The Quest for Prosperity – Justin Yifu Lin
It turns out technology isn’t an exogenous variable in developing economic systems after all ... it’s endogenous. Endogenous!
Aren’t you excited?
Justin Yifu Lin wants you to be. As former economic chief of the World Bank, he’s a hardcore economic wonk. His new book, The Quest for Prosperity—which I think is somehow meant for a mass audience (or at least non-economist)—is full of such, um, insights.
Mr. Lin is a technocrat: an economic engineer, or more specifically, an economist bureaucrat. Increasingly, there are a lot of these guys in the global economy. It’s all levers, pulleys, switches and knobs with these guys. If I push that button, the machine will do X. If I pull that lever, the machine will do Y.
Today’s anointed leaders, bureaucrats, presidents, academics and central bankers see the economy as a machine to be helmed—the levers and buttons at their fingertips. Our central bank governors lead; our clear-eyed Congresses fine-tune the budget to support “jobs.” If the economy is weak, increase the money supply and ratchet up the deficit spending. Need more investment? Tax incentives! Or, even more fun, special economic zones! Ailing credit markets? How about a special liquidity program?
What’s going on here? Technocrats aren’t just pro-government types. Weirdly, many professed free-market thinkers are in on this game, too. The free-market technocrats just use language like “incentives.” But it’s all economic engineering.
The age of science is one of the great boons to humanity. But the hubris of it is an increasingly unyielding faith in reason. Unyielding faith in reason can be a bad thing in economics—where the world often behaves differently than logic-based models. And certainly, the world’s economy is far more intricate—by many magnitudes—than any machine to be controlled.
What gets missed is complexity: that is, self-organizing behavior. Economies with laws and strong property rights (and usually they’re democratic) have been generally the most robust through modern history. This has been demonstrated over and over (just ask China).
So why all this fetishizing over central planning? Two ideas. First, the aforementioned faith in our reason: Economists have convinced themselves they can build a model that somehow understands—nay, predicts—complex human economic systems. As I detail in my book, 20/20 Money, this is fantasy. Second, a psychological quirk. Humans crave control over their environment. The very idea of non-centralized, self-organizing behavior on the macro level gives most folks the jibblies. Just let the economy go? Silly! We need to exercise some control here! And the bigger and more complex the economy (it’s a big world out there nowadays), the tighter we try and squeeze our grips.
Lin seems vaguely aware of this criticism, but he plunges forward fully with his brand of technocranalysis anyhow. The most telling passage of the book comes around midway, where Lin asserts economic outcomes that are satisfactory are possible if their leaders “make the right choices.” Well, there’s the crux. (Mind you, Lin’s had a fascinating life, he’s a Chinese national but his history includes defection!)
What are the “right” choices? How could any elite group or person possibly consistently make the right ones? And for that matter, who among them could possibly remain objective and ideology free throughout? Still, Lin believes economic thought and research has advanced far enough that we can prescribe the right economic medicines. I’m much more skeptical.
Most of the book centers on how to stabilize and grow emerging economies. He keys in on a classic economic principle: comparative advantage. Create policies that emphasize a country’s advantages and you’re on the royal road to becoming a great dictator, indeed! But then again, tell that to Iran—they’ve exploited the heck out of their advantage (Energy), but it hasn’t translated so well into prosperity. Why? Politics. For generations in ailing nations, it’s often power-hungry leaders using catchphrases like “investment” and “incentives” who’re really after industrialization as a means to consolidate control. It’s little wonder private capital is often at a premium for developing nations despite huge investment opportunities because so much public ownership and intervention lurks in the shadows.
Most technocratic fiddling ends up doing what basically all government economic policy does: It creates winners and losers, and quite a lot of inefficiency. To his credit, many of Lin’s conclusions are free market, pro trade, property rights and democracy oriented. But you can just see it: He wants to tinker. It’s his job to prescribe tinkering, in fact.
The chief virtue of Quest for Prosperity is its glimpse into the challenges and decisions a technocrat faces: the intersections between politics and economics present in today’s public policy.
Quest is full of literary quotes—Shakespeare, Einstein and many others—ostensibly for the benefit of making these economic concepts more palatable. These are okay in so far as they go, but one wonders if Lin realizes what he's doing by quoting Michel Foucault (the great French deconstructionist) in a book emphasizing reason-based economic modeling.
In the end, this is a debate as old as civilization: Plato wanted the world run by philosopher kings; Aristotle saw greater prosperity in the polis. Where you come down is your business; but Quest for Prosperity is a worthy introduction to today’s reality of technocranalysis.
If you would like to contact the editors responsible for this article, please click here.
*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.