how it came about. Some experts argue that China and other East Asian states serve as an example - a recipe even - of how to promote development. Fundamentally, say the experts, the steps that these countries followed are exactly what needs to be done: invest in growth as a state, preferably export-led growth, and encourage the emergence of a dynamic private sector to drive not only growth but also job creation. Meanwhile, also invest in health, education, and basic social protection. Policies that promote economic growth and development are key. Most important, these good policies could be introduced into other countries. I admit that I quite happily bought into this perspective for a long time - that there is a clearly defined recipe for success, and refining and applying it to other countries are all that is required. The task of the academic is to improve this recipe using ever better evidence. When travelling in China, I realised that, no matter how successful it and other countries had been, no single policy recipe can be refined and spread around the world. And when China's progress took flight, China did not have a clear recipe either. Those in power took a gamble, committed to it, but did not know where it would end' (x).
This is misleading. Dercon agrees with the World Bank programme of private sector-led growth supported by state investment in health, education and basic social protection, and the World Bank has been saying for decades that there is no single policy recipe that can be taken from one country and applied to another. Gambling on Development shifts the focus of risk-taking from the individual to the state, but it does so in terms that have long been central to World Bank and related thinking, contrasting liberal governments that promote competition and capitalism with 'populists' who favour rent-seeking and reward their friends. So when Dercon introduces his own broad recipe for development and growth it mirrors every item of the 'recipe' condemned earlier:
'Countries that have achieved their development goals have achieved broadly reasonable macroeconomic stability, invested in infrastructure and in health and education, managed their natural resources prudently, provided a reasonable investment environment for private sector growth, allowed the market to play a central role but with a broadly supportive state, focused on international trade, and avoided specific firms or families cashing in to an extreme extent on connections to the state. Moreover, specific programmes have helped to further reduce poverty' (3).
This posturing is mildly irritating, and there are other irritations too, the most prominent being the adoption of a zoological classification of types of developing states, discussed below. But although Rory Stewart may be overstepping the mark when he describes Dercon on the back cover as 'one of the greatest living development economists', he is a seasoned practitioner, with extensive knowledge of development initiatives on the ground across a fair number of African countries. Forget his presentation of himself as breaking with orthodoxy: he actually offers a good guide to the way of thinking typical of the global development establishment, and presents his own perspective clearly and without undue theoretical elaboration. However, there is much less to his big idea (the 'development bargain') than at first appears, and, like all his kind, he skirts around the class logic of what I call the politics of proletarianization and global competitiveness. So in what follows I set out the principal features of his approach, discuss briefly the manner in which he applies it in country case studies of varied substance, and finally address its limitations.
First, Dercon argues, within the broad policy framework set out above successful countries 'have at times pursued a rather diverse set of policies and priorities. There is no one, cost-free path to development' (3-4). Second, and requiring quotation at length,
'a better understanding is needed of why some countries implemented sensible economic and other policies, while others never did, despite often claiming they would as part of arrangements with international funders. Even though both sets of countries adopted the same rhetoric, those that were far less successful did not appear to take actions consistent with growth and development. It would be naive to suggest that these nations and their leaders simply did not know what to do - it was not just a question of ignorance or lack of good advice. Understanding why the rhetoric was followed by action in some places and not in others is at the centre of understanding how development works' (4).
And third (the 'big idea', discussed further below), successful growth and development requires the presence of a 'development bargain', a long-term commitment on the part of the country's elites, or 'an implicit contract among those who can make development happen' (6).
Significantly, Dercon simply assumes without question not only that the broad policy approach favoured by people like himself and the institutions that employ them is self-evidently right, but also that the leaders of developing countries know this, and understand what needs to be done to achieve 'growth and development'. This reflects the hegemony of the politics of global competitiveness, and it leads him, like the official development institutions that take this for granted, to the narrower question of how developing countries can be 'helped' to adopt the right course and stick to it. In this line of quintessentially World Bank thinking, challenges arise from the necessarily long-term nature of the process, and the inevitable fact that in conditions of multifaceted uncertainty mistakes will be made, and corrections of course will be needed.
After his introduction, the first substantive chapter offers a literature review with a twist, setting out some competing diagnoses in the form of four propositions, then examining development thinking through highlighting key points from the texts recommended to Justine Greening in 2010 when she became UK Secretary of State for International Development. The 'competing diagnoses' are (1) 'Countries and people are poor because they are poorly endowed', (2) 'Market failures are costly for poor people and may trap them in poverty', (3) 'Growth traps stem from market failures that are costly for poor countries', and (4) 'Growth traps stem from failures in states and their governance' (15-20). The last two here can be seen as competing, to an extent, but overall these propositions are actually more complementary than competing, and Dercon recognises as much. He also notes that the views of the chosen authors 'are generally quite nuanced' (20), but still offers ruthlessly simplified summaries of their key messages: Jeffrey Sachs (The End of Poverty, 2005): give lots of aid; Abhijit Banerjee and Esther Duflo (Poor Economics, 2011): make small, specific interventions in accordance with evidence-based research; William Easterly (The White Man's Burden, 2006), and Angus Deaton (The Great Escape: Health, Wealth, and the Origins of Inequality, 2013): don't give aid at all, as most developing states are ill-equipped to use it sensibly; Dambisa Moyo (Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa, 2010): ditto, and trust the free market; Joseph Stiglitz (Globalisation and its Discontents, 2002): reform the global development institutions; Ha-Joon Chang (Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, 2008): use protectionist policies and other measures to create industrial comparative advantage; Dani Rodrik (The Globalisation Paradox: Democracy and the Future of the World Economy, 2011): adopt local strategies on global markets in accordance with democracy and social inclusion; Paul Collier (The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done about It, 2006): focus on combatting corruption, and promote a good environment for investment; and Daron Acemoglu and James Robinson (Why Nations Fail, 2012): build inclusive economic and political institutions that favour growth, innovation, and development, even if the odds are against you.
This is fine for a busy Secretary of State without a background in development studies, or, come to that, an introductory lecture prior to closer examination of these texts, but otherwise it is a gross oversimplification. Dercon suggests that he and his civil service colleagues took Acemoglu and Robinson's Why Nations Fail as their point of reference for DFID policy-making (30-31), but rather trips himself up in going on to differentiate his approach from theirs on the grounds that it's all very well to advocate well-established property rights, but 'because protection of these rights evolves over time, just rolling out some programmes to establish property rights is bound to be tricky' (31). This alleged contrast is based not on their detailed argument, but his own simplification of it: if you read the conclusion to Why Nations Fail, and particularly pp. 446-62, you will be hard pressed to find any difference between Dercon's approach and their own. Dercon is a mainstream practitioner, as his concluding summary to the review chapter reveals, despite the fact that it is presented as a characterisation of the way his 'mental model of development' differs from those of the authors discussed: 'the primary challenges that developing countries must overcome reside within those countries, not in global markets'; 'although sensible economic policies are needed to nurture growth and development ... the essential constraint lies more in how countries are shaped, ruled and managed by those with the power to do so and less in the details of specific economic policies'; 'although historical foundations play a role in explaining the economy and politics of today ... the choices made by today's political and economic elite matter a great deal'; and 'aid should not be a core concern in debates about development because putting aid to good use is hard or even at times counterproductive unless an elite bargain that is consistent with development is present or emerging' (32). Only the fourth of these points makes Dercon's approach potentially distinctive, and the claim with which he finishes the chapter, that overall 'they all miss the boat on one thing: a clear explanation of why a diverse set of countries have changed for the better in recent decades and why others have not' (33) is simply wrong. They all have such explanations (not necessarily convincing ones, from my perspective), but Dercon has not explored them.
What are we to make, then, of Dercon's notion of the 'development bargain'? It turns out to take as its starting point a text not among those highlighted in the literature review, but the World Bank's Growth Report (Michael Spence, ed, 2008). If you read one other thing, in addition to Dercon's text, read the Overview to this document. In it you will find, along with an excellent summary of the approach of the Bank itself in recent years, the essence of Dercon's 'development bargain':
'Successful cases share a further characteristic: an increasingly capable, credible, and committed government. Growth at such a quick pace [7 per cent per year], over such a long period, requires strong political leadership. Policy makers have to choose a growth strategy, communicate their goals to the public, and convince people that the future rewards are worth the effort, thrift, and economic upheaval. They will succeed only if their promises are credible and inclusive, reassuring people that they or their children will enjoy their full share of the fruits of growth. Such leadership requires patience, a long planning horizon, and an unwavering focus on the goal of inclusive growth' (Spence 2008: 3).
Summarising the Growth Report, Dercon says that 'There appear to be many routes to successful take-off and catch-up growth when starting poor. All the successful countries took some similar steps, but they did not have so much in common in terms of precise economic management and policies'. What they had in common was macroeconomic stability, high levels of investment, including public investment in health, education, and safety nets, and trust in markets to 'provide signals and the impetus for the reallocation of capital and labour from less productive private sector firms to more productive ones'. They had credible and capable states, and they all sold to global markets when they could, but on all these elements key policies and emphases varied (39). 'I doubt,' Dercon concludes, 'any team of this calibre would agree differently on the ingredients for growth. Why then aren't more countries finding their own recipe? This question leads to my core argument' (40). And he proceeds to present the 'development bargain' (40-58), in part through a contrast between Ethiopia and the DRC (Democratic Republic of the Congo). It's simple enough: the DRC's plans cover 'much of the ground suggested by the Growth Commission,' but 'those ... that can make it happen have little interest in seeing that these policies are pursued or are successful' (40). In Ethiopia, in contrast, 'those in power were clearly focused on kick-starting fast growth and development' (43). More generally, countries with a development bargain in place have three things in common - credible policies, state capacity, and the ability to learn from mistakes and correct course (41-2). These elements were lacking in the DRC, but in Ethiopia 'the state apparatus, with all its imperfections as far as capabilities go, was directed towards supporting its ambitious plans', and its leadership 'trusted some able technocrats and put them in powerful positions in the government, allowing them to take key decisions, especially when trying to manage tricky macroeconomic conditions' (43). Unfortunately, the shine is rather taken off this analytical framework by three endnotes, corresponding to this discussion, that contradict each other and question the aptness of Ethiopia as an exemplar. The first says that 'there is no need for a "developmental state" as it is portrayed in today's research and policy literature', but the second says that this 'does not mean that Ethiopia is a success in the sense of what East Asian countries achieved', and the third adds that 'by 2020, this development bargain fell apart after years of political tensions within the leadership, followed by conflict' (notes 9, 10, 11, p. 334).
Bluntly, there is not much to be said for the idea of a 'development bargain'. There is nothing new in contrasting 'vested interests' among the elite who want to stick with the status quo with unspecified others willing for whatever reason to 'gamble' on pursuing 'growth and development', World Bank-style. If anything, it represents a step backwards from the political economy and related policymaking promoted by the World Bank for more than thirty years, as it eschews a careful analysis of the character of the social forces involved, appealing instead to the vague concept of 'elites'. The literature on which Dercon draws, starting with Burton and Higley (1987) on 'elite settlements', notoriously favours political over social-structural explanation, and quickly falls into circular argument and contradiction (Cammack 1990). Granted, it makes sense to say that whatever goals a state may undertake to pursue, it needs to have the willingness and the capacity to pursue them. Who could disagree? But it doesn't get you very far if you then insist that there is only one broad strategy that makes sense, and decline to look closely and critically at the alignment of relevant social forces in any particular country, and their relationship to a global economy dominated by the politics of competitiveness. Here Dercon makes things hard for himself by thinking in terms of 'internal' and 'external' factors, rather than focusing on interactions across the global capitalist economy as a whole. His four 'drivers' of a development bargain' are rather eclectic (an enlightened leader, emergence from conflict or other extreme events, a quest by the elite in power to gain legitimacy, and 'the foresight that that a better economic deal is likely to result from pursuing growth and development', 50), and fail to consider the relationship with or manner of insertion into the global capitalist economy. And as this suggests, despite passing reference, he does not follow or engage closely with the more nuanced literature on 'political settlements' associated with Mushtaq Khan and others (on which see Behuria 2017 and Chinsinga 2022). All in all, Dercon's sketch of the 'development bargain' is rather broad-brush and indeterminate, so a great deal depends on the quality of the case studies that make up the central core of the book, after an informative chapter on poverty reduction (61-83) that highlights the 'Africanisation' of poverty as relative improvements occur elsewhere, and Africa's population heads towards over a third of the global population.
Dercon adopts what he calls a 'zoomorphic' approach to classifying the developing countries he writes about, riffing (inventively, it has to be said) on the reference point of 'tiger' economies. Indonesia, Thailand and Malaysia are 'tiger cubs', Bangladesh a 'Bengal tiger cub', China the dragon, and India the peacock. African states are mostly hippos (Sierra Leone, Malawi, Kenya, Uganda and Ghana); Nigeria and DRC are hippos than have somehow evolved into tigerfish; Ethiopia and Rwanda are potentially African lions; and South Sudan, Afghanistan, Nepal, Lebanon and Somaliland are hyenas. I found this rather unhelpful, but other readers may differ. Either way, the organising principles are simple. The points of reference are on the one hand sustained development (which the cubs may achieve in time), and on the other either clientelism (with Nigeria and DRC descending into predatory states, Sierra Leone and Malawi mired in clientelism, and Kenya, Uganda and Ghana perhaps poised for 'take-off'), and conflict.
In tone the book is as much a memoir as a textbook on development, and the style of the case study chapters is relaxed, to say the least, with frequent recourse to reminiscence, personal experience, and anecdote, and the lightest of touches with regard to secondary analysis. Where it is relevant, Dercon is generally able to apply his development bargain framework to his own satisfaction (demonstrating in so doing its capacious flexibility), but he does little to illuminate the underlying class politics and political economy or the wider global context, with the result that some important issues are side-lined altogether. So, in Chapter Four (on China, Indonesia, and India) Dercon says in relation to the new direction followed in China after 1978 that 'the party leadership no doubt understood, probably correctly, that its position might not remain unchallenged and so its main source of legitimacy would have to be growth and development' (98), but he makes no reference to Deng's conviction, following a visit to Singapore, that China was falling behind and needed to change course; on Indonesia he suggests that: 'One explanation for the elite commitment in Indonesia during the early period in the 1970s may well lie ... in the need for the regime to gain legitimacy with the elite and the population in general' (106), but makes nothing of the fact that the murderous violence of the period 1965-6 primarily targeted workers, trade unionists and members of the Communist Party; on India, he notes that his 'focus is on the pivotal period in the 1990s when the elite bargain did not change in itself but its outlook and focus did - a substantial course correction that began with a new economic deal' (95), casting doubt on the need for a developmental bargain to inaugurate the process of change, then identifies the 1991 crisis and the liberalisation policies of Manmohan Singh and Narasimha Rao as the fundamental turning point, commenting that it was only in 1998, with the defeat of the Congress Party-led government, that it became clear that 'a shift in the political bargain had taken place' (112). In all three cases, one governing (and class) alliance was displaced by another. In none is there direct evidence of a specific 'political bargain to achieve growth' (113). At the same time, he takes no account of contrary arguments in the sources he cites: for example, Nee and Opper argue that the 'rise of entrepreneurship and modern capitalism in China was an unintended outcome of the economic reforms initiated by the Communist Party,' and that reformers in central government 'responded by shifting to policies of accommodation, supportive of the rapidly growing private enterprise economy' (2012: 228); Bevan, Collier and Gunning argue that in Indonesia, despite the lingering impact of clientelism and economic nationalism, 'expert advice and proximity to East Asia did gradually build a group with a concern about international competitiveness that provided a rival to the old vision' (1999: 4); and Rodrik and Subramanian date the transformation of productivity and growth in India from the return to power of Indira Ghandi in 1980, and attribute it to an attitudinal shift on the part of the national government in favor of private business (Rodrik and Subramanian 2005: 195): by which they mean that close alliances were formed, particularly in states controlled by the Congress Party and with substantial levels of industry built up over previous regimes, between incumbent businesses and the state.
So this is not a heavyweight intervention in the political economy of development. The contrast on which the African case studies depend between 'hippo' states (so-called because only the 'ears' are visible but there is a lot under the water) featuring 'an apparent political bargain for short-term gains by those in the elite who control the state' (118) and putative 'lions' in which a gradual development process is 'driven by a strong political commitment to growth and development' (235) can take Dercon only so far, and he is at his best when discussing specific episodes where he has both background knowledge and first-hand experience. This applies in general to the case of Ethiopia, and to such issues as the handling of the Ebola crisis in Sierra Leone (118-24), and the saga of Malawi's maize support programme (128-35). The downside, captured in his disarming confession in relation to Nigeria and the Democratic Republic of Congo that the relevant chapter 'only scratches the surface of why these two countries with such potential appear to be underperforming so spectacularly' (164), is that in too many cases the treatment is brief and anecdotal. This is all the more mysterious, and regrettable, as Part III of the book, ostensibly addressed to the issue of how the best use can be made of foreign aid, consists of three very offhand and poorly referenced chapters that appear oblivious to the political economy of the Millennium and Sustainable Development Goals (Cammack 2017), focus narrowly on concessional aid (so fail to examine the World Bank Group's IDC or China's AIIB and Belt and Road programme, or the increasingly close cooperation between China and the World Bank - on which see Xu 2017), and end up recommending standard World Bank strategies that have been in place for decades.
All in all, then, the idea of a development bargain conceals as much as it illuminates. It focuses too much on an accommodation between national elites, and too little on the class character of their commitment, where there is one, to a particular strategy for 'development and growth', and the international affiliations that this entails. Dercon understands the World Bank's approach perfectly well, as demonstrated by his earlier advocacy of 'social protection' strategies that would prepare young people to be productive workers, promote migration to boost ready supplies of appropriately skilled workers, and reform welfare in order to oblige adolescents and young workers to undertake training that will equip them to succeed in continually changing urban labour markets. This deflects attention from the fact that 'successful' development bargains rest primarily on embracing the strategy of making populations available as productive labour for exploitation in the world market. At one end of the spectrum is Nepal, characterised as falling short of a true 'development bargain', but still showing a stronger focus on development, and a 'more inclusive' economic deal (206-7). You have to go to Dercon's endnotes (46, p. 356), though, to find this:
'Happily (sic) for Nepal, [migration] has resulted in a vast increase in remittances and is an important factor in the decline in rural poverty. Remittances increased from less than 1 per cent of GDP in 1996 to 16 per cent in 2006. Since then they have increased further, peaking at 31 per cent in 2015.'
Nepal's 'happiness', that is to say, depends upon its having become a major contributor to a global underclass of heavily exploited and poorly rewarded labour, with negative consequences that have been well understood for two decades (Seddon et al 2002, Sapotka 2013, Sharma 2017). Sharma documents over 1,000 deaths among migrant workers in 2015, with sudden unexpected death syndrome, workplace accidents and suicide prominent among the causes, and adds that at the societal level, 'remittances have contributed to family breakdowns, erosion of family values, exploitation and inhuman treatment of migrant workers by employers in destination countries, and problems of reintegration upon return' (288-9). Beyond this case, the character and prospects of the strategies for incorporation into global labour and product markets vary. Among cases where Dercon does identify a development bargain, Bangladesh is another major exporter of low-skilled migrant workers, but combines this with making its urban poor available to global capital in garment export industries in particular. Rwanda is focused on turning Kigali into a hub for international services (Behuria 2019: 589), and Ethiopia has been assiduous in schooling its rural and urban populations alike in the disciplines of global competitiveness in a 'productivist' institutional framework that even outdoes that advocated by the World Bank in some respects. Only for the case of Ethiopia does Dercon provide anything remotely resembling an informed critical appraisal (235-52), and as he does so it becomes clear that the 'development bargain' is not simply a political deal between domestic elites, but a class strategy, coordinated by the state in alliance with foreign capital and international organisations of global economic governance. Here and more generally, the 'development bargain' is a commitment on the part of the state to deliver the poor into the hands of global capital.
References
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