The Problem with Poor Countries’ GDP
Like Bill Gates, I'm a fan of Morten Jerven's new book. And I can only assume a rousing endorsement from Gates left Jerven and his publisher in ecstasy.
I would like to see better GDP numbers–who wouldn’t?–but it’s hard for me to see this making a real difference. What constraint on development would this revelation relieve? Why are better GDP numbers anywhere near the top constraints poor countries face?
The problem with those of us in the development complex, be we academics or Presidents or foundations or NGOs, is we want the world nicely ordered with levers to pull and a dashboard to monitor. And so we put a lot of energies into levers and dashboards and monitors.
I think of poverty and political powerlessness in terms of constraints and frictions–the limitless host of things, little and big, that made it more difficult to run a business profitably or turn a profit or invent a new product or get your kid educated or select the leader who serves your interests. States and institutions and norms and technology and organizations reduce these frictions and relieve these constraints. That is the fundamental driver of development. This is the basic logic behind almost every theory of development in your textbooks, from growth models to poverty traps to everything in between.
Reducing frictions and eliminating constraints is maybe the best thing outsiders can try to help with, freeing entrepreneurs and citizens to do their thing. (Well, I guess we can also help by giving them a big market to sell things to, but that’s another story).
To the extent that missing information and measurement constrains development, or creates frictions, there’s a long list of more likely candidates than GDP. A sample:
- Small banks who don’t know the creditworthiness of the mass of potential borrowers,
- Village leaders who don’t know what funds the local bureaucrats get from the center
- Citizens who don’t know their MP’s meteoric rise in wealth
farmers who don’t know prices a district to the west
I kind of wish Gates would say “we need credit bureaus” or “we need freedom of information acts” instead.
I’m not even sure information of these sorts are even the most important frictions to address. To the extent we pay them attention or design programs, I think it’s because they seem cheaper and easier to tackle than the harder ones. But they are all a far sight better than better GDP data.
The litmus test: If we went back in a time machine, and Gates wanted to expand sales or product development or factories in Asia or Africa, would he have called for these things or better GDP data?
My hunch is that GDP data wouldn't be on his wealth creation radar. Which might mean it shouldn't be on ours.