Friday, 2 September 2005

Development needs entrepreneurs, not macroeconomists

"Why are some countries rich and others just suck?"

Adam Smith was among the first to attempt to sensibly answer this question in his Wealth of Nations. Joseph Schumpeter later explained how entrepreneurial innovation fuelled the wealth of nations -- PJ O'Rourke had a go too, and it's from him that I got the question -- and David Landes' recent book brings the good-sense answers somewhat up to date by relating the question of entrepreneurialism to cultural values.

But why on earth then do so many economists turn to such non-sense then when it comes to answering such questions. Why especially do the IMF and World Bank try to encourage developing economies to grow by 'top down' meddling rather than by liberating the entrepreneurialism that exists everywhere? Pete Boettke sheets home the blame to the victory of Keynesian economics:
From Smith to Schumpeter questions of economic development were asked without reference to the aggregate data of national income accounting. But after Keynes, it seemed almost impossible to ask questions of development without reference to aggregate measures of national income... Armed with Keynesian theory and the statistical tool-kit of refined measurement and control, Keynesian policies could guide government in the effort to correct the flaws of the capitalist system and manage the economic system appropriately so that stability and prosperity could be experienced.
Boettke explains briefly how flawed the Keynesian macroeconomic approach to development is, and offers pointers to some successful recent approaches in Africa for example that recognise "the eradication of poverty will not come from international aid agencies and the decisions by western leaders on how best to redistribute wealth world-wide, but through the entrepreneurial spirit of Africans themselves."

Linked article.

1 comment:

  1. So how do you explain the fact that there has been no depression in any Western country following Keynesian policy since WW2.

    There is no need to be so extreme - this is why Austrian economics is out of date and so fringe. The state need not be a central planner, but you need the state to provide the framework that modern markets need to work efficiently. Fair and efficient markets ~do not~ occur by accident-they are the products of intelligent policies.


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