Economics: “The Elusive Quest for Growth” by Easterly

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Table of Contents

Creative Destructive Power: The power of technology
Under an evil star
The government can kill growth
Corruption and Growth
Polarised people
In conclusion, the view from Lahore

Creative Destructive Power: The power of technology

In this chapter, the author begins by highlighting technology as a force that is used to curb poverty. However, the chapter underscores that there are ways in which technology offers hope to countries in tropical regions. The author argues that tropical countries do not have much interest in old technologies as is the case with industrialized countries. In this case, tropical countries can skip certain steps in technological development and adopt those that are vital.

However, this chapter emphasizes that seizing technological opportunities requires an average level of skills, experience, favorable policies, and adequate infrastructure. The author states that since 1985, the computer has evolved from a less advanced gadget to a more comprehensive and efficient device. It is evident from the chapter that some decades ago, the author used a computer that offered very limited services.

Currently, technology has made it possible to use a laptop that can correct grammar errors and spelling. Therefore, it is arguable that the present technology is quite exquisite since it provides a wide range of services simultaneously. For instance, one can use a computer to send an email, type, correct errors, store information, and connect with people online.

The author notes that the internet is a new technology that did not exist a few years ago. In this chapter, it is apparent that one can use the internet to research books, contacts, and email addresses from different websites. It is also evident that significant technological changes have been embraced and equally facilitated the existence of new products. Nevertheless, growth is not defined by the existence of numerous machines but by the residual effects. In this case, it is arguable that technology has resulted in growth from the leaping effects in production and industrial efficiency.

Nonetheless, the author notes that technological advancement has side effects on old goods and ancient technologies. It is definite that though new technology reinforces the old, it replaces it to some extent and at some point makes it obsolete. In this case, the author celebrates the fact that new technology increases the potential for growth both in developed and underdeveloped countries. The author uses the development of light technology from the times when the stone was being used to current times when fluorescent bulbs have been adopted.

The author warns that although the technology is wonderful, it should not be regarded as a precursor for growth. In this case, it is arguable that whenever there are technology and no incentives, there is no much growth that can be realized. In this case, incentives encourage people to embrace technology and increase production. At this juncture, good governance whereby governments give incentives to workers largely encourages growth.

This has been observed in America whereby the US government rewards investors. That is why the author argues that technology creates winners and losers. The author also notes that governments with vested interest become destructive to technology since they fail to give incentives to investors. In this case, it is arguable that patent can be used to protect technological inventions from being copied, modifies, or replaced by counterfeit models. The author also argues that inventors should adopt a path-independent approach even though it is hard to predict impending challenges or luck.

Under an evil star

This chapter begins with the author’s description of a man called Nha who is 26 years old in a household of 12 members. Notably, this man has witnessed the deaths of his relatives including his daughter, who drained all his riches leaving him poor. From the chapter, it is evident that Nha regrets that were it not for the illness of his daughter, he could still be rich. In a shift of focus, the author introduces Chaalak, a 30-year old mother with four daughters.

Moreover, the author explains that this woman has also faced it hard in life after her husband suffered from diabetes. Just like Nha spent every coin he had on hospital bills, Chaalak worked extra hard to meet treatment expenses for her husband. Notably, Chaalak opted to haul fuelwood to raise money for upkeep for her husband and children.

In line with this, the author introduces Freda Musonda, a mother of five children. It is evident from the chapter that her husband passed on in 1988 and shortly after the burial, her husband’s relatives seized all the properties they had. Being rescued by her father-in-law, she is worried about how she will raise her family with no income. The woman faces a hard life in the process of making ends meet. It reaches a point that her children drop out of school.

The author outlines that the three characters namely Nha, Chaalak, and Musonda became vulnerable to illiteracy, poverty, and unskilled labor due to domestic adversities. Nevertheless, this chapter stresses that it is easy to forget such adversities when one resides in a rich country. This chapter also highlights how the traps of poverty heavily affect individuals and the economy. In this case, technological development is determined by complementary skills and adequate household assets. Lack of such assets inhibits people from inventing and advancing technologically. It is notable that calamities such as diseases and death drain all the liquid assets and encourage the spread of vicious circles of poverty in a country.

Arguably, the author points out that, in most cases, economies are prone to disasters and can easily be ruined. This chapter outlines that disasters kill off skilled people and drain liquid assets. From a careful review of the literature, the chapter draws attention to the fact that poor countries are often more vulnerable to disasters than developed countries. Such disasters include HIV/AIDS infection and other dearth-related disasters that increase the rates of poverty.

For instance, from a statistical point of view, the chapter indicates that over 1% of the poorest countries in the world hosted internal refugees at some point due to disasters. Additionally, 12% of the poorest countries in the world have more than 30% of their population affected by HIV. This chapter also reveals that the rate of HIV prevalence is more rampant in Sub-Sahara Africa. It is notable that other than natural disasters, there are man-made disasters.

Remarkable disasters that result from nature include earthquakes, floods, drought, typhoons, and landslides. On the other hand, the author notes that a significant number of people die from man-made disasters such as war and famine. From this chapter, it is controversial that though poor countries are the most vulnerable to disasters, yet they have a large range of growth rates than rich countries.

Nevertheless, the author recommends that economic growth is subject to numerous determining factors. In line with this, economic growth depends on complementary changes in technology. In this case, for there to be growth, initial conditions must be favorable to match with the intended results. This calls for adequate skills, household assets, and a favorable environment. The author also notes that luck is a rival hypothesis that keeps people honest in determining growth. In this case, there is a need to determine and predict growth since it is not guaranteed and instabilities are inevitable. The author argues that we should not focus on the role of luck lest we forget that it can trigger short term fluctuations that can inhibit growth.

The government can kill growth

In this chapter, bad governance and bad luck can certainly discourage growth. For instance, government actions such as overtaxing and strict policies are likely to discourage future investments. High inflation rates, black market premiums, budget deficits, trade restrictions, high interests, and poor public services act as disincentives to growth.

The author notes that, at some point, governments use inflation as a warfare tool. However, it is apparent that once inflation commences, it is hard to stop, a factor that causes indexation on workers’ deposits. This has been observed in numerous countries such as Israel, Costa Rica, Mexico, Nigeria, Peru, and Venezuela. Notably, inflation creates a meltdown of liquid assets and a limited amount of money is saved for investment.

The author points out that investors withhold investing for fear that their wealth will get drained and this interferes with the normal economic growth. In line with this, governments can create high black-market premiums by restricting investors from buying and reselling a certain currency. This happens when governments charge high taxes on exporters to an extent that they do not transact at the official exchange rate. In this case, investors pay a lot of money for imports and fetch very little from their exports. Punitive taxes discourage investors from investing and this affects economic growth.

Governments can create high budget deficits, a factor that affects economic stability. Budget deficit affects exchange rates as it was witnessed in Mexico between 1973 and 1975. In most cases, when an economy experiences external deficits, a country has to accumulate external debts to run its economy. This results in inflation since a county has to regenerate more monetary resources to repay the debt. This trend discourages investment since it triggers a hike of future taxes to stabilize the deficits.

Despite the above, this chapter highlights that eradicating banks destroy growth since they are the sources of credit for investment. It is evident that when bank rates increase, it discourages people from saving or even obtaining credit facilities. This eventually leads to financial repression since very few people obtain credits or even make savings in banks. In this case, money in the banks fails to increase, a factor that turns the rates negative. Needless to say, the author in this chapter asserts that severe repression in finances can be disastrous to growth.

The author presents another unlucky legacy of closing economy whereby poor nations are blocked from taking part in international trade. Usually, this happens when a country becomes eager to concentrate on automobile production at the domestic level for purpose of consumption. The author argues that this is a protectionism approach and can lead to economic decline. For instance, it is not economical for a country to import spare parts to assemble goods for local use yet the returns are not worth the deal. The author notes that imports are usually expensive and hence they do not give back attractive returns.

Moreover, import substitutes replace local goods and this kills domestic industries. Additionally, poor services from the government such as inefficient infrastructure can discourage investment. The author argues that good governments should strive to improve infrastructural facilities to achieve attractive returns from investors. Research has revealed that high taxes on income can kill growth since they lower after-tax income. Therefore, there should be an official rate of taxing investors and workers to motivate them to invest.

Corruption and Growth

This chapter addresses the scale, effects of corruption on economic growth, determinants, and possible solutions to corruption. The author asserts that corruption is one of the greatest challenges that affect growth. Corruption is a common issue in most poor countries. Nevertheless, the author points out that the issue of corruption had not been considered much until recently. Notably, economists and international financial institutions gained an interest in the issue of corruption lately after it became an international concern.

From a careful review of the literature, the chapter exposes the fact that corruption occurs in rich and poor countries on all continents regardless of the existing religious doctrines. Nevertheless, the author notes that there are careful measures that have been taken and hence the severity of corruption differs from one country to another. The author, in this chapter, states that different countries have their way of rating corruption. In this case, he concludes that some countries are more corrupt than others.

Notably, on a scale of 0-6, businessmen rank at zero with the exception that their lines of duty allow them to commit corruption. Countries under reformist governments rank position two while industrial countries are the most corrupt on a scale of 6. From this chapter, research has revealed that the ratio of corruption and that of economic growth is inversely related.

Therefore, it is arguable that corruption does not only affect economic growth directly but also interferes with policies that deteriorate growth. This involves the rise of policies that support the diversion of public revenues and budget deficits. Countries that were most corrupt in 1990 were certainly vulnerable to serious economic disasters. Nevertheless, this chapter outlines that the effects of corruption among countries vary with time.

Survey reports obtained from communist and post-communist countries indicated that corruption was becoming a pervasive issue in such countries. Research has revealed that post-communist countries ranked the poorest, a factor that illustrates the negative effect of corruption on growth. It is essential to note that there are numerous types of corruption. Commonly, there exist centralized and decentralized forms of corruption. Needless to say, all the varieties result in common pools of problems. For instance, corruption accelerates the rate of theft and bribing.

It is essential to note that decentralized corruption can be more disastrous and make it hard for governments to punish culprits since they are usually many. Moreover, this type of corruption involves government officials who easily encourage vicious cycles of corruption. If the case is centralized, only one individual is involved in corruption and hence evasive actions can be affected quite easily.

Therefore, it is arguable that centralized corruption is less damaging than a decentralized one. The author notes that countries with weak institutions do not prosecute corrupt individuals and hence their economies get ruined easily. Moreover, communist and post-communist states experience centralized corruption under dictatorial leadership. This made them more tolerant than those countries with independent powers and decentralized corruption. In this chapter, there are numerous determinants of corruption. Such determinants include the type of government and financial resources available.

Additionally, the author outlines numerous policies that can be used to eradicate corruption. For instance, he argues that governments should mind the quality of institutions to eradicate corruption. Moreover, governments should establish policies that act as disincentives to corruption.

Polarised people

This chapter explains why politicians face perverse incentives to destroy growth. In this case, the author uses his own experience to explain how factions develop in human society. He argues that factions are a mystery since they sprout from nowhere. However, it is evident from the chapter that factions help to account for how poor policies attribute to poor growth. The author wonders why governments opt to use policies that end up lowering growth.

He laments that governments encourage corruption by taking a greater share from the economy. The author suggests that the respective governments should encourage future investments among poor people by providing subsidies. From this chapter, the author asserts that governments should offer incentives and also distribute existing income in n equitable manner. On the other hand, governments take the initiative to promote development in cohesive societies. In this case, the fundamental difference between the two societies is the aspect of social polarisation.

It is imperative to note that society is divided into social classes and unified by a common culture which creates a favorable condition for growth. In this chapter, the author takes a case study of Ghana to demonstrate the effects of social polarisation in growth. The author asserts that Nkrumah concentrated the Ashanti group in coca producing areas and passed a bill to freeze cocoa prices in favor of the group. He heavily overtaxed cocoa making farmers exchange currency at a black market rate.

Consequently, there was a large devaluation in currency; a factor that resulted in the rise of deficits after the global price of cocoa fell. Later on, ethnic coalitions emerged and encouraged punitive taxation of coca against the Ashanti. The government also gave license to ethnic and political supporters to export coca at the official exchange rate, and this created black market rates. Eventually, this leads to the collapse of the Ghanaian economy due to undervalued exchange rates.

The author laments that even politicians are like other human beings and can become a growth disaster. For instance, sometimes, they suggest policies that benefit the nobles. Notably, governments that are headed by corrupt military and are based on ethnic divisions develop restrictions that are triggered by corruption. Therefore, the author argues that politicians also respond to incentives just like ordinary people.

From this chapter, one would question why politicians get attracted to risky incentives like inflation, black market premiums, and negative real interest rate, yet they kill growth. The author comments that such circumstances make corruption possible since they can trade at official exchange rates and make attractive returns. It is plausible that politicians establish policies that breed corruption. In this case, the reason why they opt to choose growth de-motivating policies is that they get more returns than their income.

This chapter highlights that politicians also employ growth-killing policies to ensure fast growth so that they can steal more from their countries. Other important highlights in this chapter include the fact that polarisation creates a tendency to split society, a factor that encourages poor policies. Therefore, polarisation hurts growth and, therefore, should be eliminated at all costs.

In conclusion, the view from Lahore

In this chapter, the author begins by giving an overview of Lahore. Notably, its provincial administrations spend much on nuclear weapons though they are never in use. However, the author laments that the place has much vitality since it portrays a high level of economic dynamism. The author also admires the historical and cultural aspects illuminated by his adventure. Nevertheless, the author realizes that a lot of terrible things have been experienced in the past.

For instance, he notes that Pakistan has experienced terrible governance, illiteracy, poor housing, and malnutrition among the bulk of the population. Therefore, Punjab, the capital of Pakistan has the worst social indicators in the world. Additionally, the majority of the population depends on agriculture and lacks adequate public amenities. In line with this, the educational system In Lahore is very poor probably due to inefficient facilities. Notably, learners share inadequate facilities such as classes and other stationeries.

No magic can be done to bring a happy ending for growth. In this case, incentives are essential to motivate players in the development game. Governments should induce incentives such as promoting high-quality schooling, technological adaptation, and favorable investment in machines. Moreover, donors must be motivated with good policies to continue funding countries that are likely to give high payoffs. In line with this, the author concludes that poor countries should avail of good opportunities and incentives through welfare programs rather than punitive taxes on income. Additionally, the author argues that growth occurs when politics are not polarised on ethnic and antagonistic interest groups.

Instead, there should be a common consensus to foster future investment. In line with this, the chapter highlights that governments’ accountability will help to realize broad development. Therefore, it is definite that to experience growth and development there is a need to employ a collective approach where the governments, donors, and individuals create incentives to foster investments. The chapter puts more emphasis on the fact that governments that do not devote themselves to public theft or providing adequate infrastructure are much needed to boost growth and development in most ailing economies.

As the author concludes the chapter, he criticizes international institutions such as the World Bank and the International Monetary Fund. This is because, at some point, they offer monetary aid to poor countries with strict conditions, a factor that makes it hard for them to experience growth. Nevertheless, the author states that these institutions are equally important since they boost poor countries with incentives to ensure healthy investments.

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