Development Economics

What is the Austrain perspective this? Have just started a third year course on it and it seems to be taught from a strictly neo-classical viewpoint! How should a country develop its economy?

While I don't know the expansive full Austrian approach to this, I can pretty much guarantee it would be through the free market. If people are free to associate and trade as they wish, the "economy" of the "country" will develop. In that the State is wholly auxiliary to the proper running of a market economy, I think it could be argued that the "country" should not develop anything, but rather abstain from burdening the populous with barriers to a completely free market economy.  

When I had a Development Economics class during my Business Management BA here in Brazil, it sounded to me like a recipe for economical development. It sounded to me like a plan. It sounded to me like "planned economy"... as far as I'm concerned Austrians reject planned economies... There's still something I never quite understood: what do they mean by "development"? GDP growth? More goods? More commercial transactions? More jobs? I'm afraid of George Orwell's 1984 newspeak: slavery is freedom, war is peace, etc..

 

 The best way for the economy to develop is the people and the - as Adam Smith called it - the INVISIBLE HAND. It is also a good thing to mention, that there is no such a thing as "national economy”, I believe it is a Keynesian concept (not sure 100%) and it is a collectivist concept. Only individuals act, so an economic action to take place, you need two or more individuals to act. Nations can't act; countries can't act, so there is a fallacy to talk about "how a country can develop its economy". Only people can improve they well beings by producing more than they consume and accumulating this capital in a form of assets they need to improve they production (to improve the means of production). And if the majority of the individuals succeed in this, the economy will develop. Freedom is the best environment for this to take place.

 

 I would define developement as augmenting the general happiness.  I actually wish to seperate it from any expansion of the economy, which only rarely increases happiness.  Above all, a paternalistic state, even if it maximizes developement or distribution (which it does not), would destroy the fundemental root of contentedness simply by destroying the will of its citizens (as in Rand's Anthem).

You're almost entirely correct about development economics, except that a lot of it is taught from a discredited Keynesian perspective as well. There is scarce little in "development" economics in Austrian thought, given the presumption to universal applicability of tenets of the free market. If anything, Austrian thinking can be applied to development economics more in the negative sense, as there is a large body of literature and policy experiments from the 1950s on that has shown the failure of one ideological government interventionist fad after another: infant industries, import substitution, industrial policy, government-subsidized education, direct foreign aid, debt forgiveness, multilateral planning and lending institutions, etc. etc. Economic growth literature in general is so far removed from actual economics and policy that it's still too early to say if it can be developed into a strict Austrian framework - again, Austrian economics can be used to fill the holes in the current analysis, but that might not be sufficient for what you want. For example, new models of growth, including Romer's endogenous growth theories, building on the Solow model, can be used to explain WHY countries grow in a broader sense, but there's no accounting for how technological development becomes diffuse (i.e. innovation encouraged by the free market). But even these models suffer from a deterministic, almost Marxist, view, that countries have "natural growth paths" and that only shocks or luck and not government can derail them. There is some good Austrian work on post-conflict economics and their reconstruction, a sub-section of development economics (and my area of expertise: I'm actually an economist working in Armenia right now on a project, a country that still refuses to believe in even neoclassical tenets much less Austrian ones, which is why it's still light years behind prudent countries like Estonia and Poland). Check out work from Tyler Cowen and Christopher Coyne at George Mason University who has done some excellent work in this area. There are also some scattered works on Austrian approaches to development, such as http://www.gmu.edu/rae/archives/VOL18_1_2005/1_Chamlee_Wright.pdf, while a better more comprehensive attempt to apply Austrian thought is available at http://www.mises.org/journals/qjae/pdf/qjae9_2_3.pdf. Hope this helps somewhat - I think this would be a fruitful area for a dissertation or an area of research... I for one would love to help out.

Thanks for the information Chartwel. Out of curiosity, are you affiliated with any of the US unis? I was wondering if GMU covered topics such as growth from an Austrian perspective.

Danilo Tamura:

When I had a Development Economics class during my Business Management BA here in Brazil, it sounded to me like a recipe for economical development. It sounded to me like a plan. It sounded to me like "planned economy"... as far as I'm concerned Austrians reject planned economies...

... Did they tell you to what method or school the did subscribe in economics? I had the impression that the German Historical School and the Institutionalists were more into development economics and social evolution. But perhaps there can be development economics from an Austrian view as well.

I have met many students who have studied developmental economics, and they are all central planners. They constantly talk about "resources must go to education before this" and "resources must go to infrastructure before that". And then they cite some bogus statistic like "did you know that if every first world country sent only 1% of GDP to one third world country a year we could save *insert absurd number that is unprovable* people (or children, they love that one) a year!?"

 

As students of Liberty I think we have to be quick to inject reality into those assumptions. They all become very offended when I say, "Oh yeah? How bout those 2 trillion dollars we sent to Africa? Did the check get lost in the mail?" But they are quick to assert that the brand of socialism that was used to allocate those stolen dollars wasn't extreme enough and so we need more central planners and more of a police state.

 Check out micro-loans! They are a very powerful method of empowering the poor. So powerful that one of its main criticisms is that "microloans endanger the welfare systems that we have because of its potency". Thats actually a complaint! It's on the wikipedia page for micro-loans and I forget what it is cited from, but I am sure it is not a free marketeer.

Ron Paul 2008!

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Edgar729:

I have met many students who have studied developmental economics, and they are all central planners. They constantly talk about "resources must go to education before this" and "resources must go to infrastructure before that". And then they cite some bogus statistic like "did you know that if every first world country sent only 1% of GDP to one third world country a year we could save *insert absurd number that is unprovable* people (or children, they love that one) a year!?"

Sounds like left institutionalist to simple socialists to me. They actually should know better. In fact given the geophysical conditions most of those "third world countries" should be able to sustain themselves more then well. They didn't ask themselves serious enough why those countries are poorer, because the conclusions one would get to are not political correct.

Edgar729:

As students of Liberty I think we have to be quick to inject reality into those assumptions. They all become very offended when I say, "Oh yeah? How bout those 2 trillion dollars we sent to Africa? Did the check get lost in the mail?" But they are quick to assert that the brand of socialism that was used to allocate those stolen dollars wasn't extreme enough and so we need more central planners and more of a police state.

Now I could tell you some stories about what they do with that money. I.e. they become some inventory for the Wabenzi tribe and the like. Those "Aid" is actually a means of buying favours from politicians in those countries. Funny enough, South Africa never got any aid (until 1994) and still was the best developed country in Africa - Zimbabwe was first similar, but more agrarian. There is African Economist that explains why Aid achieves the opposite of what is claimed. His name is James Shikwati. I place items of him on my blog:

http://mises.com/blogs/torsten/archive/2007/09/24/james-shikwati-africa-doesn-t-need-aid.aspx

 

Edgar729:

Check out micro-loans! They are a very powerful method of empowering the poor. So powerful that one of its main criticisms is that "microloans endanger the welfare systems that we have because of its potency". Thats actually a complaint! It's on the wikipedia page for micro-loans and I forget what it is cited from, but I am sure it is not a free marketeer.

... Micro loans are not without problems. It's a big thing in South Africa right now. The poor getting R1000 loans for a cell phone or other consumer items. Interest is 30%/month - But I don't think that microloans as such are the problem, rather time preference.

Tortson,

 I too have noticed some problems with micro-loans. For instance, every non-profit that issues micro-loans primarily does so to women who are starting businesses. I am not sure what percentage exactly this makes up the microloan pie of the average institution but I believe it is above 90%. They do so for two reasons: 1) They loan almost exclusively to women for a couple of reasons. First, because they want to empower women in their societies. Second, because they believe women will be more likely to use the newly created wealth for their children. 2) They loan primarily to businesses because they want to empower workers.

 I am not going to say that their points are false, what I will say is what for profit entity would ever turn away a customer who wants to take a loan to purchase a radio? The radio actually provides collateral for the loan and perhaps these people would even pay a higher interest rate than somes business owners. Further, wouldn't loans to customers to purchase goods and services ALSO give a boost to the economy? Also, a for profit corporation would seek ways to loan not only to women but also men. If indeed men are more risky than women, then their interest rate will reflect that risk. As it stands now, these microloaners push their political agendas through their loans. It is not because of underwriting standards that these people restrict themselves in this way, it is because of ideologies.

 Anyways, with all the faults that microloans have they still beat the pants off of the alternatives. If microloaning was done by a for-profit then there would be a world of good done by that (or those) institutions. They would loan their funds to the highest bidder, making sure that the most pressing market demand was met.