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What's the secret sauce that lets some poor countries prosper?

Before COVID, business in Beijing was booming. Dercon says one of the reasons state-led development in China has been so successful is because the country had a strong state to begin with.
Bloomberg via Getty Images
Before COVID, business in Beijing was booming. Dercon says one of the reasons state-led development in China has been so successful is because the country had a strong state to begin with.

Why is it that some countries, like China for instance, have been able to grow both its economy and middle class, while many others have not?

Some development experts say the secret sauce lies in a strong central government that invests in social services like education and health. Others blame corrupt governments and even aid organizations and institutions like the World Bank for propping up corrupt governments and making countries dependent on aid. Still others say the answer is more aid.

But in a new book, called Gambling on Development: Why Some Countries Win and Others Lose, Belgian-British economist Stefan Dercon argues that far from following a single recipe for success, every country that has experienced success has gambled on it.

He calls this the "development bargain." It's when the elite in a country – those who wield the most power, resources and influence – make a collective commitment to pursue long-term economic growth and development through bold, sometimes risky, policy moves.

This willingness to take action by those in power, says Dercon, is what sets countries on a path to success. He comes to this conclusion after three decades of working in more than 40 countries. He is a professor of economic policy and the director of the Centre for the Study of African Economies at the University of Oxford. He is also a former chief economist of the U.K. Department for International Development (DFID) and a policy adviser to the U.K. foreign secretary.

We spoke with Dercon to better understand why some countries have prospered while others have failed.

This interview has been edited for length and clarity.

So why have some countries prospered while others — like Nigeria, according to your book — have failed?

The quick and easy answer is: Despite very difficult circumstances, there are a number of countries in the last 20 to 30 years, in which the people with power and influence, coming from business, politics, the military — the elite — have forged some kind of joint commitment to make other agendas much less important than the underlying goal of trying to achieve growth and development.

What's the gamble in that scenario?

In the short run, it may backfire. If you stop paying off the political supporters who brought you into power, you might lose power. If you invest that money in infrastructure instead, it may take awhile before those roads or ports are successful. You might make errors. There might be riots. That's the gamble.

But the countries that make the gamble are convinced that in the long run, the benefits are worth the deep commitment, including some of the pain it takes, to be successful in growth and development. And if they're willing to learn and adapt from mistakes, they will be successful.

Are you saying there's no recipe for successful development, only a willingness to try?

For me, it was actually a little bit of a surprise over the last 10 years to realize that in virtually every country I visited — and I've spent time living and working in 30, 40 developing countries — those in charge more or less know what they should be doing. In fact, some of them are very good at making the perfect plans and talking about it.

The harder thing is to get a coalition of forces in your country to make a shared commitment to actually do those things.

Even China's [former communist party leader] Deng Xiaoping had to convince all the leaders in the party when he spearheaded policies in the 1970s that led to China's growth and development.

But success looks different in different places, right?

People look too much at East Asia to define success. China has thousands of years of history as a centralized state. No wonder it's a country where a state-led development has been most successful, because it had a strong state to begin with. But in many countries, that's not where development will start.

Bangladesh, for example, is a highly corrupt country. It has a weak state, and the politics are very unstable. But I think Bangladesh, while still in its early days of growth and development, has done remarkably well, especially for a country that was written off as a "basket case" by [former U.S. Secretary of State] Henry Kissinger in 1972.

Its success partly lies in the fact that the state recognizes its own weakness and lets other forces [like non-governmental organizations, businesses and civil service] do the development. In many autocratic states — and sometimes in democratic states — non-governmental organizations get repressed. But Bangladesh understood, "We better let them do it, because the state on its own won't be able to do development." So it's a country where you have the biggest NGO in the world, BRAC [a nonprofit international development organization], which has a lot of influence and ability to act.

What about countries that gambled on development, but it didn't work out?

The one that I know best is Ethiopia, where the bold move [of a development bargain] was made, but by a coalition of elite players who were dominated by one very small ethnic group. Between 2005 and 2020, Ethiopia tried really hard, and its economic ambitions and developmental ambitions were actually very good — so much so, that lots of countries, including the U.S., really liked dealing with Ethiopia.

But in the end, one ethnicity had more control over all the resources than the others, and at least two other groups became impatient and felt like they should start benefitting today as well. Essentially, the elite coalition broke down. That's why there's now conflict.

But I'm still optimistic that Ethiopia can recover. The consensus on the economic and development front is quite deep, so if they can get the political coalition back together and find a way of operating, I'm quite hopeful they can reconnect to the growth path they were on.

How can the international community encourage more countries to "bargain on development"?

The international community themselves should be willing to gamble on countries that are clearly moving to a development bargain by giving those countries much more aid and development finance. They can also offer trade opportunities or make illicit finance much harder, as that often pays for a lot of dirty politics.

Any other takeaways for people interested in developing countries?

If you work in development, you have to learn to be patient. None of the development bargains I mention in my book are beautiful. In all these countries, there's corruption. There's still people who gain a bit more than others. It's not as if they all suddenly look like Sweden. It's much more messy.

But just because they aren't perfect doesn't mean they're a failure. There are all these countries who don't look like previous successes, but mentally, they're committed to development, and what they've managed to achieve so far is remarkable. We should give them credit.

Joanne Lu is a freelance journalist who covers global poverty and inequity. Her work has appeared in Humanosphere, The Guardian, Global Washington and War is Boring. Follow her on Twitter: @joannelu

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Joanne Lu