More Than Good Intentions and Poor Economics

|Peter Boettke|

Bill Easterly reviews both.  The hot thing in development economics is to account for irrational behavior, and engaged in controlled experiments.  

The tragic policy problem to be solved in efforts to provide assistance is that (a) so little effort has been made to assess the impact of policies introduced to alleviate poverty and improve health and well-being, and (b) in those instances when efforts to measure policy effectiveness were made they are more often than not extremely dubious.  The claim is that modern economics by accounting for irrational behavior, and introducing the method of controlled experiments is fixing the tragic problem of the failure of humanitarian assistance for poverty alleviation.

I am less persuaded than these authors that the poor are irrational and self-defeating, and instead think analysts have not completely identified the incentives that the poor face.  The behavior is self-defeating, but the cause is to be found not in their inability to weigh costs and benefits, but the context they operate in that produces myopia and self-defeating strategies for poverty alleviation.  Context matters; history matters; ideas and beliefs matter; institutions matter; INCENTIVES MATTER.

But that doesn't distract from the idea that the questions studied remain the central to the discipline of economics, and that our inquiries into the nature and causes of the wealth of nations remain the most important contributions we can make to science and to humanity.

Comments

[Richard Ebeling]

I wonder if we are hoping for too much, too soon.

If it took centuries for a growing number of people to overcome the "age of superstition" to then enter into the "age of reason";

If, as Hayek suggested, it took man centuries to evolve (partly) out of the mentality of the small tribe into the "abstract order" of market relationships;

Why should we presume that people in other parts of the world where these changes did not first begin already, now, centuries ago, can just "turn off" in their heads one way of thinking and adapt another?

One of the aspects of "culture" that Thomas Sowell has emphasized in some of writings is the "residues of thought and value" that stay in societies or groups long after the external environment has changed.

For example, Sowell has pointed out that those who are the decedents in America of immigrants from, respectively, the "Highlands" or the "Lowlands" of Scotland can be observed to have degrees of different behavioral characteristics up to the present time.

Certainly, man chooses: man weighs the alternatives (at the margin); makes trade-offs; is often alert and sometimes searches for potential gains from trade; he haggles in the market place, and attempts to "profit" from what he decides rather than suffer a "loss." And some are more risk-taking, and entrepreneurially innovative (in that Schumpeterian sense).

And, yet, however much with reluctance (and with hesitant care so as not be be drawn down a dangerous dead end) there remains the inescapable element of truth in arguments of the 19th century historicists:

That men are born into a society and culture, they are acculturated into it from birth through the learning of a particular language, a specific set of customs, traditions, routines, conceptions of value, "right and wrong," senses of obligations, duties, and responsibilities.

These are those "structures of inter-subjective meaning" that Alfred Schutz explained are essential to people's orientation towards others as well as to themselves -- they are not "objective" things of the world, they are societal interpersonal "mental constructs" that define and give meaning to who we are, what we are, how we relate to others, and provide us with senses of purpose and the "meanings" of "it all."

Of course, they are not permanently "static" for all time. They change, are modified, evolve. Yet, there is an element of residual durability. Read, for instance, Caesar's commentaries of his wars with the Germanic tribes. Oh, how familiar do seem some of the behavioral characteristics that he explains them to have when, even today, we think about the "typical" German!

Read the commentaries of those who visited Russia in the 18th and early 19th centuries and their descriptions of Russian peasants and the nobility. Read their explanations of the "typical" Russian's attitude and manner toward "authority" and "obedience" to those in power; the attitude of envy among the "average" Russian about those are better off than themselves, and their resentments that take various forms due to this. Their attitude that success and wealth do not (and cannot) come from industry, but from either those "above" who can bestow it, or from "luck" that individual effort has nothing to do with. And what do you see? The "average" Russian in many walks of life today.

Those of us who are classical liberal or libertarian have been highly critical of the "constructivist" mentality of the "social engineers" who believed that the United States could invade Iraq, for example, and remake in little time an entire understanding about, appreciation of, and a value for "Western values" about "democracy," tolerance, respective for the individual, a greater degree of "separation of church and state" in a society and culture that has little history of such things along European or American lines.

So why should we think that it will be any less "difficult" in matters of economic "development" strategies?

I am not saying that classical liberal values and institutions are "relative." I happen to think that they are "true," right, and "good." But they first arose in "the West" due to the unique historical circumstances in "the West." Aspects of the classical liberal ideal have been slowly spreading to the other parts of world, but they do so in the context of existing societies and their respective histories, cultures, and "value-systems."

If you, as a classical liberal, find yourself in a society of cannibals in which they believe that eating the brains of "strangers" will give them "spiritual strength" and will make the "gods" happy so they will bring rain and good weather for the crops to grow, you are going to have a bit of a time-consuming intellectual task to get them to see the world differently before they decide its "dinner time" and you're the main course.

Richard Ebeling

[Brian A. Pitt]

Richard,

Brilliant point. I attempt to make similar points while making sense of inter-generational welfare enrollment and alcohol abuse.

[Troy Camplin]

Richard is right that we have to take into consideration the various elements of particular cultures in how ideas get interpreted and institutions develop. But there is another element that people don't recognize, which is that people also go through stages of complexity in thinking and social organization as well. This was first developed by the psychologist Clare Graves, and I think it's something that should be of great interest to those in developmental economics.

In "Spiral Dynamics," Don Beck and Christopher Cowen expand on Claire Graves' idea that humans go through psychological stages of complexity, with resultant stages of social complexity, and that this happens both historically and personally. They say that people go through two tiers of complexity, and that the first tier has 6 stages, while the second has only two so far. The first stage of the first tier sounds a lot like how chimpanzees act, so I typically see the first tier as having 5 stages. The first stage if that of tribalism. The second stage gives you the kind of society and people you see in The Iliad and the Odyssey. The third stage gives you the kind of society and people found in Medieval Europe, though it includes thinkers like Plato and Aristotle, St. Augustine and St. Aquinas. The fourth stage gives us the kind of society and people you find in the Enlightenment, including the foundation of America, the Founding Fathers, Voltaire, Adam Smith, etc. This is a fundamentally scientific, libertarian level. The fifth stage is that of egalitarianist postmodernism (if we think of postmodernism as post-Modern Era), including people like Rousseau, Marx (two early founders), Heidegger, Sartre, Derrida, Foucault, etc. That ends the first tier. They describe the second tier as being at an exponential level of complexity above the first tier thinkers. The first stage of the second tier includes Nietzsche as a founding thinker, and probably includes people like E. O. Wilson, Steven Pinker, Mises, Hayek, Cosmides and Tooby. We get a return to libertarian thought -- really, a sort of neolibertarianism. The next stage includes people like Frederick Turner, J. T. Fraser, Claire Graves, Don Beck, and Christopher Cowen (how else could they have recognized a stage they weren't in?). These people also tend toward a kind of neolibertarianism, though of a more communitarian variety. The second tier thinkers are the ones who most fully developed complexity science, systems, science, emergence, fractal geometry, etc. You will also notice that the stages advance in complexity while going back and forth between individualism and communitarianism, with stages 1, 3, and 5 in the first tier, and the second stage of the second tier being communitarianist. Stages 2 and 4 and the first level of the second tier are individualistic. At the same time, each level contains the levels below it, though the first tier people tend to be exclusionary toward other levels, while the second tier people are deeply inclusionary and seek to create a healthy relationship among all the levels -- in themselves, others, and in society. The levels are open-ended, meaning that though there have been two levels in the second tier, there will be more as society becomes more complex.

Clare Graves' idea is one I find to be very persuasive, not the least being because it fits so well with the emergentist metaphysics I already embrace, particularly as developed by J. T. Fraser. Further, it is founded on the idea that the mind is self-organizing, complex, and adaptive, with emergent properties.

Please notice that I said that people develop through these stages. In the U.S. (a fairly complex society), we see people going through each of these stages. Young children are of course at the chimpanzee and then first stage. At pubescence, they enter the second stage (gang members and many artists stay at this stage). By late teens, most people are in the third stage. Those who enter college and remain at this stage tend to become engineering or religion (their own) majors. Early college, people are in the fourth stage. Probably most science majors and business and economics majors exit college at this stage. The social sciences and the humanities especially tend to get people to stage 5, and graduate them at that stage. And then there are the handful who emerge on the other side, who for whatever set of reasons reach a level of much higher complexity, and see the world in its complexity and understand the importance of each of the levels within the human mind and within society. My suspicion is that it occurs primarily in those of us who are full-scale information junkies. All of this occurs not because earlier levels are "more childlike" or any such nonsense, but because the complexity of our society compresses our development so much through the stages, that they have to take place through childhood. This no doubt has ramifications for children and teens. But that is getting a bit off topic.

I think Graves' model is one that should be investigated at greater length. I think it would help clarify where many of our social and developmental problems come from. I also wrote about his idea here:

http://zatavu.blogspot.com/2005/06/spiral-dynamics.html

http://zatavu.blogspot.com/2008/01/middle-way-part-12-on-hatred-war-and.html

http://zatavu.blogspot.com/2010/12/time-preference-and-emergent.html

[Richard Ebeling]

Troy, your analysis and explanation of these stages of development is very interesting. But . . .

The term "stages" (especially as this term has been used by some social scientists in the 19th and 20th centuries) suggests "logical progression," or "inevitable development," or "historically determined," or "natural evolutionary trend," or . . .

Sequence, however, does not imply "causation." As sociologist, Robert Nisbet, once expressed it:

“How easy it is, as we look back over the past -- that is, of course, the ‘past’ that has been selected for us by historians and social scientists -- to see in it trends and tendencies that appear to possess the iron necessity and clear directionality of growth in a plant or organism. . . . But the relation between the past,
present, and future [in social events] is chronological, not causal.”

The "pattern" that you summarize is how "history" played out in the West. It is the chronological sequence of events -- intended and unintended -- of the development of European "civilization" in the areas of ideas and institutions.

But there was (and is) no causal inevitability to all of this. If the Mongols had overrun more of Europe after conquering modern-day Russia; or if the Muslim forces had crossed into France and beyond after conquering Spain, or if the Turkish advance had not been stopped at the "gates" of Vienna; or if the Spanish Armada had defeated the British; or if . . .

Any such change in the "accidents" of history, might have greatly influenced the resulting "stages" through which European and American civilizations might have passed.

Until the influence of the Western "powers," Japanese and Chinese, and Indian civilizations were following other paths quite different from those in Europe. Yet, this influence was one of the same accidents of history. (If the Chinese had defeated the British, for example, in the Opium War of 1842, the course of Chinese and European history in terms of developments in this part of Asia might have followed a different direction -- which might have influenced, in turn, the Japanese response to Admiral Perry's "visit" and "threats" in the 1850s.)

Thus, it seems to me that it is very difficult to draw any "trend lines" of "stages" of development for societies or civilizations.

There is just "history." I think that Ludwig von Mises' discussion of supposed "stages" of historical development in his 1957 book, "Theory and History" is very useful and enlightening on this and related issues.

Richard Ebeling

[Ryan Younger]

Is it possible to separate the Graves model from a notion of historical progression? I agree with Professor Ebeling that the argument is weakened by framing the model in the context of a "natural evolutionary trend", but in Professor Camplin's description we witness, at any point in time, different individuals who think and operate at different stages. That is, the Graves model does not seem to summarize how history has played out anywhere. Rather, it offers a means to visualize the differing levels of complexity which people devote to the thinking up of solutions to individually- or socially-oriented problems. Is this so?

[Rafe Champion]

This may be Pete's point, there has been a degree of cultural "overkill" in the analysis, Peter Bauer described flourishing industries developed by peasants in third world countries before decolonisation (when central planing was in vogue) introduced a plethora of regulations and the rule of gangsters who took all the incoming aid for their own benefit.

The end result was that the aid did more harm than good, and that can be explained by incentives and the logic of the situation without a great deal of cultural analysis. Blame the perceived success of the Marshall Plan (exploded by Tyler Cowen).

[Troy Camplin]

Ryan is correct in his understanding of what I wrote. I use the West as an example because we are most familiar with it, but we see the same patterns everywhere in the world. More, though, I described these things as "pure" examples of each level, but the reality is that each still retains the less complex levels as well.

Human brains are pretty similar in structure, so we should not be surprised if increasing complexity in those brains' structures should follow similar patterns of development. The same can be said of human interactions. Economics, for example, is only a science if and only if there are patterns which can be studied and understood. If it is true that humans can become increasingly complex in their mental structures and psychologies, then it would follow that their interactions would become more complex as well -- and this is going to affect the complexity of society.

We argue that if a society has certain institutions, that a certain society will, predictably, emerge. We cannot of course predict the details of that economy, including what technologies, firms, etc. will emerge, but we can predict that certain kinds of economic patterns will emerge. That is what Gravesean psychology describes in his psychological and social levels.

We are not talking about stages of history in any Marxist sense, nor are we arguing that any of this is inevitable. There can be reductions in complexity -- history shows there are. This can happen in societies as well as in individuals. It all depends on how we respond to the paradoxes which emerge with each level of complexity, whether we respond with more complexity, or go into a more comfortable, less complex level.

[Rafe Champion]

Troy, what are you adding to the simple point that institutions and incentives matter? Africa went backwards after decolonisation and Germany had an economic miracle after a Sunday afternoon barbeque of regulations. No deep cultural change in either case.

[Ryan Younger]

May I ask why the occurrence of or absence of a deep cultural change would determine the effectiveness/importance of the Graves model?

Wouldn't a change in institutions/incentive structures that produces a change in social outcomes - with or without deep cultural change - still be a phenomenon that emerges due in part to individuals' thinking at one or more level within the Graves model?

On the other hand, doesn't the degree to which cultural change is realized suggest something about how the thinking producing said change might be classified within the Graves model?

Moreover, I think the "Incentives/Institutions Matter" mindset, in pointing out that it is not necessary to "change human nature" or make significant cultural changes in order to improve social outcomes, could yet benefit from a model which hints that there are modes of thinking, erected on the very same rational foundation upon which the scientific edifice stands, rarely tapped into by the so-called "masses."

Exposing more people to these "second tier" thoughts, from what I gather from Troy's description and from my familiarity with the thinkers mentioned at this level, would serve to fortify the institutions/incentive structures that produce social outcomes we can agree on as positive. I get this from Troy's description of a "neolibertarianism" of a "communitarian variety." To me we are here talking about how to achieve a growing respect for individual freedom within the community while at the same time encouraging activity beneficial (or at least not detrimental) to the interests of the community as a whole (i.e. at its worst a given activity carried out by a given individual would do no harm to any other individuals within the community). Maintaining the aforementioned respect for individual freedom, such a goal could only be accomplished if people acted "beneficially" of their own volition. In the process it may become necessary to revise/redefine current notions of "harm" and "benefit."

Take, for instance, competition in the marketplace. Under some people's present definition, the "loser" or less successful competitor is harmed by the "winner" or more successful competitor. In terms of Troy's description of the Graves model, I think this mode of thinking fits nicely on the second level of the first tier. On the other hand, at the fourth level of the first tier, thought becomes complex enough to recognize that, as long as both competitors play by the same set of rules, then the more successful competitor is not really doing any harm to her less successful counterpart. After all, nothing prevents the less successful competitor from stepping up her game. At the second level of the second tier we add a communal element to the debate. Competition under explicit and agreed-upon rules is embraced as beneficial to the community as it improves the skill and strengthens the character of the players involved while at the same time offering the potential for an improved standard of living.

The extent to which second-tier thinking brings about shifts in the accepted meanings of words commonly used to characterize activity, and of the perceived value to society of the activities themselves, is the extent to which we may begin to discuss, for better or worse, true "cultural change." As Troy mentions, we may be able to predict the emergence of certain patterns of activity as institutions crystallize around the cultural changes taking place. Of course our predictions will not be detailed, and there will certainly be a host of unexpected surprises. The second tier, after all, is a new frontier.

[Troy Camplin]

I couldn't have said it much better than Ryan. I will add, though, that these levels matter because they influence the kinds of institutions that emerge. Institutions that work emerge in a bottom-up fashion and in turn are responsive to those who created them. Incentives differ at different levels, because of the different values that dominate at each level. What the 2nd tier thinkers can contribute is guidance for those home-grown institutions so they are more beneficial than harmful, without making the mistake of thinking that one can jump levels (the main problem with developmental schemes in the past).