This interview was published in the ERF “Forum“, Vol. 21 No.2 Autumn 2014
ERF keeping in tune with changing economic thought on development strategies and policies has interviewed Ravi Kanbur to solicit his views at this critical juncture in the history of the Arab World.
Ravi Kanbur researches and teaches in development economics, public economics and economic theory. He is well known for his role in policy analysis and engagement in international development. He is also ranked in the top 0.5% of academic economists in the world.
What in your opinion are the main shifts in thinking about development economics over the past century or so?
There are great constants and great shifts, in equal measure. The single great constant is the ever present tension and debate between “market” and “state” oriented development strategies. We may think that these debates are new, but they were present at the dawn of development economics as a separate sub-discipline in the 1940s and 1950s.
They are reflected, for example, in the debates between Arthur Lewis, who of course went on to win the Nobel prize in economics, and Sydney Caine, head of the Economic Division of the Colonial Office in Britain in the 1940s. Indeed, the situation got so bad the Lewis resigned from the Colonial Economic Advisory Committee, saying in a confidential memo that Caine “is a religious devotee of laissez-faire, and his headship of the Economic Department at this juncture is fatal. . . . [his approach] is fatal not only in the decisions he makes, especially on secondary industry, on marketing and on cooperative organization, but also in the appointments he recommends to important jobs in the Colonies, for which he chooses almost invariably people as laissez-faire as himself.”
However, there are great shifts too, relative to the 1940s. Here are three, in no particular order. First, the “market versus state” debate has been complicated by the emergence of civil society, sometimes called “the third sector” in developing countries as a major player in the realms of ideas and of implementation. Second, the dominance of the nation state as the fulcrum of development policy has come under threat from globalizing forces on the one hand and sub-national decentralizing forces on the other. Third, with the emergence of a group of fast developing countries, the traditional “colonial” center-periphery model of development and the spread of development ideas is now under question.
Does the shift in thinking about development explain the move towards focusing on inequality of opportunity or is this a misplaced emphasis?
The “equality of opportunity” versus “equality of outcomes” debate is also as old as the hills. Philosophers have been debating it for a very long time, and in modern times at least since the writings of Ronald Dworkin. Critics like Richard Arneson have pointed out the basic conceptual difficulties in trying to separate out opportunity from outcome. More recently, there have been attempts in the World Bank and elsewhere to quantify “inequality of opportunity” building on the work of John Roemer. Adam Wagstaff and I have critiqued these attempts. We have argued that it almost impossible empirically to satisfactorily separate out a pure opportunity component of inequality. Further, even conceptually the method makes all sorts of assumptions, for example classifying inequality of outcomes due to bad luck (like a negative health event) as NOT being part of “inequality of opportunity” and thus not being legitimate target for policy intervention. The method has the danger of understating the degree of inequality which needs to be addressed in society.
Do you believe that the development agenda pursued by the International Financial Institutions is consistent with the needs of developing countries?
There are two points to make here. First, agencies like the World Bank have an ever decreasing financial clout and thus financial influence. The infrastructure budget of even a province in China can exceed the total financial support of the World Bank to the country as a whole. The relationship with a country like India has been transformed. A quarter century ago, GDP was much lower and there were severe foreign exchange constraints, so World Bank financial assistance was crucial. The situation is now changed, almost to the point of financial irrelevance of the resources of the World Bank.
Second, agencies like the World Bank and the IMF can still have an influence through their convening power and their influence in the world of ideas. However, (i) even here voices from the South are gaining greater prominence and (ii) there have been significant shifts in thinking in the World Bank and the IMF in the last 20 years. Who would have thought that the IMF would have been arguing for fiscal expansion after the crisis, and that IMF research would be in the forefront of showing the negative impacts of inequality on growth! There is still a long way to go, but we should not be stuck in a view of the IFIs thinking from two decades ago.
How should the current model of development assistance change in light of the fact that most of the world’s poor live in middle-income countries (MICs)?
A center-piece of the current development assistance architecture is the idea of “graduation” from concessional development assistance when a country crosses a threshold of per capital gross national income. Although there are variations, the thresholds kick in roughly at the low-income countries (LICs)/middle-income countries (MICs) divide. This is an architecture for the world of fifty years ago, and much of our thinking is also conditioned by this view. The idea of a close link between a person being poor and his or her country being poor is deep rooted in the development discourse But if poverty persists in huge numbers despite graduation from LIC to MIC status, that is no graduation at all. Rather, the focus should be on the inequality in MICs which leads to poverty despite rising per capita incomes. I have argued that the graduation criteria are too sharp, and that concessional development assistance focused on poverty and inequality should continue beyond current graduation thresholds.
What in your opinion are the main shifts in thinking about development economics over the past century or so?
There are great constants and great shifts, in equal measure. The single great constant is the ever present tension and debate between “market” and “state” oriented development strategies. We may think that these debates are new, but they were present at the dawn of development economics as a separate sub-discipline in the 1940s and 1950s.
They are reflected, for example, in the debates between Arthur Lewis, who of course went on to win the Nobel prize in economics, and Sydney Caine, head of the Economic Division of the Colonial Office in Britain in the 1940s. Indeed, the situation got so bad the Lewis resigned from the Colonial Economic Advisory Committee, saying in a confidential memo that Caine “is a religious devotee of laissez-faire, and his headship of the Economic Department at this juncture is fatal. . . . [his approach] is fatal not only in the decisions he makes, especially on secondary industry, on marketing and on cooperative organization, but also in the appointments he recommends to important jobs in the Colonies, for which he chooses almost invariably people as laissez-faire as himself.”
However, there are great shifts too, relative to the 1940s. Here are three, in no particular order. First, the “market versus state” debate has been complicated by the emergence of civil society, sometimes called “the third sector” in developing countries as a major player in the realms of ideas and of implementation. Second, the dominance of the nation state as the fulcrum of development policy has come under threat from globalizing forces on the one hand and sub-national decentralizing forces on the other. Third, with the emergence of a group of fast developing countries, the traditional “colonial” center-periphery model of development and the spread of development ideas is now under question.
Does the shift in thinking about development explain the move towards focusing on inequality of opportunity or is this a misplaced emphasis?
The “equality of opportunity” versus “equality of outcomes” debate is also as old as the hills. Philosophers have been debating it for a very long time, and in modern times at least since the writings of Ronald Dworkin. Critics like Richard Arneson have pointed out the basic conceptual difficulties in trying to separate out opportunity from outcome. More recently, there have been attempts in the World Bank and elsewhere to quantify “inequality of opportunity” building on the work of John Roemer. Adam Wagstaff and I have critiqued these attempts. We have argued that it almost impossible empirically to satisfactorily separate out a pure opportunity component of inequality. Further, even conceptually the method makes all sorts of assumptions, for example classifying inequality of outcomes due to bad luck (like a negative health event) as NOT being part of “inequality of opportunity” and thus not being legitimate target for policy intervention. The method has the danger of understating the degree of inequality which needs to be addressed in society.
Do you believe that the development agenda pursued by the International Financial Institutions is consistent with the needs of developing countries?
There are two points to make here. First, agencies like the World Bank have an ever decreasing financial clout and thus financial influence. The infrastructure budget of even a province in China can exceed the total financial support of the World Bank to the country as a whole. The relationship with a country like India has been transformed. A quarter century ago, GDP was much lower and there were severe foreign exchange constraints, so World Bank financial assistance was crucial. The situation is now changed, almost to the point of financial irrelevance of the resources of the World Bank.
Second, agencies like the World Bank and the IMF can still have an influence through their convening power and their influence in the world of ideas. However, (i) even here voices from the South are gaining greater prominence and (ii) there have been significant shifts in thinking in the World Bank and the IMF in the last 20 years. Who would have thought that the IMF would have been arguing for fiscal expansion after the crisis, and that IMF research would be in the forefront of showing the negative impacts of inequality on growth! There is still a long way to go, but we should not be stuck in a view of the IFIs thinking from two decades ago.
How should the current model of development assistance change in light of the fact that most of the world’s poor live in middle-income countries (MICs)?
A center-piece of the current development assistance architecture is the idea of “graduation” from concessional development assistance when a country crosses a threshold of per capital gross national income. Although there are variations, the thresholds kick in roughly at the low-income countries (LICs)/middle-income countries (MICs) divide. This is an architecture for the world of fifty years ago, and much of our thinking is also conditioned by this view. The idea of a close link between a person being poor and his or her country being poor is deep rooted in the development discourse But if poverty persists in huge numbers despite graduation from LIC to MIC status, that is no graduation at all. Rather, the focus should be on the inequality in MICs which leads to poverty despite rising per capita incomes. I have argued that the graduation criteria are too sharp, and that concessional development assistance focused on poverty and inequality should continue beyond current graduation thresholds.