Dylanomics

A 'Born Again,' 'Forever Young' Economy

A week in which millions observe holy days rooted in remembrance of safe passage, death, and resurrection seems a good time to talk about rebirth. In this case, I’ll propose a rebirth both of ‘development economics’ and of the economies that this subdiscipline aims to assist. In so doing, I’ll enlist the help of the poet Bob Dylan - not so much thanks to his having announced he’d been ‘born again’ forty years ago, something for which he was rather uncharitably panned, as to his having penned a line all should remember when thinking about national development: the unforgetable ‘he not busy being born is busy dying.’

Let us elaborate …

The flowering of what came to be called ‘Development Economics’ in the 1950s and 1960s brought some good to the world. Thinkers as varied as Simon Kuznets, Anne Krueger, Philippe Aghion, Jean Drèze, Nancy Birdsall, and Jeff Sachs, whom I’ve not had the honor of meeting, through Kaushik Basu, Partha Dasgupta, Ravi Kanbur, Dani Rodrik, Amartya Sen, and Joe Stiglitz, whom I have, all have done great service to humanity in helping bring hundreds of millions of people out of poverty.

But there is also one critical error that’s come in the train of much modern Development Economics, however - albeit not at the hands og those I have just mentioned. I allude to our tendency to think, thanks to the understandable focus of modern Development Economics on ‘undeveloped’ economies, of development as something one does and is then done with – what I call ‘Development as “Done Deal”’ or ‘“One-Off Achievement.”’

This tendency has led too many once ‘developed’ nations into ongoing decline and stagnation. That is presumably owing to its having led people to think that, once we’re ‘developed,’ there is nothing more for us, as ‘us,’ to do.

What I call the ‘Development as “Done Deal”’ fallacy seems to have taken off with the ‘takeoff’ conception of development famously pushed by Walt Rostow some 60 years ago. Rostow, a vigorous Cold Warrior tellingly posted with the predecessors of the US CIA and then National Security Council rather than any development bank or ministry of economics, had a reason to develop and promote ‘takeoff’ theory. His aim was to ensure that newly independent ex-colonies wouldn’t be attracted to Soviet or Chinese style communism back when the Cold War was at its coldest – a brief starkly revealed in the subtitle to his best-known book: ‘an Anti-Communist Manifesto.’

When that is your purpose, you perhaps naturally look to one milestone – ‘Developed! Done!’ – in seeking the ‘safe zone’ where Khrushchevian or Maoist blandishments grow less attractive. Nations that achieved ‘takeoff’ could join ‘the West,’ staying on our side of the proverbial ‘Iron’ and ‘Bamboo’ ‘Curtains.’       

But the ‘takeoff’ conceit, along with the classification scheme it encouraged – ‘undeveloped,’ ‘under-developed,’ ‘lesser developed’ and ‘developed’ nations – also brought us a most insidious form of complacency. Already ‘developed’ countries, having achieved ‘takeoff’ decades if not centuries earlier, were encouraged to think there was no more for them or their public sectors collectively to do where ‘national development’ was concerned. Markets in these states were by now established; private sector entities could accordingly ‘take it from here.’

That was a costly mistake, as we’ve now seen ‘developing’ for at least several decades. For ‘developed’ countries have for near 50 years been deindustrializing, their middle classes disappearing along with their industries. That has brought ever more wealth polarization along with productive decline, and that has in turn brought us populist and racialist backlashes throughout the ever-less developed ‘developed’ world.

And so here is the first of three lessons we must now re-learn since the Cold War is over, and the reason for my citing Dylan as someone economists can learn from…

Lesson One, then, is that development is forever. It’s never finished, never a done deal. Development, like life, is perpetual. It’s a continuous process of inventing, then producing and seamlessly disseminating, new techniques and technologies economy-wide. And this requires as much in the way of carefully coordinated collective agency – continuously exercised such agency – as does ‘takeoff’ itself.

But developmentalists who think of development as a done deal or one-off achievement don’t see or do this. They miss the need and hence miss the fulfillment.  

It’s crucial to recognize here that the problem isn’t that private sector entities are all corrupt or sociopathic, however true that might be of an ungracious plenty. Nor is the problem a matter of familiar ‘perverse incentives.’ It is, rather, that even legitimate, perfectly normal, even honorable incentives among individual persons and firms in market economies pertain to behaviors within those economies, not to behaviors ‘about’ such economies.

Individual persons and firms, that is to say, simply don’t have capacity for – or, therefore, any rational individual interest in – doing the macro-coordinating that ongoing development entails.

We can appreciate this more fully if we remember two further lessons about true development in addition to its perpetuality…

Lesson Two, then, grows directly out of the ‘dissemination’ observation just made. It is that development is synergistic. It’s multi-sectoral and multi-regional, and hence must be coordinated in cross-cutting ways. It must coherently combine the best efforts of all private sector industries and all public sector levels of government across both productive and geographical space. It must be cross-sectoral and trans-regional.

And by ‘best efforts’ I mean here all segments doing precisely – and only – what they do best.

A simple example or two should make the point …

As I’ve written previously, for instance, an electronic vehicle (EV) industry cannot grow absent (a) a battery industry and (b) dense regional networks of charging stations. And yet private sector industries can no more push one another profitably to move first or zone for charging stations than can public sector actors efficiently produce EVs or batteries. All sectors and industries must work together, in coordinated and facilitated, not merely chaotic or dictated, fashion.

Similarly, as I have also noted before, a new chip factory in a given location will hardly make sense in the absence of reliable sources of water, power, neighborhood housing, schooling, and transportation for growing workforces and shipment – as President Roosevelt’s WWII planning team well understood in connection with earlier national production challenges when old industries had to be quickly grown and new industries had to be jump-started and spread.

(Hence the Defense Homes Corporation, the Federal Highway Act of 1940, the Lanham Childcare Act of 1940, and a host of other initiatives aimed at enabling the gigantic American workforce to relocate en masse to any place the defense mass production was underway.)

Nor will a wind farm or geothermal dig for energy in one site of production be efficient if there is already a solar array or hydropower station underway nearby in a neighboring place. Inefficient overlaps, in other words, are as much to be avoided as are debilitating gaps - a point Rana Foroohar draws out nicely in her coverage of a bill that I drafted in 2020 and brought Congressional Democrats and Republicans in both House and Senate together on late last year.

Yet no single firm or US State has the resources or authority to ensure all needed parts of the whole that is chip, battery, or EV manufacturing are available. Hence, again, the need of public and private sector coordination and financing at all levels.      

For private sector industry, then, ‘best efforts’ means doing much of the inventing, the producing, and the distributing. For public sector agencies, it means spotting and addressing all holes and overlaps – all regional disparities, redundancies, financing shortfalls and other ‘market failures’ – that private sector firms lack the means, the authority, or the rational incentives to correct. And it means doing so in ways that ensure all of our states, regions, industries and citizens take part in and contribute to our nation’s great never-ending productive project. Which takes us to …

Lesson Three, which is that development is not only perpetual but also is, well, national.

As I’ve frequently argued before, early economists like Adam Smith and James Steuart, and statesmen who learned from them like the US’s first Treasury Secretary Alexander Hamilton and Germany’s early developmentalist Friedrich List, were admirably clear about the role of the polity in the development of the polity’s economy - its ‘political economy.’

These thought-pioneers and their successors spoke of ‘The Wealth of Nations, not ‘the wealth of the world.’ The discipline of ‘Political Economy’ that they initiated and then acted upon explicitly addressed itself to the leaders of distinct polities (hence ‘political’ economy), not one non-existent or would-be ‘world polity’ or ‘global society’ (not that there’d need be anything wrong with such a thing were it actually to exist as one unified democratically governed entity). The Greek root of ‘economics’ - oikos - after all, referred to household management. The prefix ‘political’ introduced in the 18th century simply took the polity for the relevant ‘household.’

Later economists, unfortunately, as their models grew ever more general than those of the early political-economists, abstracted away from such things as sovereign nations, separate societies, and their people. They knew not ‘citizens,’ but ‘representative agents.’ They spoke not of states or of nations, but of ‘the market’ considered as one abstract or global thing rather than many concrete national things – as if the whole world were one single economy for which national policymakers somehow were or could be held responsible.

The penchant for abstraction that led modern economists to part ways with early political-economists was not entirely without value. It brought great gains in logical rigor and theoretical understanding, as do most ‘general’ theories and models. But too many modern policy-makers informed by the latterday economists, unlike earlier generations of Hamiltonian and Listian policy-makers informed by earlier political-economists, have purchased their rigor and theoretical understanding at the expense of empirical relevance and practical wisdom.

In a world of nation-states, for as long as we inhabit it, policy-makers can control only, and hence must focus mainly on, that for which they are actually responsible. Those are their domestic economies made up of their national citizenries, not a nationally uncontrollable and barely existent ‘global economy.’ And any national economy, to be strong and creative and prosperous through time, had to be a productively diversified economy – diversified within the national boundaries that policy-makers could actually affect. It had to have robust agricultural, industrial, commercial, and financial sectors.

I hasten to add here two things I am not saying, lest there be any confusion about the two things that I have said.

First, though I urge restoration and facilitation of national productive development as a perpetual and well-coordinated national project, I do not mean to suggest that world markets or other nations – especially allies – and their interests are to be disregarded. I mean simply that they are not to be depended upon. The ‘outsourcing’ of ‘developed’ nation’s primary industries (and jobs!), and the over-reliance on ‘global supply chains,’ that we began in the 1990s have been catastrophic. Those developments must be reversed and our sovereignty restored even as we respect other nations and their sovereignties.

Second, though I urge coordination and facilitation of ongoing national development as a perpetual project, I do not mean to suggest ‘central planning’ or public encroachment on private terrain, any more than we mean to suggest private corruption of public offices. I mean simply that our public and private sectors have their own special functions and must be fully utilized in those functions.

Private sector firms have control over microeconomic matters but do not have control or authority over macroeconomic matters. They cannot coordinate efforts across industrial sectors or across all of our nation’s States and regions – nor, usually, can they finance such efforts efficiently. Public sector instrumentalities for their part cannot generally invent, develop, market or disseminate new products, techniques, or productive technologies. They can only facilitate and smoothen the processes through which private sector persons and entities do that.

Are there any proposals or proposers on the horizon who ‘get’ all of this? Thankfully, yes. US Congressman Ro Khanna and Senator Marco Rubio have recently proposed bipartisan, bicameral legislation that I helped to draft, which erects the first two of four pillars I put in a draft bill I first floated in 2020 – a permanent Cabinet-level National Development Council like our National Security Council charged with developing and regularly updating a National Development Strategy, and a repurposed Federal Financing Bank within Treasury to finance the execution of that Strategy.

Both legislators also have articulated sophisticated new developmentalist visions – the Congressman in a growing series of books, OpEd pieces, and major articles in respected policy journals, and the Senator in multiple white papers. It is to be hoped, then, that more legislators will quickly be joining Congressman Khanna and Senator Rubio in their visionary proposals and legislation. Until then, we must push for rapid passage of their legislation by both the present and the next US Congress.

And we must remember and never forget that Development is Forever, in order that our society might not only be reborn or resurrected, but also might remain, to channel another Bob Dylan number, ‘Forever Young.’