Review: 'The Tyranny of Experts' by William Easterly

William Easterly, a NYU Economist, is a major player in development economics and perhaps the biggest critics to how development agencies squander aid and ignore the rights of the poor. The subheading of his newest book, The Tyranny of Experts - Economists, Dictators and the Forgotten Rights of the Poor, indicates the particular interest his book deals with; The pervasiveness of the idea that a Benevolent Dictator could put their populations' rights and freedoms on hold in order for economic growth and prosperity to arise.

He praises the Enlightenment and its protection of individual rights, a statement that initially seems unrelated to his field ("what has rights got to do with feeding my starving family?", implicitly attacking critics that play such a position: "What good is freedom of speech, if you're starving?").
He then consistantly shows how Authoritarian approaches that ignore rights are counter-productive in producing development. How the authoritarian top-down view lost in the West, but remained dominant in Development Agencies (=World Bank, USAID, DFID), effectively preventing the Rest from growing richer.

He mentions outrageous examples that superficially seem well-intended (Gates Foundation or the Tony Blair Africa Governance Initiative), but result in horrendous persecution of poor people. Human Rights Watch showed how donor-funded food relief was used to blackmail opposition. International Development Agencies supporting a regime that jailed opponents and shot demonstrators. The Ethiopian government abused any imaginable right on part of their poorest by forcingly displace them, took villagers' land and leased to foreign investors.Tony Blair praised the alleged Ethiopian Government's rapid reduction of child mortality. Bill Gates mourned the death of Ethiopia's dictator Meles Zenawi, saying it "was a great loss for Ethiopia". Right. Not very benevolent.

I want to point out three topics that particularly spawned my interest: The Blank Slate, Spontaneous Solutions and the Probability Confusion.

Blank Slate.

The Blank Slate, Easterly describes, is the

mindset [that] tends to ignore history and to see each poor society as infinately malleable for the development expert to apply his technical solutions. The alternative would be to learn from history why each poor society is poor, to learn from history why other societies became rich, and to draw lessons accordingly for how to escape poverty.

The Blank Slate is the pervasive attitude in the field of Development to see poor countries as one unit, regardless of differences between them. It fosters the potential to give "One-Size-Fits-All" solutions that disregard history and disregard whatever circumstances lead to the current situation. It's the belief that one can simply erase anything previously occured and start over, forming societies or human beings into whatever you're currently trying to achieve.

Easterly says:

Blank Slate thinking thus opened the door for development experts to reject the utility of the West's history of individual rights and development as a precedent. If the Rest had nothing to learn from its own history, it also had nothing to learn from the West's history. 

Essentially, the Blank Slate, is the excuse development "Experts" can use for disregarding History. For disregarding the reasons for this:

Honestly, it's a very useful concept, applicable to many more areas than Easterly believed, I think.

Concious Directions vs Spontaneous Solution. 

Roughly translated into "Top-Down versus Bottom-Up" approaches. Initially a Hayekian point about dispursed knowledge, Easterly adds reasoning over innovations. Since Innovation means doing things differently, in a way previously unknown or undiscovered, you can't plan innovation as you simply don't know what the results of doing things differently (innovating) will be - so you can't plan for certain results to happen. There's no top-down planning involved in discovering anti-biotics, inventing steam-engines or cellphones.

The point is the same as that made repeatedly throughout this book. The top-down leaders and experts in technology do not have enough knowledge or incentives to get it right for the reality of what is happening at the bottom. 

He goes on, describing how ideas multiply exponentially, and how technological development feeds on itself into a snowball effect consisting of a) previous innovations/non-rivalrous ideas and b) population. Also, the amount of technology had in year 1500 is found to be a pretty good determinant of how much technology that area has today:

We confirmed that technology in 1500 predicts technology (and thus per capita income) today. In fact, 78% of the income difference today between Europe and sub-Saharan Africa can be explained by technology that was already in place by 1500. [...] So we find that a very simple theory of bottom-up innovation can explain many of the big facts about tehcnology around the world today. 

Here, Easterly also draws on Joel Mokyr's work on the British Industrial Revolution: "Intellectual innovation could only occur in the kind of tolerant societies in which sometimes outrageous ideas proposed by highly eccentric men would not entail a violent response against 'heresy'".

Argument simplified:
- Innovation fuels income/wealth
- Individuals with unalianable rights make innovation happen
= Top-Down approach to innovation and lack of individual rights are bad ideas if you're looking for higher incomes.

Probability Confusion.

This area deals with the _ONE_ objection I had while reading; What about the Asian Tigers (South Korea, Taiwan, Singapore, Hong Kong) and their miraculous growth over the last few decades? They were all run by "Benevolent Autocrats". The very existence of these countries seem to throw Easterly's great contribution out the window.

No, he says. We seem to think that autocrats create growth because of a psychological mistake where we confuse two opposite probabilities.

In his outstanding Chapter Thirteen "Leaders: How We Are Seduced by Benevolent Autocrats" he deals with that question as well as with the psychological biases that give credit to leaders while underlying causes might've been more obscure. He concludes:

It is because growth miracles are rare that the true statement 'most growth miracles are autocrats' is so very different from the false statement 'most autocrats are growth miracles'. This same psychological mistake contributes to stereotyping of certain unpopular minority groups. It could be true that 'most terrorists are Muslims', but it is definately not true that 'most Muslims are terrorists'. Prison statistics could indicate that 'most violent felons are black', but it is definately not true that 'most blacks are violent felons'. Racism has many toxic causes, but one of them is just the racists' incompetence at probability. The same incompetence makes us believe autocrats produce high growth."

The above passage is surely what most affected me in his 350-page masterpiece. He also explains the "Myth of the Hot Hand", a phenomenon in basket where you'd want to pass the ball to a player who has scored a lot, believing he'll score again. Over large series of probabilities, it simple isn't true. But if you point your finger at a few selected examples, then sure you could find players scoring over and over - just like you can find autocrats being in power while a country experienced miracolous growth.

His explanation for China, South Korea or Taiwan?
- Levels produce levels, changes produce changes. It's not the level of freedom that produces a certain growth miracle. It's the change in freedom that creates growth. China had massive changes in economic freedom following the reforms in late 1970s. Economic growth is about a percentage change in development, he says. Not about the absolute level of development. This would explain the rapid success of the tigers, although I realize the debate is far from settled just from this. Nevertheless, an amazing insight.

He finishes the books as splendidly as he started it, summing up its main points. Development is a bottom-up thing. Ignore individual rights in order to plan development is a double-failure. Not to mention that freedom is a value in and of itself. Beyond that, there are more fascinating chapters: his examination of development in China, Africa and Colombia; his local history of the Greene neighbourhood in New York, accidently binding some New York history into it. He describes the value of institutions by comparing the Maghrib traders in the Mediterranean to the Genoese. He compares the debates that never happend between Nobel Laureates Gunnar Myrdal and Friedrich Hayek as well as tracing the origin of development experts.

This is simply an amazing book.

The global double standard of rights for the rich and not for the poor is very much alive in the technocratic worldview of development. But this, too, could be a casualty of the Rise of the Rest and the spread of freedom. The disrespect for poor people shown by agencies such as the World Bank and the Gates Foundation, with their stereotypes of wise technocrats from the West and helpless victims from the Rest, may become increasingly untenable. Development may have to give up its authoritarian mind-set to survive. 

Pure Capitalism would lead to Armageddon: Startups/Funding

Banks, Funds and Starting Business

This is a series of objections, starting with the common misconception that capitalism and freedom would hurt everyone, especially the poor, creating unheardof poverty for all. See the initial post here and the entire category here.

One recent objection I had regarding AnCap societies were that banks would never lend to you, unless you have substantial amounts of capital or income already - which then would never occur, because only the rich would have access to these. That is, nobody could ever start a business, unless you were already rich or had a company.

This last part, I already showed in Pure Capitalism would lead to Armageddon: Salaries above, is false.

Neither is the conclusion ("You could never start a business") because of that, accurate:

Simple because bank lending is not the prime source of fund for start-ups or SMEs. 

The top three sources of funds for Business are given below (Martin Zwilling provides an extended list of more opportunities). Crowdfunding is an amazing tool, probably moving up the ranks of importance in the future as it becomes more viral and used. 

1. Current revenue (indeed, assuming a business or income already)
2. Equity, (either your own or acquired through venture capitals, family, investors, Business Angels, networks etc)
3. Obligation & credit (either from banks and financial institutions or straight through the financial credit markets).  

The argument is simply flawed in all of its parts. 

That's some initial responses to why an Anarcho-Capitalist society (or even a Minarchist society) would not lead to the destruction of large chunks of the population, not even the poor, as I showed in the case of Kenya some weeks back. And we havn't even gone into the exciting parts of Private Law and Private Defense. Murphy has a great piece on that, if you're interested

The Benevolent Agenda - Case study: Kenya

Today I had a big hectic discussion at one of our great family dinners. We're all quite decent idealistic people, who care about the poor and generally try to be as good and decent people we can, improving our lives and the lives of others.

What originated largely as a generational dispute over disciplinary rules in schools ended in a state-versus-markets and economic development debate. This, however, tells us very interesting things about the Benelovent Agenda.

Now, what do I mean by this?
What I'd like to call the Benevolent Agenda, is the notion that if there exists a problem, the solution is the immediate alleviation of that problem. If people are starving - send them food. If we have poor people - give them money. If these poor people lack education - tax others to provide education-free-of-charge for them.
If rich people have "too much money" - tax the hell out of them. And so on.

This all has a superficial appeal to it. I mean, if people are starving, they obviously need food - let's just give it to them! Problem here is the lack of an adequate answer to the question why? (This critique can be applied to a lot of things, from financial crisis 2008 to the Welfare State).

This brings me to the case study of Kenya. My mother recently visited Kenya and among other things were witness to the immense poverty of Kibera, a big slum area of Nairobi. This, she gently pointed out, was reason enough to introduce a welfare state, state-funded education and jobs for these poor people so that they can advance from their poverty. Again, superficial appeal to such arguments.

After a deeper scrutiny, however, it falls apart. I'm gonna show three things that hinder these poor from advancing, improving their lives and making enough money to sustain themselves and their family. And more importantly how these three things are State-generated. State Failures as opposed to market failures.

#1)  Inflation
Inflation, contrary to common knowledge, is created by state interventions in the market place by artificially increasing the amount of money in the economy. Secondly, the poor are the peple most harmed by this. Why? Because in an inflationary environment, the purchasing power (=what you can actually buy for that £10 note) of your salary is steadily reduced. So, if there's inflation, you'd rather spend your money today than save some of it for tomorrow (because tomorrow it'll buy me less stuff). Conclusion: you can't save.

(Note on this: wealthier people, however, can save in such environments because they have access to financial products or investments that gives them above-inflation-rate returns. This opportunity is generally not there for the poor. Inflation rates in Kenya over the last decade have bounced between 5%-35%).

#2) Property rights to their dwellings or things
Hernando de Soto vividly explained to us how large parts of the world's poorest people live their lives predominantly in the Informal Economy. That is, they have houses and property and businesses (he calls them 'Dead Capital') but these items are not registered or accepted as Valid Claims to property largely because of #3 below. This has the effect that expanding your business, taking out loans on your house or having sufficient safety to plan over larger periods of time become essentially impossible. Conclusion: you can't raise funds to expand business, plan ahead or take advantage of the property you actually own. 

Just a quick note here. Notice how the two BIGGEST ways to acquire funds (#1 + #2) so that you can expand your cloth-weaving or production of recycled glass (as are the examples from Kenya my mother brings to the table), are closed off for these poor people. They can't take out mortgages and invest in new, bigger machines for your weaving and they can't save money on their own to buy such machines later on.

#3) Red Tape
Red tape is usually explained as bureacracy, regulations, riddiculous and difficult rules that make life hard for people. This is generally pointed out as a growing ground for corruption. It inclused restrictions on what you can lawfully do, processes to get property rights to housing, creating a business, legal protection and so on. Starting a business in Kenya takes around 32 days (not that bad, actually), but carries a charge equal to 38% of income/capita (even harder, because poor people earn even less than average income/capita).  Conclusion: regulation, bureaucracy creates obstacles for everyone, but especially the poor. It's expensive, and creates a third obstacle to the poor's prosperity.

The Benevolent Agenda

What my friends and family around the table claims is that such problems as Kenyan poverty needs to be alliviated by State Interventions; education so the poor can get better-payed jobs, Health Care so that they'll live better, and redistribution so that they won't be poor. Their intentions are good (=help the poor), but their solutions to do this are horrifically unsuited for alleviation of such problems. 

As I pointed out above, the REASON these people are poor have nothing to do with these measures my family would like to include. They are addressing symptoms rather than causes. The reason they remain poor are largely covered by what I've stated above. But all that gets lost within the solutions provided by The Benevolent Agenda. 

Compulsory Reading for any Socialist, Statist or Leftie

After a while of silence due to exam periods, I'm back with one amazing extract for you. With my newly-aquired time, I've finally managed to start reading Deirdre McCloskey's fantastic work The Bourgeois Virtues.

Additionally, my last post had a rather firm question: And you want more spending?, perfectly adequate to this post as well.

In the last two pages of her introductory part she defends capitalism from its severest critics by listing the failures and crimes by states throughout the last couple of centuries. It's as tragical as compelling as a text could be.

In the nineteenth and twentieth centuries ordinary Europeans were hurt, not helped, by their colonial empires. Economic growth in Russia was slowed, not accelerated, by Soviet central planning. American Progressive regulation and its European anticipations protected monopolies of transportation like railways and protected monopolies of retailing like High Street shops and protected monopolies of professional services like medicine, not the consumers. "Protective" legislation in the United States and "family-wage" legislation in Europe subordinated women. State-armed psychiatrists in America jailed homosexuals, and in Russia jailed democrats. Some of the New Deal prevented rather than aided America's recovery from the Great Depression. 

Unions raised wages for plumbers and autoworkers but reduced wages for the non-unionized. Minimum wages protected unions jobs but made the poor unemployable. Building codes sometimes kept buildings from falling or burning down but always gave steady work to well-connected carpenters and electricians. Zoning and planning permission has protected rich landlords rather than helping the poor. Rent control makes the poor and the mentally ill unhousable, because no one will build inexpensive housing when it is forced by law to be expensive. The sane and the already-rich get the rent-controlled aparments and the fancy townhouses in once-poor neighborhoods. 

Regulation of electricity hurt householders by raising electricity costs, as did the ban on nuclear power. The Securities Exchange Commission did not help small investors. Federal deposit insurance made banks careless with depositors' money. The conservation movement in the Western United States enriched ranchers who used federal lands for grazing and enriched lumber companies who used federal lands for clear-cutting. American and other attempts at prohibiting trade in recreational drugs resulted in higher drug consumption and the destruction of inner cities. Governments have outlawed needle exchanges and condom advertising, and denied the existence of AIDS.

Germany's economic Lebemsraum was obtained in the end by the private arts of peace, not by the public arts of war. The lasting East Asian Co-Prosperity Sphere was built by Japanese men in business suits, not in dive bombers. Europe recovered after its two-twentieth-century hot wars mainly through its own efforts of labor and investment, not mainly through goverment-to-government charity such as Herbert Hoover's Commission or George Marshall's Plan. Government-to-government foreign aid to the third world has enriched tyrants, not helped the poor. 

The importation of socialism into the third world, even in the relatively nonviolent form of Congress Party Fabien-Gandhism, unintentionally stifled growth, enriched large industrialists, and kept the people poor. The capitalist-sponsored Green Revolution of dwarf hybrids was opposed by green politicians the world around, but has made places like India self-sufficient in grains. State power in many parts of sub-Saharan Africa has been used to tax the majority of farmers in aid of the president's cousins and a minorty of urban bureaucrats. State power in many parts of Latin America has prevented land reform and sponsored disappearances. State ownership of oil in Nigeria and Mexico and Iraq was used to support the party in power, benefiting the people not at all. Arab men have been kept poor, not bettered, by using state power to deny education and driver's licenses to arab women. The seisure of governments by the clergy has corrupted religions and ruined economies. The seizure of governments by the military has corrupted armies and ruined economies.   

Industrial policy, from Japan to France, has propped up failing industries such as agriculture and small-scale retailing, instead of choosing winners. Regulation of dismissal has led to high unemployment in Germany and Denmark. In the 1960s, the public-housing high-rises in the West inspired by Le Corbusier condemned the poor in Rome and Paris and Chicago to holding pens. In the 1970s, the full-scale socialism of the East ruined the environment. In the 2000s, the "millennial collectivists", red, green or communitarian, oppose a globalization that helps the poor but threatens trade union officials, crony capitalists, and the careers of people in Western non-governmental organisations. 

All of these experiments of the twentieth century were arranged by governments against bourgeois markets. All of them were disasters. In short, the neoartistocratic, cryptopeasant, proclerisy, antibourgeois theoroes of the nineteenth century, applied during the twentieth century for taxing, fixing, resisting, modifying, prohibiting, collectivizing, regulating, unionizing, ameliorating, expropriating modern capitalism, failed of their purposes, killed many millions, and nearly killed us all.