Gambling on Development, by Stefan Dercon

In the last thirty years, many countries have prospered, but others have simply missed the boat. In his latest book, Stefan Dercon argues that successful growth and development requires an implicit contract among those who can make development happen: a development bargain.
Gambling on Development, by Stefan Dercon
Adapted from the introduction of Gambling on Development: Why Some Countries Win and Others Lose, by Stefan Dercon. Copyright 2022. Used with permission of the publisher, C. Hurst & Co. (Publishers) Ltd. All rights reserved.
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When I wrote Gambling on Development, Covid-19 was ravaging the economies and societies of poor and rich countries alike. What would happen next was uncertain, but what was certain was that political leadership worldwide would be tested for a long time to come. Leaders in better-off countries were invariably using terms invoking what had been lost, promising to ‘build back’, albeit ‘better’. For some of the fastest-growing economies in recent times such as China and India, as well as Ethiopia, Rwanda, Bangladesh, and Ghana, the general tenor was about the need to find ways to resurrect their earlier fast growth and strides in development. For many of the other countries struggling on the eve of the crisis, such as Lebanon and Nigeria, as well as much poorer and rather stagnant countries such as Sierra Leone and Malawi, it was hardly about building back because the recent past was dismal. Instead, populations were hoping for a way out of the growth and development traps in which their countries found themselves.

In fact, expectations were high, and politicians everywhere were scrambling to take the initiative. With finance from both East and West more constrained and global cooperation under duress, pressure to ensure that even the poorest countries would find economic recovery models consistent with climate goals was not making matters simpler. Meanwhile, development experts, practitioners, and others were tossing out prescriptions for what developing countries should or could do. And this is what worried me and why I wrote this book. Often those espousing or considering solutions lack a basic understanding of what has been going on in recent decades, even some of those prescribers most passionate about international development.

I have been struck by how large the gulf is between the narratives on development challenges and solutions and the actual practice of development that has led to progress on the ground.

For one thing, the ‘developing world’ is no longer clearly defined in terms of living standards, poverty, health, or other development statistics. Today, some economies and societies with both the highest and lowest rates of economic growth and development progress are equally described as ‘developing’. For another, during my years working as an academic at the University of Oxford and in the UK government department devoted to international development, I have been struck by how large the gulf is between the narratives on development challenges and solutions and the actual practice of development that has led to progress on the ground. This gulf, found both in academic circles and within international or nongovernmental organisations concerned with development, is worth bridging because too much poorly thought-out advice and international aid are being doled out. [My] book, then, can contribute to development being ‘done better’.

Finally, I want to move on from the endless talk and writing about what needs to be done as if there were a silver bullet that would enable countries to pursue successful development. Those of us in the development community are told to ‘focus on the Sustainable Development Goals’, ‘get economic policies right’, ‘commit to green growth’ or ‘build institutions so you can develop’—in fact, everyone seems to have their own recipe for development. And yet most of these recipes come with few instructions about how to prepare the dish—that is, how to make development happen in a practical sense—and with few explanations of why reasonably sensible steps are taken in some places but not in others. [My] book, then, is about how and why development has come about here and not there—that is, the failures and, especially, the recent successes.

Why successes and failures? The core argument

I changed my mind about how development comes about after spending some time travelling in China. It was not simply because China is a growth and development success story, at least in terms of moving from a desperately poor country with high levels of deprivation to one that has grown quickly and eradicated the most extreme forms of poverty. Rather, my trip convinced me that the development community is learning the wrong lessons from its success.

Successful growth and development requires the presence of a development bargain—that is, an underlying commitment to growth and development by members of a country’s elite.

What China did no doubt worked for its take-off. I suspect no other country can pull it off in the same way. Indeed, if this state-led model was to work anywhere, it was bound to be in China: no other country of any scale has exceeded its two-thousand-year history as a centralised state, with its well-oiled bureaucratic machinery and centralised taxation. And yet success in China came about only from the 1980s onwards. So what made the difference in a way that has more in common with other successes? It was the shift in China after 1979 towards a fundamental commitment by its leaders to growth and development—indeed, they staked their own political legitimacy as a one-party state on offering their citizens better living conditions through growth and development. It was a gamble, no doubt, and it could have backfired, either economically or politically.

This example leads to my core argument.

First, so much attention is paid to the specific blueprints for development, and yet successful countries appear to have pursued a relatively diverse set of economic and other policies. Countries that have achieved their development goals have achieved broadly reasonable macroeconomic stability, invested in infrastructure and in health and education, managed their natural resources prudently, provided a reasonable investment environment for private sector growth, allowed the market to play a central role but with a broadly supportive state, focused on international trade, and avoided specific firms or families cashing in to an extreme extent on connections to the state. Moreover, specific programmes have helped to further reduce poverty. The group involved is broad: with the usual suspects such as the Republic of Korea, Taiwan, Thailand, Malaysia, and Indonesia, as well as more nascent successes in the last few decades, such as India and Bangladesh, or Ethiopia and Ghana. However, these countries have at times pursued a rather diverse set of policies and priorities. There is no one, cost-free path to development. Even some broadly successful countries have embraced policies that were costly to their economy. Crucially, learning from mistakes is intrinsic to success—and having structures that make this feedback loop possible is no doubt critical.

Second, a better understanding is needed of why some countries implemented sensible economic and other policies, while others never did, despite often claiming they would as part of arrangements with international funders. Even though both sets of countries adopted the same rhetoric, those that were far less successful did not appear to take actions consistent with growth and development. It would be naive to suggest that these nations and their leaders simply did not know what to do—it was not just a question of ignorance or lack of good advice. Understanding why the rhetoric was followed by action in some places and not in others is at the centre of understanding how development works.

Third, successful growth and development requires the presence of a development bargain—that is, an underlying commitment to growth and development by members of a country’s elite (the people within the fabric of society, the economy, and politics who make decisions or can disproportionately influence them). Three conditions need to be satisfied:

  • Durable political and economic deals among the elite, to start with on peace and stability. Long horizons are required for growth and development; conflict and instability shorten horizons in political and economic decision-making.
  • A mature, sensible state. Few people studying development would claim that the state does not play a role in it, but there are huge differences in how much the state takes on in the quest for development. This is true even in successful cases, as well as in failures. Success requires finding a balance between what the state should do and what it can do—and local circumstances will dictate what this is.
  • Ability to learn from mistakes and correct course. There is no recipe for finding the right way of igniting and sustaining growth: it is a gamble. Success is not guaranteed, errors will be made, and confidence in leaders will at times be eroded. Stability may be threatened as some in the elite gain less or even lose. The need to correct will test the economic and political deal. Nevertheless, finding ways to correct course is essential for success, which will depend on mechanisms to hold to account those entrusted with implementing the deal.
Learn more with the key findings of the OECD report
"The Short and Winding Road to 2030: Measuring Distance to the SDG Targets"

The development bargain

The idea of a development bargain is not simply a restatement of ‘good institutions matter’, as in a shared set of laws, informal norms, or understandings that constrain economic or political behaviour. No doubt they do matter—how could anyone disagree?—but understanding change doesn’t simply follow from what some researchers appear to call for: reduce political, legal, and societal structures to their historical roots. Even successful countries have quite diverse histories. In fact, several of the success stories described in [my] book did not necessarily have strong institutions at the time of take-off. Even China, after the nationalist and Maoist eras of the preceding half-century, hardly had strong institutions to deliver the kind of take-off it achieved post-1979. The political and economic elite have much more agency than is usually allowed by the historical approach to institutions.

A development bargain is just one of many possible deals among the elite. Any stable elite bargain is not just a political deal, but also an economic deal about access to and distribution of the resources of the state and the economy. In a development bargain, this economic deal is centred around pursuing growth and development. It needs to provide the basis for peace and stability, and it determines the extent to which the state apparatus is best used in pursuit of economic progress.

Development isn’t just a ‘one-term’ political programme. How this consensus, this bargain, is obtained or sustained manifests itself in varying forms from place to place and period to period. One thing is clear: when those in the political and economic elite move towards longer-term growth and development, they are making a bet that may not pay off. The elite tend to gain from the status quo—that is, the political system and the economy are built to serve them. Elites that move towards growth and development, with the long-term perspective that it requires, tend to gamble that restraint and lower gains in the short term may pay off later. Vested interests are bound to be affected, and the risks to their own position are obvious. The elite are thus gambling on development.

A development bargain does not simply consist of specific development goals or targets, such as a public signing of the Sustainable Development Goals. It is much more than that, even if far less specific: it is an implicit contract among those who can make development happen. […] [And] despite the grim picture I paint of the experience of some countries, I remain hopeful. So many countries that seemed to be basket cases only a few decades ago have improved dramatically, even if not yet reaching living standards that people deserve. The lives of billions of people are better now than I thought they would be, despite the odds. Political and economic leaders, intellectuals, academics, and citizens in general in those failing places that risk staying further behind would do well to learn the lessons from these successes—and dare to gamble on development.

In the last thirty years, the developing world has undergone tremendous changes. Overall, poverty has fallen, people live longer and healthier lives, and economies have been transformed. And yet many countries have simply missed the boat. Why have some countries prospered, while others have failed?
Find out more with Gambling on Development: Why Some Countries Win and Others Lose,
by Stefan Dercon
(©C. Hurst & Co). Available in Hardback and as an eBook.