Meant to be a story of foreign aid, but really it's an account of why central planning fails. Students of Soviet and Maoist systems should read this 📕 by @ninamunk alongside historical texts to know why central planning fails in different times and places. #globaldev
In one "model village" (Millennium Village), local cadres preselected a list of crops for planting, expecting they will sell. Maize: bumper crop but local consumers don't like corn. Farmers dump crops, price crash, losses.
That's familiar to anyone who studies central planning
+ Bureaucrats decide what goods to produce & sell at what price
+ Benevolent central leadership
+ Often genuinely passionate local "cadres"
+ But must seek approval from HQ for every decision
+ Ignore what locals really want (even what they like to eat)
Of course, make no mistake, in a centrally planned communist system, one big difference is coerced policy enforcement, as this book vividly describes.
In China, reformist leadership under Deng knew central planning is doomed. But leaping straight to private markets is no solution either (think Russia).
The key is changing the role of government, from a dictator & top-down planner, to a director
Creating conducive conditions for local state & market actors to improvise, i.e., make best use of indigenous resources, creating diverse solutions
Put differently, the government is not a solution provider, but a solution enabler
It's neither central control nor "lying flat"
If #globaldev hopes to do good, it should discover, support, direct, and not do central planning
Which has been proven to fail in both communist systems and altruistically funded projects
END
As I said a million times, however, Deng/reform-era China is HISTORY. "How China Escaped the Poverty Trap" is a contemporary history book. We study the past to know how we got to the present, and for lessons on what went right and what went wrong.
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Today, free market economies are taken for granted as the norm. Polanyi argues they are unprecedented and new in human history, appearing only in 19th century. Profit motive is not “natural” to humans…
Instead, premodern societies were more “communistic” than capitalist
(What good is private gain if you were ostracized by a closed group?)
Organizing principle was not gain
But reciprocity + redistribution + household subsistence
“Among these motives gain was not prominent”
Custom, magic, and religion induced compliance with social order
Answering these questions requires reframing the debate – in particular, reexamining popular narratives of Western history...
In fact, looking a little further back in time reveals that China is not so unique.
When the United States was an emerging economy during the late-nineteenth century, it, too, experienced rampant corruption. But many elements of America’s Gilded Age have long since been forgotten.
Attitudes have become so extreme that anyone who even *attempts* to tackle hard, important questions are scorned as unscientific, while scorners dedicate their lives to precisely proving points everyone already knows. Anything less than definite & airtight is not publishable…
So naturally incentives gear toward trivial questions that can be (a) precisely & perfectly answered, (b) accepts conventional wisdom and wins approval.
Knowing the rules of the game quickly reveals the winning strategy
- Embrace conventional wisdom, especially deep assumptions
- Bow before all high priests
- Make trivial addition to status quo
- Using fancy method, impressive dataset, 40 page appendix of exhaustive defense
As construction projects came to a screeching halt, a downward spiral of falling land prices & more defaults followed. The depression lasted 4 years, local governments fell into deep financial holes.
Describing China 🇨🇳 today? Peak China?
No, America 🇺🇸 in the Panic of 1837
Classical economists: America's development began with "the European form of good institutions"
Really?
Nope 🙅♂️
Instead of raising taxes, US state governments practiced "taxless finance," a rapid, convenient, shady way of raising funds for building infrastructure that was also wildly corrupt
Reminding us, of course, of 🇨🇳 in the 2000s-present